50 years ago, the US signed a deal with the Saudis to accept USD for their oil… this agreement is coming to an end this Sunday, June 9th, 2024, and thus could be the end of the Petrodollar.

The question is, will the Saudis renew? From all indications, no they will not renew the contract going forward. This means the Saudis are willing to accept other nations’ currencies or Gold as payment, and they are looking to BRICS for alliances.

Yes the US is now a big producer of Oil and Natural Gas, but that’s not enough to sustain the world currency reserve status.  The Saudis and OPEC could easily drop oil prices to $40 a barrel and still make money, US fracking needs a much higher price to be sustainable. The fact is, the Saudis will most likely join BRICS, and their oil (and Russia’s oil) is more than enough to supply all the BRICS nations.  Oil could be used to support and back up the Saudi currency, and the same goes for UAE, which also has joined BRICS recently.

BRICS are moving away from the Dollar and will soon trade amongst themselves in their own country’s currencies, and other assets like GOLD and other commodities.

For 50 years, the USD had a global advantage over all other currencies and they abused it over the last decade, that dominance has given the US an unfair competitive advantage. Nations around the world are dropping the dollar like a hot potato and that trend only accelerates going forward.

I can’t see any reason for the world to stay on the dollar standard as the world currency reserve. The World is moving on and the USD is no longer a strong currency to be a reserve… which is why GOLD will stay strong and in demand during this transition period.

What Was the Petrodollar?

The term “petrodollar” refers to U.S. dollars that are earned by countries through the sale of their oil to other nations. The concept emerged in the early 1970s when the U.S. struck a deal with Saudi Arabia. In exchange for military protection and other security guarantees, Saudi Arabia agreed to sell its oil exclusively in U.S. dollars. Eventually, this arrangement extended to other OPEC (Organization of Petroleum Exporting Countries) nations. This system created a substantial demand for the U.S. dollar since countries needed dollars to buy oil.

Was the Petrodollar Good for the World?

The petrodollar system had several impacts:

Stability and Liquidity: The system provided global financial stability and liquidity. The high demand for U.S. dollars due to oil transactions supported the dollar’s value, reducing currency volatility

Economic Growth: It facilitated economic growth and trade. Countries holding large reserves of U.S. dollars could invest in U.S. assets, fueling global economic integration.

Power Dynamics: It reinforced U.S. economic and geopolitical influence, which could be seen as either beneficial or detrimental depending on the perspective.

Global Imbalances: It contributed to global imbalances, with the U.S. running large trade deficits financed by foreign investments in U.S. assets.

Will We Go Off the Petrodollar Standard?

There is increasing speculation about the end of the petrodollar system due to various factors:

Economic Shifts: The rise of other economic powers like China and the European Union could reduce the dominance of the U.S. dollar.

Alternative Currencies: Some countries are exploring alternative currencies for oil transactions. For example, Russia and China have been conducting some oil trades in rubles and yuan.

Cryptocurrencies and Digital Currencies: The emergence of digital currencies could provide alternatives to traditional currency systems.

Geopolitical Tensions: Rising geopolitical tensions might push some countries to seek alternatives to the U.S. dollar to avoid economic sanctions.

Benefits of Going Off the Petrodollar Standard

Diversification: Diversifying currency reserves could reduce dependency on a single currency, mitigating risks associated with dollar fluctuations.

 Economic Independence: Countries might gain more economic independence, reducing their vulnerability to U.S. economic policies and sanctions.

Enhanced Stability: A more balanced global currency system could potentially lead to greater economic stability.

Better Alternatives to the Petrodollar Standard

Multicurrency System: A system where multiple currencies are used for international trade could reduce reliance on any single currency, promoting global economic stability.

Special Drawing Rights (SDRs): The International Monetary Fund’s (IMF) SDRs could serve as a global reserve asset, providing a more balanced and stable global financial system.

Digital Currencies: Central bank digital currencies (CBDCs) could provide secure and efficient alternatives for international transactions.

Role of Gold in the Petrodollar System

Gold could potentially play several roles:

Store of Value: Gold has historically been a reliable store of value, providing stability in times of economic uncertainty.

Currency Backing: Countries could use gold to back their currencies, enhancing confidence in those currencies.

Diversification: Holding gold as part of currency reserves can diversify assets and reduce reliance on any single currency.

Conclusion

The petrodollar system has been a significant factor in global economics and geopolitics since the 1970s. While it has provided stability and growth, there are increasing discussions about moving away from this system due to shifts in global power, economic interests, and technological advancements. Alternatives like a multicurrency system, SDRs, and digital currencies are being considered. Gold remains a viable asset for diversification and stability in any future financial system.

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