Benzinga – by Bibhu Pattnaik, Benzinga Staff Writer.
Experts have debunked widespread social media claims about a “petrodollar” agreement between the U.S. and Saudi Arabia, which allegedly required the latter to price its crude oil exports in U.S. dollars.
What Happened: Social media platforms were abuzz with rumors about the collapse of a supposed 50-year-old “petrodollar” agreement between the U.S. and Saudi Arabia, as reported by MarketWatch on Saturday.
The rumored agreement supposedly mandated Saudi Arabia to price its crude oil exports in U.S. dollars. Its alleged collapse was predicted to significantly impact the U.S. dollar’s status as the global reserve currency.
However, experts from Wall Street and foreign-policy sectors have dismissed these claims, asserting that such an agreement never existed.
“The evidence for any kind of conspiracy is thin to nonexistent,” an analyst at Eurasia Group Gregory Brew told MarketWatch on Friday. “There is a very clear record of both the Americans and the Saudis being concerned in the aftermath of the global oil shock of what Saudi surpluses would do to the global economy.”
“It was a very common-sense solution to a mutual problem,” he added.
It was also rumored that Saudi Arabia is planning to replace the petrodollar with the Chinese yuan, which signal an economic shift towards East Asia and away from the U.S. However, experts have cautioned that the situation is more nuanced, as Saudi Arabia’s relations with Washington appear to be improving.
In a post on X on Friday, Brew said that the “rumors regarding the U.S.-Saudi agreement ‘expiring,’ triggering the end of dollar dominance, are total nonsense.”
I didn’t want it to come to this, but you all have left me no choice: rumors regarding a 50yr US-Saudi agreement “expiring,” triggering the end of dollar dominance, are total nonsense.
A thread: pic.twitter.com/4JbRcwFXzs
— Gregory Brew (@gbrew24) June 14, 2024
Paul Donovan, chief economist at UBS Global Wealth Management, labeled the rumors as “fake news” in a blog post published on Friday.
Donovan confirmed with the outlet that an agreement was signed in June 1974, but it was unrelated to currencies. The agreement, known as the United States-Saudi Arabian Joint Commission on Economic Cooperation, was intended to last five years but was repeatedly extended.
Donovan noted that even after the 1974 agreement, Saudi Arabia kept accepting other currencies, like the British pound, for its oil. The most similar arrangement to a petrodollar deal was a confidential agreement from late 1974. This deal had Saudi Arabia investing billions from its oil sales into U.S. treasuries in return for military assistance and equipment.
Why It Matters: Despite recent indications of Saudi Arabia being more open to accepting other currencies for its oil sales, experts believe that the country’s close economic and military ties with the U.S. will continue to encourage it to seek dollars as its primary form of payment.
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