A petrodollar agreement between the United States (US) and the Kingdom of Saudi Arabia (KSA) has expired. As per reports, the Gulf country has decided not to renew the deal that expired on June 9.
The move might be interpreted as a global finance paradigm shift away from the USD as a reserve currency. The dissolution of the agreement may have repercussions and consequences for the United States.
The agreement represented a significant milestone in the United States' worldwide economic dominance. So far, there has been no formal confirmation to renew it.
The 50-year-old accord has huge geopolitical and economic ramifications. It helped shape the global energy market and influenced international relations.
The petrodollar system was established in 1974 as part of a bilateral agreement between the United States and Saudi Arabia. Both countries agreed to price and trade oil in US dollars.
With oil standardized in dollars, every country buying oil from Saudi Arabia would have to pay in dollars. Several other countries that produce oil also began to standardize their oil prices in US dollars, bolstering the petrodollar system.
In exchange, the United States provided the Saudis with military backing and security assurances, maintaining their stability and safety from foreign threats. Meanwhile, Saudi Arabia decided to invest its oil income in US assets, principally Treasury securities, which helped fund US deficits and stabilize the currency.
The key decision not to extend the deal allows Saudi Arabia to sell oil and other items in a variety of currencies, including the Chinese RMB, Euros, Yen, and Yuan.