In early June, a rumour began to circulate – which was widely reported in the Indian press as true – that the government of Saudi Arabia had allowed its petrodollar agreement with the United States to lapse. This agreement, made in 1974, is quite straight-forward and fulfils various needs of the US government: the US purchases oil from Saudi Arabia, and Saudi Arabia uses that money to buy military equipment from US arms manufacturers while holding the income from the oil sales in US Treasury Bills and in the Western financial system. This arrangement to recycle oil profits into the US economy and the Western banking world is known as the petrodollar system.
This non-exclusive arrangement between the two countries never required the Saudis to limit their oil sales to dollars or to recycle their oil profits exclusively in US Treasury Bills (of which it holds a considerable $135.9 billion) and Western banks. Indeed, the Saudis are free to sell oil in multiple currencies, such as the Euro, and participate in digital currency platforms such as mBridge, a trial initiative of the Bank of International Settlements and the central banks of China, Thailand, and the United Arab Emirates (UAE).
Nonetheless, the rumour that this decades-long petrodollar agreement had come to an end reflects the widespread expectation that a seismic shift in the financial system will overturn the rule of the Dollar-Wall Street regime. It was a false rumour, but it carried within it a truth about the possibilities of a post-dollar or de-dollarised world.
The invitation extended to six countries to join the BRICS bloc last August was a further indication that such a shift is underway. Among these countries are Iran, Saudi Arabia, and the UAE, although Saudi Arabia has yet to finalise its membership. With its expanded membership, BRICS would include the two countries with the largest and second largest gas reserves in the world (Russia and Iran, respectively) and the two countries that accounted for nearly a quarter of global oil production (Russia and Saudi Arabia, all figures as of 2022). The political opening between Iran and Saudi Arabia, brokered by Beijing in March 2023, as well as the signs that the US allies UAE and Saudi Arabia seek to diversify their political linkages, demonstrate the possible end of the petrodollar system. That was at the heart of the rumour in early June.
Hellbound and Down 