Forbes Piece: A Spate Of Recent Deals Raises Chatter Of A Fading Petrodollar

[Note: This piece was also published at Forbes.com]

Following up on last week’s assessment of the rapidly evolving complexion of the world order in crude oil trading, a spate of recent oil-related international deals raises questions about whether the dominance of the petrodollar is evolving as well. While no one has been surprised by Russia’s responding to western sanctions by pressuring its oil buyers to conduct transactions in roubles, recent deals made among other nations to conduct trades in crude and petroleum products using other currencies have raised more eyebrows.

Examples Of Recent Deals

So, what is all the chatter about? Here are a few examples of recent international deals and new alliances that are raising questions about the future of the petrodollar:

• On March 28, Brazil and China, two members in the increasingly influential BRICS Alliance, announced an agreement to conduct all future trade transactions using their own currencies. China ranks as Brazil’s biggest trading partner.

• On March 8, Reuters reported that “Indian customers have paid for most Russian oil in non-dollar currencies, including the United Arab Emirates dirham and more recently the Russian rouble, multiple oil trading and banking sources said.”

• On March 29, Saudi Arabia announced it has agreed to become a “dialogue partner” in the Shanghai Cooperation Organization, a China-led political, economic and security organization designed to compete with similar Western organizations. This latest indication of strengthening ties between Saudi Arabia and China came justjust weeks after the Kingdom and Iran announced an agreement to re-establish diplomatic relations that had been brokered by China.

• Also on March 28, French oil giant Total Energies announced it had completed its first purchase of liquefied natural gas (LNG) from Chinese oil company CNOOC using the Chinese Yuan as the currency.

These and other agreements conducted in recent months have led to speculation that, as oil markets continue to evolve, the petrodollar could be losing its influence.

Some Background

While a high percentage of international crude oil trades had long been conducted in U.S. currency, the petrodollar was more formally established as the global currency of mark for such trades in 1973, in the wake of the first Arab oil embargo. Then, the Richard Nixon administration executed an agreement with Saudi Arabian Prince Fand Ibn Abdel Aziz in which the Saudi Kingdom agreed to conduct its oil trades in U.S. dollars in exchange for U.S. military support and hardware.