EDITOR'S NOTE: Saudi Arabia, the world’s largest crude oil exporter, has been instrumental in upholding the hegemonic status of the US dollar, aka “petrodollar.” But it appears that’s about to change. The country is now open to currencies other than the US dollar, and it’s likely that China, the world’s largest crude oil importer, will advance its own currency for the oil trade. What would happen if Saudi Arabia decides to no longer uphold the petrodollar’s hegemony? For starters, it would cause a decrease in US dollar demand for US dollars which would in turn cause a decrease in the value of the dollar. This could also prompt other countries to follow suit. Over time, this would lead to tensions between the US, Saudi Arabia, and other “de-dollarizing” countries, causing a major shift in global economic relations and sinking the value of the US dollar in the process. How close is Saudi Arabia to dumping US dollars in its oil trade? Read on.
Saudi Arabia, the world’s largest crude oil exporter, is open to discussing oil trade settlements in currencies other than the U.S. dollar, Saudi Minister of Finance, Mohammed Al-Jadaan, told media outlet Bloomberg in Davos on Tuesday.
If the Saudis were to open to talks about oil trade arranged in non-dollar currencies it would represent a significant threat to the current dominance of the U.S. dollar in the global oil trade.
“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,” Al-Jadaan told Bloomberg TV.
“I don’t think we are waving away or ruling out any discussion that will help improve trade around the world,” the Saudi minister added.
The Saudi riyal has been pegged to the U.S. dollar for decades, while the Saudi oil exports continue to support the petrodollar system from the 1970s in which the world’s top oil exporter prices its crude in U.S. dollars.
In recent years however, Saudi Arabia has shown a willingness to step up its strategic cooperation in oil trade with China, the world’s largest crude oil importer.
Last month, China and Saudi Arabia agreed to expand crude oil trade as they upgraded their relations to a strategic partnership during the visit of Chinese President Xi Jinping in the Saudi capital Riyadh.
China is eager to thrust its own currency, the yuan, to the fore in international oil trade.
During a visit to Saudi Arabia last month, Xi Jinping pledged to ramp up efforts to promote the use of the yuan in energy deals. He proposed at a summit in the Saudi capital that the Gulf Cooperation Council (GCC) countries should make full use of the Shanghai Petroleum and Natural Gas Exchange to carry out its trade settlements in yuan.
Originally published at TVP World