Saudi Arabia Ends 75-Year Petrodollar Agreement with the U.S.: A New Era in Global Economics?

• Saudi Arabia, which has been under a petrodollar agreement with the United States for the last 75 years, has announced that it will not be renewing the contract in 2024.
• This move allows Saudi Arabia to trade its oil using either its national currency or other currencies like the Chinese yuan.
• Saudi Arabia’s decision not to renew the petroleum agreement with the United States indicates its desire to strategically fulfil its interests without prioritizing those of others.

Saudi Arabia, which has been under a petrodollar agreement with the United States for the last 75 years, has announced that it will not be renewing the contract in 2024. This agreement allowed Saudi Arabia to sell oil to other countries using the American dollar, which has been a significant factor in maintaining the supremacy of the American currency. The decision to end this agreement marks a major shift in global economic dynamics.

This move allows Saudi Arabia to trade its oil using either its national currency or other currencies like the Chinese yuan. This development poses a significant threat to the American dollar, which is already considered to have diminished in value compared to its previous status.

Strained Relations the Motive?

Relations between Saudi Arabia, led by Prime Minister Mohammed bin Salman, and the United States have been strained over several issues. Saudi Arabia is unhappy with what it perceives as U.S. interference and the creation of instability in the Middle East, where Saudi Arabia seeks to maintain a leadership role. The U.S. has also been urging Saudi Arabia not to align with the Eurasian bloc led by Russia and China. However, Saudi Arabia aims to diversify its military arsenal and international relationships.

This shift in behaviour is largely due to the significant economic and resource dependency the United States has on countries like Saudi Arabia. The U.S. relies heavily on oil from regions such as West Asia, which are under the influence of OPEC+ members, including Russia. These countries have not been willing to increase oil production, creating a significant challenge for the United States. Thus, while Saudi Arabia may feel forced into this situation due to global oil dynamics, this pressure has not been well received by Saudi counterparts.

Role of the Israel-Palestine War

The differences between Saudi Arabia and the United States can also be observed in their stance on the recognition of Israel. During Trump’s presidency, the United States attempted to include Saudi Arabia in the Abraham Accords, but this effort was unsuccessful. Although Saudi Arabia has allowed connectivity between its mainland and Israel, it has not yet politically recognized Israel.

Many reports indicate that Saudi Arabia has set forth very expensive demands in exchange for recognition. Specifically, Saudi Arabia seeks a security guarantee from the United States similar to those extended to other allies. Additionally, Saudi Arabia wants the United States to help establish a nuclear power plant within its borders to generate civilian electricity. This demand highlights Saudi Arabia’s desire for a comprehensive and strategic partnership with the United States, encompassing both security and energy needs.

Saudi Arabia’s decision not to renew the petroleum agreement with the United States indicates its desire to strategically fulfil its interests without prioritizing those of others. This move also suggests that Saudi Arabia is seeking an independent policy concerning its domestic and international standards. Such a shift is likely to create significant problems and concerns for the United States in the future.