Saudi Arabia moves to initiate non-dollar settlements in oil trades. According to a source, the world's largest oil exporter is tilting toward Bitcoin and other acceptable currencies. The country might be dealing a blow to the U.S. dollar in oil settlements.
Mohammed Al-Jadaan, the Saudi Arabian minister of finance, disclosed the information while speaking to BloombergTV in an interview. This was during the World Economic Forum (WEF) held in Davos on Tuesday, January 17, 2023. The minister stated that the country is open to accepting non-dollar settlements for oil trades.
Saudi Arabia Is Open To Discussing Alternative Oil Settlements
Further, Al-Jadaan mentioned that the country would consider payment in different currencies, be it the U.S. dollar, euro, or even Saudi riyal.
Saudi Arabia had an agreement to keep its oil dealing in the U.S. dollar in the 1970s. This system for crude oil export revenues denominated in the U.S. dollar is known as Petrodollar. It has favored the United States globally, giving a solid boost to its currency. Also, it forms part of the foundational support for the global reserve currency status of the U.S. dollar.
Al-Jadaan explained that Saudi Arabia maintains flexibility in oil trades and would amend its Petrodollar agreement. Already, the country is seeking to strengthen its trading relationship with China, the biggest oil-importing country in the world and a U.S. rival.
China Accepts Oil Trades in Yuan with GCC Countries
In December 2022, China’s President Xi Jinping stated its readiness to improve its crude oil trades. He mentioned that the country would collaborate extensively with the Gulf Cooperation Council (GCC) countries in its new trading motives. This will include trades in the local Chinese currency, Yuan. The GCC comprises Saudi Arabia, Kuwait, Qatar, the UAE, Bahrain, and Oman.
President Jinping said China is committed to strengthening its cooperation in different sectors, including oil and gas refineries.
Notably, China is working tenaciously to dethrone the U.S. dollar as the most acceptable global fiat currency. Hence, China is creating favorable opportunities for its partners in terms of oil trade. It has granted some trading countries access to the Shanghai Petroleum and Natural Gas Exchange. This platform is known to accept trading payments in the Chinese Yuan.
Recently, Saudi Arabia has become the top oil supplier for China. Between January to August 2022, Saudi Arabia supplied about 1.76 million b/d of crude oil to China. This helped to push Saudi Arabia’s market share in China from 16.9% in 2021 to 17.7% in 2022.
The Place of Bitcoin in the Future of the Global Economy
The co-founder of the BitMEX crypto exchange, Arthur Hayes, discussed the Petrodollar system and the possibility of its sustainability in 2022. Hayes explained that the sanction on Russia by the International community would distort the Petrodollar system.
Hayes noted that the situation is getting worst for the system as Saudi Arabia is opening up to Yuan instead of dollars for oil from China. The co-founder believes such a move would spike economic issues and global market uncertainty.
Already China has the motive to jeopardize the Petrodollar system and take down the U.S. dollar high status in the global economy. Through its operations with allies, China is pushing to increase its trading influence and displace the Petrodollar system existing for several decades.
Once the activities of the anti-Petrodollar succeed, the U.S. dollar will lose its strength. This will propel most countries to look for a neutral currency that could support global trade. This could be gold or Bitcoin, which could also serve as a store of wealth. While the former is analog, the latter is digital.
According to Hayes, some people could prefer gold as a new neutral reserve asset. Also, this choice will support global trades in different levels and items, be it energy, oil, or even foodstuffs. He noted that central banks and sovereigns would stick with the value of gold instead of that of Bitcoin. This choice is mainly based on historical precedent. He mentioned that Bitcoin is still not up to two decades and would still succeed with time, just like gold.
Next, Hayes compared the two assets, gold and Bitcoin. In terms of storage, he mentioned that it could be difficult for more people to store gold individually due to the lack of a physical vault. But Bitcoin does not need a physical vault. Instead, it required just a string of characters that make up the public and private keys.
Additionally, the weight of the gold could be a challenge. Due to its huge weight, many people would find it cumbersome to carry the asset around. The difference is obvious with Bitcoin as a digital asset. There’s no weight for the tokens. All the users need to access their funds is the internet, irrespective of location.