In 1973, the United States of America signed an agreement with Saudi Arabia to price and trade oil in US dollars. Under this agreement, any country that wanted to purchase Saudi oil had to pay the price in USD.
This deal was made as America promised security and ammunition to Saudi Arabia, giving rise to the term “Petro-Dollar”. This agreement strengthened the US dollar globally as Saudi Arabia is the largest oil producer in the Middle East and the second-largest in the world after the USA.
Recently, Saudi Arabia and other OPEC+ countries announced further oil output cuts of around 1.16 million barrels per day. These pledges bring the total volume of cuts by OPEC+ to 3.66 million barrels per day, which is equivalent to 3.7% of global demand.
The surprise announcement caused oil prices to jump 8%. In response, the US Administration threatened Saudi Arabia with the consequences of OPEC cuts and introduced the NOPEC bill, which stands for No Oil Producing and Exporting Cartels.
The US tried to quell Saudi Arabia and OPEC+ countries, which hold most of their assets and bonds in American banks through NOPEC. However, the road was not easy for the US, as Saudi Arabia strictly replied against NOPEC, stating that it would ditch the US currency for its oil sales.
The NOPEC bill is still on the table to be signed as an act.
The superpower is losing its control over autonomous countries that once acted like programmed robots.
The US dollar is still the most powerful currency in the world, and a lot of international trade is settled in USD. However, emerging powers like China and Russia are accelerating bilateral trades into their own currencies.
India is also pushing its trade in local currency to 18 different countries in the world, including Brazil, Argentina, South Africa, the Middle East, and Southeast Asia.
Other nations and regions are also accelerating efforts in recent times to move away from the dollar and choosing to use national or alternative currencies for cross-border transactions. This process is expected to gain momentum.
Data from the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) verifies that, at the end of 2022, more than 58% of global reserves are held in US dollars. This figure has dropped by 12% since the turn of the century, from 71% in 1999.
At present, the dominance of USD in the world is melting from its solid form, which was once backed by oil and trade in the global market.
By Sohail Iqbal