What is a Petrodollar?
The petrodollar is a special currency that is given to countries that export large amounts of oil. Petroleum dollars are a major source of income for (OPEC) members and other oil-producing nations, an international organization of oil-producing nations.
Just a few months ago, there was a rumor that Saudi Arabia was going to stop trading oil in US dollars, although a Saudi Arabian Official issued no statement and the biggest thing is that the US And there is no formal agreement between Saudi Arabia to sell oil in US dollars.
Such talk is also circulating because the impression is being spread that the value of the dollar is depreciating in international trade, such as the BRICS group and other countries in the region, including the Middle East and Asia, for cross-border payments. Local currencies are being used.
People may be wondering what exactly a petrodollar is. Basically, the petrodollar is used to refer to the term Saudi Arabia uses to buy US Treasuries from oil sales to the US. The commitment has been expressed.
America and Saudi Arabia in 1974
Let us look at the background of the Petrodollar Agreement, which is said to have been initiated by the Nixon administration.
This story actually takes place during the ongoing Vietnam War, when the United States was suffering from high inflation and a large deficit in the current account, due to which the national currency of the United States, the dollar, began to fall, and day by day the American Gold reserves were also dwindling.
Realizing this condition of financial stress, in 1971, the USA abruptly ended the gold peg of the dollar, which was the main point of the Bretton Boards Agreement for a fixed exchange rate international monetary system.
In the absence of a single global currency, major currencies began to float against each other in 1973, and the oil shock also occurred when the Organization of the Petroleum Exporting Countries (OPEC) broke up during the Yom Kippur War.
At the same time, the Organization of Petroleum Exporting Countries (OPEC) cut oil production and banned oil shipments to the United States indefinitely.
Securing Power: The Nixon Administration’s Strategic Diplomatic Mission to Saudi Arabia
In the face of this enormous economic and political uncertainty, as well as other major issues, as Watergate was coming to an end, the Mixon administration launched a diplomatic mission to Saudi Arabia as well as other countries. A diplomatic campaign was also launched with Saudi Arabia to promote the partnership and global trade and oil shipments.
The main objective of this diplomatic mission was to start oil transactions with dollars in exchange for oil sales with Saudi Arabia, in exchange for bringing those dollars back into the Treasury bond market to improve the American fiscal deficit. Along with this, in exchange for the supply of oil to Saudi Arabia, the provision of American military equipment and the protection of national security were promised to Saudi Arabia in case of danger at any time.This agreement and diplomatic efforts reinforced that despite the fact that the United States was reeling from all kinds of turmoil and financial instability at the time, this agreement showed that it was determined to set the international agenda. Has retained its status and power. The agreement promoted the use of the dollar in oil and commodity trade while creating a stable source of demand for US Treasuries and strengthening the dollar’s market position as the world’s key reserve financing and transactional currency.
A brave new world
Although the United States got a lot of convenience from this agreement, the,ir economy became stable, and they got peace; for the next 50 years, The power that used to be in the hands of the United States started to reverse.
The situation began to change even more when its share of the world’s gross domestic product declined from 40 percent to 25 percent in the 1960s. The region’s second major power, China, improved its economy, and China’s economy began to overtake the United States in terms of power parity.
In view of this situation, the United States now has to deal with the growing power and influence of Beijing while also facing pressure from allies such as Europe and other countries, which are currently less dependent on Washington in matters of financial and foreign policy. Those who Want to be independent.
The Evolving Dynamics of the US-Saudi Relations in a Changing Global Oil Market
On the other hand, many countries have begun efforts to develop alternative cross-border payment arrangements for the dollar to better deal with the risk of Washington’s increased use of economic and financial sanctions and, in any situation. Thus, The risk can be reduced.
On the other hand, this change has also been seen in the United States. Its dependence on Saudi oil has decreased due to the shale revolution, and the second fact is that the United States has become the largest net exporter of oil in the world.
America still imports oil from Saudi Arabia, but the volume of this oil has decreased a lot compared to before.
Saudi Arabia is still producing oil with the same frequency, unlike the US; this time, China has emerged as the largest oil consumer of Saudi Arabia. China, meanwhile, has forged closer trade ties across the Middle East, which has reduced US imperial influence in the region.
The dollar’s global dilemma
A change in currency tenor or interest from Saudi Arabia is a small but symbolic gesture towards dollar depreciation. Large and economically stable countries are now starting to use their national currencies for cross-border trade and investment transactions, so one of the basic steps is to ensure that there is no major power influence.They are creating currency exchange arrangements between participating central banks and linking national payment and settlement systems.For now, the use of local or national currencies for cross-border payments is being taken up as a pilot phase as this low-income country relies on foreign exchange and hedging markets to support dollar-less economic activities or To enable direct exchange of local currency pairs as an economic vehicle.Some Economic indicators show that many countries have accepted this value as necessary to reduce their dependence on the dollar. While the strength of the dollar is likely to become even less influential going forward, digital currencies are gaining momentum due to the advent of new technologies, such as tokenization, which will greatly reduce such costs.
The Evolving Role of the Petro-Dollar Amid Global Financial Shifts and Tokeniza tion”
Another big change in large transactions has been seen over the last few years as the digital payment ecosystem has started to focus on what is being accepted as tokenization units, such as CBDCs, thanks to advanced technology, or pegged to the dollar or a major currency such as cryptocurrency, is designed to be pegged to a reference asset.Although it is still a long time before the Tokenized currency is widely used in its commercial transactions, such an ecosystem will significantly reduce the need to hold reserves to ensure adequate liquidity for startups.If we look at the position or presence of the dollar in global trade, the share of the dollar in global reserves has decreased to 58.4 percent, which was 71 % in 1999.
Despite all the circulating news, the dominance of the dollar is likely to remain in the future as well. But on the other hand, the gradual democratization of the global financial landscape is also going on. This will give way to a new market or currency trend that will allow more local currencies to be used for international transactions.
Some of the value of the dollar will remain, but not as before. As an alternative, other local currencies such as the Euro, Japanese, and Chinese will fill the void, which will naturally be in accordance with the effects of the better economies of these countries.
If we consider the whole scenario, we arrive at the answer to the question of how Saudi Arabia has approached the petro-dollar as an important center of the financial future since its creation 50 years ago.
What countries use the PetroDollar?
The petro-dollar is used by many OPEC members besides Saudi Arabia, and non-OPEC oil and gas exports, including the dangerous Russia, are considered a major source of wealth and income for the poor.
Did the PetroDollar agreement end?
At the moment, news is circulating in the media that the petrodollar agreement between the United States and Saudi Arabia is going to end long ago, although no such agreement ever existed.
Has Saudi dropped the dollar?
According to the changing trend of the global economy and global politics, there are currently speculations that the Saudi kingdom is going to gradually change its oil pricing policies that it was going before, and even That petrodollars are also going to cancel security arrangements for dollars, but any official media have not confirmed this.
Who invented the petrodollar?
The petrodollar system was established in 1973 through an agreement between the United States and Saudi Arabia. Under this agreement, the Oil-producing countries agreed to price and trade oil in US dollars. According to the agreement of oil-producingOil countries in terms of dollars, any country that buys Oil from Saudi Arabia must use US dollars.