Saudi Arabia's petro-dollar exit: A global finance paradigm shift Katja HamiltonBy Katja Hamilton 10 Jun 2024 The financial world is bracing for a significant upheaval following Saudi Arabia's decision not to renew its 50-year petro-dollar deal with the United States, which expired on Sunday, 9 June, 2024.
The lapsed security agreement - signed by the United States and Saudi Arabia on 8 June 1974 - establishes two joint commissions, one on economic co-operation and the other on Saudi Arabia's military needs, and was said to have “heralded an era of increasingly close co-operation" between the two countries.
American officials at the time expressed optimism that the deal would motivate Saudi Arabia to ramp up its oil production. They also envisioned it as a blueprint for fostering economic collaboration between Washington and other Arab countries. Source: St Petersburg International Economic Forum. Russia's President Vladimir Putin. Putin confirms BRICS' independent payment system in the pipeline
The crucial decision to not renew the contract enables Saudi Arabia to sell oil and other goods in multiple currencies, including the Chinese RMB, Euros, Yen, and Yuan, instead of exclusively in US dollars. Additionally, the potential use of digital currencies like Bitcoin may also be considered.
This latest development signifies a major shift away from the petrodollar system established in 1972, when the US decoupled its currency from gold, and is anticipated to hasten the global shift away from the US dollar.
Cross-border CBDC transactions
In a more recent move, Saudi Arabia has announced its involvement in Project mBridge, a project which explores a multi-central bank digital currency (CBDC) platform shared among participating central banks and commercial banks. It is built on distributed ledger technology (DLT) to enable instant cross-border payments settlements, and foreign-exchange transactions.
The project has more than 26 observing members including the South African Reserve Bank, which was greenlighted as a member this month.
The better known observing members of mBridge are those of the Bank of Israel, Bank of Namibia, Bank of France, Central Bank of Bahrain, Central Bank of Egypt, Central Bank of Jordan, European Central Bank, the International Monetary Fund, the Federal Reserve Bank of New York, the Reserve Bank of Australia, and the World Bank.
In tandem, the project steering committee has created a bespoke governance and legal framework, including a rulebook, tailored to match the platform's unique decentralised nature.
Evolution of Project mBridge
Project mBridge is the result of extensive collaboration starting in 2021 between the BIS Innovation Hub, the Bank of Thailand, the Central Bank of the United Arab Emirates, the Digital Currency Institute of the People's Bank of China and the Hong Kong Monetary Authority.
In 2022, a pilot with real-value transactions was conducted. Since then, the mBridge project team has been exploring whether the prototype platform could evolve to become a Minimum Viable Product (MVP) – a stage now reached.
As it enters the MVP stage, Project mBridge is now inviting private-sector firms to propose new solutions and use cases that could help develop the platform and showcase all its potential.
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Couldn't find a single msm source even mentioning this potentially seismic event. Searched BBC with multiple different terms, nada. Here's another business/investment page corroborating it and interviewing some analyst downplaying the whole thing:
“The end of the US-Saudi petrodollar agreement would likely have a minimal effect on the USD,” said Daniel Krupka, Head of Research at Coin Bureau, in a note to Kitco Crypto. “This is because Saudi Arabia would likely convert the non-USD currencies it's receiving for oil payments into the USD anyways.”
“Although a BRICS currency may have some level of adoption, it would not be able to achieve the level of adoption similar to that of the USD, gold, or Bitcoin without being backed by a stable economy,” he added. “Neither party benefits from the end of the agreement in the short term as it effectively just complicates things. In the long term, it could make Saudi Arabia less reliant on the USD depending on what the country does with its non-USD proceeds.”
Touching on the draft defense treaty, Krupka said it “may maintain the bilateral relationship at the strategic level, but it does not directly replace the economic aspect of the petrodollar deal.”
He also noted that the “Saudi Riyal is pegged to the USD,” which means that “Saudi Arabia needs USD to support its currency.”
“However, the end of the agreement could be bad for the USD insofar as Saudi Arabia decides to convert these non-USD currency proceeds into other assets, such as gold or BTC,” Krupka suggested. “More diversification of Saudi assets into gold or Bitcoin could help push up prices, although this is contingent on the extent of diversification.”
"The symbolism of the end of the US-Saudi petrodollar agreement marks a shift toward a future that is further economically and geopolitically fragmented,” said Brian Mahoney, co-founder of Acre, in a note shared with Kitco Crypto. “It means that the world’s currency for top energy assets like oil is no longer priced just in dollars, opening the door to alternative assets instead.”
“Bitcoin would make sense as an asset to be explored for adoption going forward given its ties to energy companies (through its proof of work consensus mechanism) and the fact that it is the top digitally native asset by market cap in an increasingly digital global economy,” he added.
"Bitcoin would make sense as an asset to be explored for adoption going forward given its ties to energy companies (through its proof of work consensus mechanism) "
Swapping oil for Bitcoin is like swapping full oil barrels for empty ones:
One is an unused potential mass of energy... the other an empty token denoting a past energy consumption.
One is an unused potential mass of energy... the other an empty token denoting a past energy consumption.
Just an adjunct .. a minor one at that, it takes a lot of energy to mine the bitcoin, from memory, so, as far as energy is concerned, take that as a minus from the positive ledger.
... by the obscure sources or the idea that there even was a 50 year deal that could expire overnight. However he endorses the broader picture of SA gradually moving towards trading its remaining oil in different currencies, particularly the yuan. We await further clarification...
Some really interesting developments are happening apropos the banking and financial situation in Russia and the world.
Firstly, to set the stage: there’s the rumor going around that Saudi Arabia has allegedly declined to renew its purported “50-year Petrodollar deal”, signed—again, allegedly—on June 9th, 1974.
The problem is, there is no actual valid source reporting this: if you trace it down to its roots, it is originating from a bunch of fake obscure websites, like the old Sorcha Faal whatdoesitmean dot com types.
Sure, some fairly legitimate sites like Gateway Pundit are reporting it, but they are merely echo-chambering the story without a valid source. So, unfortunately, this story appears to be mostly fake. However, I think it’s mainly riffing on real events that have already been taking place. There doesn’t seem to be any precise 50 year deadline that just happened to expire days ago, but rather Saudi Arabia has already signaled that the deal is in effect null and void over the course of the last few years.
But the reason the story is actually extremely relevant either way, despite being a somewhat phony formulation of real ongoing events, is because of the other huge developments that are now breaking ground as we speak, and how the Saudi Petrodollar critically plays into it.
[...]
In short, all the current snowballing events are gearing up to potentially effect a massive black swan moment in 2025, which may shake the foundations of the entire Western financial system off its rails. And that’s where the Saudi situation comes in: KSA now sports full BRICS membership and has previously signaled willingness to accept Yuan for oil sales to China, so we know—at the least—the suggestion of Petrodollar demise is not conspiracy theory:
The big question is not where things will go, but how fast: their trajectory is nearly certain, it only remains to be seen how quickly the BRICS-adjacent countries can agree on mechanisms and muster the initiative to implement them into actual practice.
For decades the idea of abandoning the Dollar seemed ludicrous, particularly to smaller, less powerful nations who do not possess as much agency as a superpower like Russia. But now that Russia is showing them the way, pioneering the path forward and demonstrating there is nothing scary about breaking through that mental barrier of imposed colonial slavery and financial hegemony, we can expect the remainder of the world to quickly follow Russia’s lead; once the specter is shattered, it is akin to breaking through a psychological support floor or resistance ceiling in the stock market, after which things can plummet or skyrocket with an unpredictable runaway velocity.
In essence, the idea being conveyed is that we’re coming upon a time where it seems everyone is doubling down, going all in with their trump cards and ‘showing their hand’ in the parallel financial shadow war raging beneath the surface of the kinetic one. Russia clearly isn’t begging forgiveness and has instead doubled down on the dedollarization acceleration drive. It’s only a matter of time before things begin to unravel for the side left holding the skimpy cards, or whose bluff is called. Given that Russia and China’s fundamentals are sterling compared to that of the West—and in particular the U.S. with its outrageously swelling 126% debt-to-gdp—when it comes to debt structure, economic growth, unemployment, inflation, and all other key metrics, it’s clear to see who will be left with their pants down in the near future. That’s not to mention the bloodbaths we’re witnessing in global politics, with the deepstate-controlled factions taking a hiding, which will only be culminated by the Democrat’s presidential loss in 2024. In almost every way conceivable, 2025 stands to be a historic turning point year.Tell your story; Ask a question; Interpret generously http://storybythethroat.wordpress.com/tell-ask-listen/
on June 14, 2024, 11:57 pm