Saudi Arabia opens to settling trade in other currencies than the US dollar, the country’s finance minister said, in one of the clearest signs yet that the oil-rich kingdom is seeking to strengthen its relations with crucial trade partners and diversify away from the greenback.
“There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal,” the kingdom’s finance minister, Mohammed al-Jadaan, told Bloomberg TV on Jan.17 in an interview in Davos, Switzerland. “I don’t think we are waving away or ruling out any discussion that will help improve the trade around the world,” Al-Jadaan said.
The world’s largest oil exporter, like other Gulf states, has maintained a currency peg to the dollar for decades and Saudi oil exports continue to support the petrodollar system from the 1970s. Oil sales across the globe are priced in US dollars. China accounts for more than a quarter of Saudi Arabia’s crude exports.
Al-Jadaan’s statements came as China and Saudi Arabia agreed in December to expand crude oil trade as they upgraded their relations to a strategic partnership during the visit of Chinese President Xi Jinping in Riyadh. During that trip Xi said that China would make efforts to buy more oil from the Middle East and also proposed at a summit in the Saudi capital that the Gulf Cooperation Council (GCC) countries should make full use of the Shanghai Petroleum and Natural Gas Exchange to carry out its trade settlements in yuan.
“We enjoy a very strategic relationship with China and we enjoy that same strategic relationship with other nations including the US, and we want to develop that with Europe and other countries who are willing and able to work with us,” Jadaan said. If the oil-rich kingdom were to move toward a “petroyuan”, it could represent a significant threat to the current dominance of the U.S. dollar in the global oil trade.
To understand why Al-Jadaan’s comments are significant, one must go back in time. In 1971, the U.S. government and President Richard Nixon ended the gold standard, and over the next three years, oil prices skyrocketed. In 1973, the petrodollar system was created through a deal between the US and Saudi Arabia. The countries agreed to price and trade oil in US dollars. With oil standardized in terms of dollars, any country that purchased oil from Saudi Arabia would have to use dollars. This led many other oil-producing countries to also standardize oil prices in US dollars – and the petrodollar system was born. Many believe this has given the U.S. an unfair advantage and that it has been the root cause of many of the wars the U.S. has been involved in over the last few decades.
As Gal Luft, co-director of the Institute for Analysis of Global Security, told The Wall Street Journal, “The oil market, and by extension the entire global commodities market, is the insurance policy of the status of the dollar as reserve currency. If that block is taken out of the wall, the wall will begin to collapse”.
Saudi Arabia said it recorded its first annual budget surplus in nearly a decade, beating its own projections in a year of elevated oil prices. The 2022 surplus came to 102 billion riyals ($27 billion), constituting 2.6% of Saudi gross domestic product. The kingdom also preliminarily recorded GDP growth of 8.5% for the year, the finance ministry said, higher than the 7.6% predicted by the International Monetary Fund.