The End Of An Era: How The Demise Of Petrodollars Reshapes The Middle East
Asia
Business
The petrodollar ceased operations after the Saudi Arabian signed a pact with the United States of America on June 8, 1974. It marks 50 years of reign of the US Dollar being used as the transactional currency for crude oil exports. At the time, when the prices of oil rise, the currencies of the oil-producing nations strengthen against other currencies. The Middle East countries form the largest block of oil-producing countries. The petrodollar system has been of great benefit to ensure that the US dollar continues to have great value and is the global primary reserve. A secret was however revealed by Bloomberg (2016) that the US would acquire oil from Saudi Arabia and in return provide Saudi Arabia with military aid. Saudi Arabia would then access investment in the US Treasury bills and bonds. The end of the petrodollar agreement between Saudi Arabia and the US as of 9th June 2024 raises various implications. The Saudi Arabian government is now free to use other types of currencies such as the Chinese Yuan and Russian Ruble, which could alter the energy sector as well as influence the growing economies. This means that the US dominance and power could decline in global trade and politics as the use of the US dollar in the trading of oil in the Middle East declines. The weakening of the dollar could lead to higher inflation and interest rates in the US, making investors trade metals such as gold, silver, palladium, and platinum. However, it will take some time before the full effects are experienced in the global arena. Governments must thus be prepared to deal with the uncertainties that may occur in the trade of oil and currencies due to global shifts.
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