Saudi Arabia Considers Global Trade in Non-Dollar Currencies

Saudi Minister of Finance Mohammed Al-Jadaan (C) attends the Euromoney conference in the Saudi capital Riyadh on May 2, 2018. FAYEZ NURELDINE/AFP via Getty Images

Saudi Arabia, the world’s largest crude oil exporter, is considering trading in currencies other than the U.S. dollar, a kingdom official revealed.

Mohammed Al-Jadaan, a Saudi minister of finance, told Bloomberg TV in Davos, Switzerland, on Jan. 17 that officials are open to potentially utilizing other currencies as the energy juggernaut bolsters relations with its strategic partners.

“There are no issues with discussing how we settle our trade arrangements, whether it is in the U.S. dollar, whether it is the euro, whether it is the Saudi riyal,” he said. “I don’t think we are waving away or ruling out any discussion that will help improve the trade around the world.”

He noted that Riyadh maintains a “very strategic relationship” with the United States, China, Europe, and “other countries who are willing and able to work with [Saudi Arabia].” The Saudi minister noted that the kingdom is partnering with multilateral institutions to support nations that it considers “vulnerable,” including Egypt, Pakistan, and Turkey. This includes increasing its foreign-currency reserves, extending deposits and grants, and providing oil and other petroleum products.

Since the 1970s, the Saudi Arabian currency has had a currency peg to the U.S. dollar. Over the past few decades, the kingdom has played a critical role in sustaining the petrodollar system that prices crude oil exports in the dollar. Today, 80 percent of international oil transactions are priced in dollars.

Over the past year, the strength of the U.S. dollar has been a problem for foreign markets because a stronger dollar makes dollar-denominated commodities more expensive to purchase. The U.S. Dollar Index (DXY), a measurement of the U.S. currency against a basket of currencies, surged last year, but it’s been on a decline since November 2022.

De-Dollarization in Oil Markets?

In March 2022, The Wall Street Journal reported that Riyadh was mulling over a plan to price its crude sales to Beijing in the Chinese yuan. The newspaper noted that the kingdom had become increasingly frustrated over U.S. President Joe Biden and his administration, and it was looking to shift its focus to more amenable Asian markets, including China.

Chinese leader Xi Jinping (R) and Russian President Vladimir Putin attend a meeting with members of the Business Council and management of the New Development Bank during the BRICS summit in Brasília, Brazil, on Nov. 14, 2019. Pavel Golovkin/Pool/AFP via Getty Images

Last month, China and Saudi Arabia reiterated the importance of global oil market stability and enhanced bilateral economic and trade cooperation. This included both sides agreeing to expand crude oil trade.

“The People’s Republic of China welcomed the kingdom’s role as a supporter of the balance and stability in the world oil markets, and as a reliable major exporter of crude oil to China,” the joint statement reads.

Chinese leader Xi Jinping told Gulf Arab leaders that his government would attempt to purchase oil and gas in yuan, which would support Beijing’s broader efforts to boost the currency in cross-border transactions and weaken U.S. dollar hegemony. With more oil-rich states turning to China, there’s been an abundance of speculation that there could be a rise of a so-called petroyuan.

Ray Dalio, founder of Bridgewater Associates, warned that the global economy is on the brink of a new era, telling Nikkei Asia that the days of globalization and a “dollar-dominated world order” are “fading away.”

“We are now going to have the major powers and their allies form economic, currency, and military blocs,” he said.

During the 14th BRICS summit in June 2022, it was announced that the five member economies—Brazil, Russia, India, China, and South Africa (BRICS)—plan to introduce a “new global reserve currency.”

“The matter of creating the international reserve currency based on the basket of currencies of our countries is under review,” Russian President Vladimir Putin said in a statement. “We are ready to openly work with all fair partners.”

Market experts believe that the system would involve a basket-based reserve currency made up of the South African rand, Brazilian real, Russian rouble, Indian rupee, and Chinese yuan. The objective is to ostensibly undermine the supremacy of the U.S. dollar and the International Monetary Fund’s (IMF’s) Special Drawing Rights, according to Chris Turner, global head of markets and regional head of research for the UK and Central and Eastern Europe at ING.

“One can only think this is a move to address the perceived U.S.-hegemony of the IMF and will allow BRICS to build their own sphere of influence and unit of currency within that sphere,” Turner wrote in a note.

“Without discussing the likelihood of such a proposal turning into something tangible, Russia may have a strong motivation to participate or initiate in an IMF-like scheme in order to address the mounting pressure on its capital account.”

The global campaign to dismantle the dollar’s influence in international markets may not transform the global economy anytime soon—or at all—but some financial analysts contend that it’s unfolding now in the global oil industry.

“We are witnessing the birth of Bretton Woods III—a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the eurodollar system and also contribute to inflationary forces in the West,” Zoltan Pozsar, Credit Suisse global head of short-term interest rate strategy and a former Federal Reserve and U.S. Treasury Department official, wrote in a note.

West Texas Intermediate crude oil futures rose by about 0.9 percent to just below $81 on Jan. 17 on the New York Mercantile Exchange. Brent crude prices topped $86 per barrel on London’s ICE Futures exchange.