New Threats to the Petrodollar System
Over time, however, geopolitical realities evolve and Saudi willingness to engage in non-dollar oil trades finally became a publicly-stated policy of the KSA regime in January 2023. As we reported here at mises.org last year, the Saudi finance minister stated that “There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal.” At the time, this was indeed a new development, and it was the end of a multi-year period during which there were persistent rumors that the Saudis would move away from the dollar. In 2019, for example, Arab News reported that Riyadh “has rejected the suggestion that it is considering selling oil in currencies other than the traditional US dollar.” By 2023, things had apparently changed.
Further changes in Saudi policy continued throughout the year. In mid-2023 the Saudis began to import record levels of fuel oil from Russia, further solidifying trade relations between the two countries. Given how Washington has attempted to cut Russia out of the dollar economy, growing trade between the Russians and the Saudis further drives a need for trade in currencies other than dollars. Then, in November of 2023, The KSA and Beijing signed a currency swap agreement designed to “expand the use of local currencies”—i..e, non-dollar currencies.
Breaking Free of the US Axis
Taken by themselves, these developments might seem like no big deal. After all, the Saudi riyal currency is still pegged to the dollar—for now. Taken in the larger context, however, these recent developments illustrate how the Saudis are moving away from the established monetary and geopolitical order that the US has imposed on nearly the entire world since the end of the Cold War.
In March of 2023, the Saudis participated in a China-brokered deal to re-establish diplomatic relations with Iran. The KSA had long been at odds with the Iranian regime as the two states vied for dominance in the Persian Gulf region. Naturally, Washington has encouraged the Saudis to help the US isolate Iran. Although the US publicly praised the China-brokered deal when it became public, the deal is clearly a blow to US influence in the region. Moreover, if there is any doubt that Washington privately disapproves, we need look no further than the fact the Israeli regime opposed the deal.
Six months later, a September 2023 report from the foreign policy think-tank Stimson concluded that Saudi movements away from the dollar were not mere bluffs from Riyadh. They were, rather, part of a larger diplomatic effort by the Saudis to gain more flexibility in dealing with major global powers like the Chinese and the Russians. Or, as the authors put it, the “Saudis are demonstrating that they have other options in the new multipolar world order.”
From the Saudi perspective, the US has provoked Riyadh’s disenchantment with its American “partner.” US criticism of the Saudi regime over the Jamal Khashoggi murder and the Saudi blockade of Qatar have not been forgotten in Riyadh. Moreover, some members of the US Congress continue to publicly raise uncomfortable questions about the Saudi regime’s connections to the 9/11 attacks. The fact that the Washington foreign-policy establishment mostly looks the other way on frequent human rights abuses in Saudi Arabia—while selling immense amounts of arms to the Saudi regime—is not enough to keep the Saudi regime complacent.
Other recent developments suggest this trend isn’t going away. For example, after receiving an invitation to the G-7 summit for the first time ever, the Saudi regime declined the invitation with Crown Prince Mohammad bin Salman claiming that he had to personally oversee Hajj pilgrimage activities in Mecca. Days later, the Crown Prince was nonetheless sure to send his foreign minister to Nizhny Novgorod in Russia for this week’s BRICS summit.
High-level personnel in Riyadh can apparently make time for BRICS—which Saudi Arabia has been invited to join, and which has become a de facto anti-US bloc—but not for the G-7.
The cooling relationship between Riyadh and Washington does not prove there will be an immediate and major change to the dollar economy or to the US’s continued dominance in the Middle East. The trend is nonetheless continued evidence of an ongoing relative decline in US control over global currency markets and the geopolitical order.
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