10 ms·

U.S.-Saudi petrodollar pact ends after 50 years

295 points by _ddzr 2y ago

GenerWork 2y ago
The title should say "50 year old petrodollar pact between Saudi Arabia and US expires." Anyways, I'm curious to see what happens next. I can't see Saudi Arabia ditching the dollar overnight.
- wazoox 2y ago
  Nobody's ditching the dollar. However Saudi Arabia and China significantly reduced their investment in US bonds lately. Also notice that the interests on US debt come dangerously close to the whole of US discretionary government revenue. "May you live in interesting times" as the (apocryphal) Chinese malediction says. edit : added missing "discretionary". My mistake (you know, a simple honest error, not a "lie" or whatever).
  - malfist 2y ago
    > Also notice that the interests on US debt come dangerously close to the whole of US government revenue. That is no where close to true, interest on debt last year was 985b, tax revenue was 3.29t
  - supplied_demand 2y ago
    ==Also notice that the interests on US debt come dangerously close to the whole of US government revenue.== This is not true. Revenue was $4.44 trillion in 2023 [0] and debt interest was $650 billion [1]. [0] https://fiscaldata.treasury.gov/americas-finance-guide/government-revenue/ https://fiscaldata.treasury.gov/americas-finance-guide/gover... [1] https://www.crfb.org/blogs/2023-interest-costs-reach-659-billion https://www.crfb.org/blogs/2023-interest-costs-reach-659-bil...
  - iamthirsty 2y ago
    > Nobody's ditching the dollar. However Saudi Arabia and China significantly reduced their investment in US bonds lately. Also notice that the interests on US debt come dangerously close to the whole of US government revenue. Revenue for 2023 was $4.4T[0], debt servicing cost was $624B. This year it's projected to be in the ~800s. [0]: https://www.statista.com/statistics/216928/us-government-revenues-by-category/#:~:text=In%202023%2C%20the%20total%20revenues,payroll%20taxes%20and%20other%20taxes https://www.statista.com/statistics/216928/us-government-rev....
    - ReptileMan 2y ago
      I'll bite - how much of this 4.4T revenue is non discretionary spending and how much is the discretionary? Because I think that roughly 25% of USG income was discretionary. Which is quite close to the 800 figure.
    - drivebyhooting 2y ago
      Does the debt servicing include repaying the principal of maturing treasuries or just the interest? I haven’t been able to figure out if the principal is not counted in these numbers because it is getting refinanced by rolling over to new treasuries. If so, it’s like continuously rolling over an Interest Only loan and taking more and more out over time to refinance the ballooning principal.
      - iamthirsty 2y ago
        It's both, although an extremely low percentage of people, IIRC, actually "cash out", most just roll the funds into a new bond once the previous one matures.
        drivebyhooting 2y ago
        So you mean 800B includes the principal repayment?
        iamthirsty 2y ago
        It does, but like I said most people just automatically buy new bonds, instead of actually removing the money from the Government.
        deleted 2y ago
        [deleted]
        csomar 2y ago
        As far as I know, only the interest is considered as an expense. The principal is not accounted but I might be corrected.
  - tekla 2y ago
    Why do people lie about trivially disprovable things?
    - wazoox 2y ago
      Because you never make mistakes or misremember, I suppose? How graceful of you.
  - JumpCrisscross 2y ago
    > Saudi Arabia and China significantly reduced their investment in US bonds lately They’re both massively deficit spending.
- westcort 2y ago
  Made this change
samspenc 2y ago
Finance influencers and online forums have been abuzz with this news the past few days but now that it is happened ... looks like nothing changed? Oil prices, the US dollar and the markets seem stable? Is this one of those events that turn out to have been "much ado about nothing"? I'm not an expert in this area, curious if anyone has more insights into this.
- deleted 2y ago
  [deleted]
- vel0city 2y ago
  If this causes major shifts, I don't imagine they'll be apparent on day 1. Its not like Saudi Arabia was eagerly awaiting to burn some major bridges with the US. Check back on day 365, or day 3650.
  - rickydroll 2y ago
    I would not be surprised if this became an "October surprise" to weaken Biden and the Democrats further.
    - vel0city 2y ago
      Right? Its a card in the Saudi Royal Family's pocket to be played when it suits them. Not something to just throw down all willy-nilly.
    - bequanna 2y ago
      I don’t follow. By pretty much every measure, Biden appears to be the establishment candidate. Who is out to get him?
      - consumer451 2y ago
        > By pretty much every measure, Biden appears to be the establishment candidate. Who is out to get him? Certainly the fossil fuel establishment, one of the strongest forces on the planet, would always prefer a GOP candidate over a Dem. Other parties out to get Biden are likely corporate lobbying groups as the Dems have been showing some backbone with regard to regulations in recent times.
daedrdev 2y ago
A key thing is that the US is now the biggest oil producer, so the exact agreement is less important since the US uses more of its own oil, with the money never having left the US in the first place
- taylodl 2y ago
  The US is unable to refine the oil it produces. We're setup to refine Saudi oil and no, they're not the same thing. Also no, you can't just change the refinery without a significant capital investment. That money has to come from somewhere.
  - deleted 2y ago
    [deleted]
  - woodruffw 2y ago
    Do you have a source for this? I couldn't find one with some quick searching. (Not that I don't believe you, I hadn't heard it before.)
  - vel0city 2y ago
    As someone who lived down the street from a significant number of refineries which refined US oil, you're pretty wrong about this. Most oil produced in the US is refined and used in the US. For a long time US oil couldn't be sold overseas. I don't know who would have been refining that oil if not for the US, given they literally couldn't sell it internationally. The US produces around 12 million barrels of oil a day. The US exports under 4 million barrels a day. What do we do with the other 8 million barrels??
    - causal 2y ago
      Not only is it wrong, it's backwards: the US has some of the only refineries capable of processing heavier crudes, and so other countries depend on us to refine it, especially Canada. US is a net energy exporter, and ship out a lot of light crudes. Edit: Maybe GP comment means we don't have as much capacity to refine light sweet crude? That's probably true, but wouldn't be financially advantageous to do so. https://www.eia.gov/todayinenergy/detail.php?id=54199 https://www.eia.gov/todayinenergy/detail.php?id=54199
moralestapia 2y ago
People who make a big fuzz about this haven't truly done the math on the scale of it vs. the US dollar worldwide. Saudi Arabia oil exports are 200B USD/year, give or take. The world has a GDP of ~100T USD, how much of that is traded in US dollars? We could put an estimate based on total currency reserves, of which USD is about half of that. 200B out of 50T is "merely" 0.05% ... Sure, they may be one of the single major traders of USD, but at 0.05% what this tells you is that the USD is extremely diversified, and that's good! (Also, this is implying Saudi Arabia bins the whole deal overnight, which is very unlikely to happen)
- shortsunblack 2y ago
  Oil, as any energy, has multiplier effects. That 200B USD is responsible for major part of the 100T USD.
  - JumpCrisscross 2y ago
    > That 200B USD is responsible for major part of the 100T USD We are the world’s largest oil producer [1]. [1] https://en.m.wikipedia.org/wiki/List_of_countries_by_oil_production https://en.m.wikipedia.org/wiki/List_of_countries_by_oil_pro...
    - thsksbd 2y ago
      We don't (net) sell it. In fact we don't sell very much the world wants
      - JumpCrisscross 2y ago
        > We don't (net) sell it We export a metric fuck tonne of it; half as much as Saudi Arabia [1]. > we don't sell very much the world wants We’re the world’s second-largest exporter [2]. [1] https://en.m.wikipedia.org/wiki/List_of_countries_by_oil_exports https://en.m.wikipedia.org/wiki/List_of_countries_by_oil_exp... [2] https://en.m.wikipedia.org/wiki/List_of_countries_by_exports https://en.m.wikipedia.org/wiki/List_of_countries_by_exports
taylodl 2y ago
Looks like the US is going to have to finally start paying its bills. That is going to be a shock to Americans. Easy credit may be a thing of the past as well. I'd really hate to see the financial turmoil of the 70s come back - it was tough enough living through it the first time. What if gasoline prices start soaring in the US, putting US prices on parity with the rest of the world? Remember the financial collapse of 2008? That didn't happen overnight either - it took a couple of years for everything to unfold and collapse.
- georgeecollins 2y ago
  The US is the largest producer of oil in the world. If the price of oil went way up a lot of things would happen including the US would start producing more oil as marginal projects would start to make economic sense. The second thing that would happen is people would start buying more hybrid and electric cars. I have no idea what will happen to the price of oil. I do think that in general people who say things like "finally the US will start paying its bills!" are often not very sophisticated investors. They don't have finance degrees, work on wall street, or have long history as investors. Not that that precludes them from being right! But they could also just be people with an axe to grind and little to lose.
- matthewdgreen 2y ago
  Oil demand is set to peak by 2030, mostly due to massive buildouts of renewables (with China taking the lead.) Oil isn’t going away, but anyone taking the “oil prices are going to soar long term” side of the bet is making an incredibly stupid bet that will end in tragedy. (Anyone making the “US oil prices will soar in the short term” bet has to deal with record US shale production.) The losers here are the middle eastern countries that didn’t sufficiently diversify.
- graeme 2y ago
  This really shouldn’t be the top comment. USD is very convenient and desirable to use and no other currency comes close as a replacement reserve currency. If the agreement was extremely inconvenient the Saudis would surely have found a way around it. Rare is the economic agreement that stands against efficiency. There’s a meme going around certain circles that the USD is doomed and everyone is going to use….Yuan, Rubles? The Euro? Yen? It simply isn’t plausible. The USD wins out because it is very useful. I write this as a non-American who transacts business mostly in USD, including with non-American contractors and companies. The US may or may not have to pay its debts but this pact does not seem very relevant.
gbr4 2y ago
These types of geopolitical shifts are not ones that will unfold over a matter of weeks, but rather over years or even decades. The intricate and multifaceted discussions around energy and economic interests between the BRICS nations and the West will play a crucial role in shaping this long-term transition.
toomuchtodo 2y ago
OPEC is desperate. 20% of vehicles sold globally last year were EVs and hybrids (to a lesser extent). The world is getting off of oil and the sandbox is not prepared for life after. A petrodollar was always to become irrelevant if climate goals were to be met. https://www.cnbc.com/2024/06/13/opec-calls-for-more-fossil-fuel-investment-dismisses-peak-oil-demand.html https://www.cnbc.com/2024/06/13/opec-calls-for-more-fossil-f... https://www.iea.org/news/slowing-demand-growth-and-surging-supply-put-global-oil-markets-on-course-for-major-surplus-this-decade https://www.iea.org/news/slowing-demand-growth-and-surging-s... https://about.bnef.com/blog/electric-cars-have-dented-fuel-demand-by-2040-theyll-slash-it/ https://about.bnef.com/blog/electric-cars-have-dented-fuel-d...
- jerry1979 2y ago
  The other side of this argument is that the world is not getting off oil. We will need the oil if we want to get every nation up to a Euro/US standard of living.
  - toomuchtodo 2y ago
    BYD would like to have a word. They now employ twice as many workers as Toyota. https://www.statista.com/chart/30754/byd-passenger-car-sales/ https://www.statista.com/chart/30754/byd-passenger-car-sales... https://electrek.co/2024/05/29/byds-workforce-nearly-doubles-toyotas-ev-sales-surge/ https://electrek.co/2024/05/29/byds-workforce-nearly-doubles... https://electrek.co/2024/05/15/byd-just-hit-new-weekly-ev-sales-record-2024-china/ https://electrek.co/2024/05/15/byd-just-hit-new-weekly-ev-sa...
  - JumpCrisscross 2y ago
    > the world is not getting off oil It’s destroying demand at a massive clip, if the IEA is to be believed [1]. With Riyadh’s elevated break-even price [2] that doesn’t leave them a lot of time. [1] https://www.axios.com/2024/06/12/oil-peak-demand-iea-projections https://www.axios.com/2024/06/12/oil-peak-demand-iea-project... [2] https://fred.stlouisfed.org/series/SAUPZPIOILBEGUSD https://fred.stlouisfed.org/series/SAUPZPIOILBEGUSD
bananaflag 2y ago
Any serious source on this?
JumpCrisscross 2y ago
Yawn. Wake me up when Saudi Arabia floats its currency and unpegs from the dollar [1]. (Which, to be clear, I think they should do if they’re serious about diversifying their economy. It would be difficult, however, as it would likely de-value domestic assets which hurts the elite,) [1] https://www.arabnews.com/node/1682011 https://www.arabnews.com/node/1682011
- localfirst 2y ago
  Unlikely as SA depends on US for security And unlike other regions, quantity is just not possible due to environmental constraints so they must rely on Western high tech The Saudi's want nothing to change but people think EV sales is a threat (couldn't be further from the truth).
  - JumpCrisscross 2y ago
    Agree. Just saying it would be good for their economy. (And if done properly, could be supported by the U.S.)
- lyu07282 2y ago
  Yeah it's just a piece of paper at the end of the day, the US just invades/coups anyone who seriously threatens the us dollar anyway. https://en.wikipedia.org/wiki/United_States_involvement_in_regime_change https://en.wikipedia.org/wiki/United_States_involvement_in_r...
janandonly 2y ago
I am very confused now because usually nasdaq is a highly regarded and well informed source of information. But here there are some glaring mistakes and omissions in the article: 1. Saudi Arabia has already been trading oil in other currencies for some years now. Have they been violating their own protection deal? 2. Or was the deal never put on paper and more of a “gentleman’s agreement” to begin with? 3. The suggestion is made that the end of this deal will mean a declining US dollar. The fact is that the dollar has been declining for a while already and this hasn’t sped up after the end of this “deal”. Also, for context: https://news.ycombinator.com/item?id=40674426 https://news.ycombinator.com/item?id=40674426
- JumpCrisscross 2y ago
  > usually nasdaq is a highly regarded It’s a TipRanks article syndicated by Nasdaq. Sort of like what Fortune did to its brand.
  - consumer451 2y ago
    Thanks for mentioning this, I hadn't noticed.
hackandthink 2y ago
Always bet on Javascript and the dollar. https://www.nakedcapitalism.com/2024/06/dollar-doomsters-have-got-it-all-wrong.html https://www.nakedcapitalism.com/2024/06/dollar-doomsters-hav...
- aylmao 2y ago
  I mean, the conclusion of this post isn't precisely claiming a USD victory: > So at this point, the most likely next regime is of fragmentation, of multiple major currencies used for trade and investment rather than a dominant currency. [...] So this remains an unsettled area. Stay tuned. And I agree. I don't think the Renminbi will necessarily take over, but I also don't think the dollar will maintain the strong dominance it has on global trade and as a reserve currency.
  - hackandthink 2y ago
    Noah Smith agrees as well: "I’ve argued that dollar-euro financial hegemony won’t be replaced as a result of these sanctions, simply because none of the alternatives is ready to replace it. But ..." https://www.noahpinion.blog/p/dont-worry-about-de-dollarization https://www.noahpinion.blog/p/dont-worry-about-de-dollarizat... I think the system is stable instable: Dollar Inflation will continue. China will continue to have problems investing its trade surpluses sensibly. Western policy towards Russia and China will become even more hostile, but it will not come to a big bang. At some point, we will realize that we have to solve the problems together, perhaps the Bancor will be introduced after all.
pkaye 2y ago
There is a another agreement long in the works that involves a defense treaty but also involves normalization with Israel and path to Palestinian state. But it will probably risk getting dragged into another conflict given the Houthis are their neighbors. Also Saudi Arabia has human rights issues. So in the end I don't know how Congress will vote on this. Would having a Palestinian state resolve all tensions in that region?
- AnimalMuppet 2y ago
  All? No. There would still be Sunni vs. Shiite, at a minimum. I think Saudi vs. Houthi has an element of that, though I'm not sure.
FrustratedMonky 2y ago
Any theories if this is beginning of the end of Dollar, and thus US? This dollar=oil relationship has been used as the argument for US dominance for a long time. Or, used to explain how the US maintains dominance. And consequently, this is also used as the boogie man in many theories about a US collapse. So doom scenario would be Saudi, Russia, China forming some new Oil market that does not use US Dollars.
- JumpCrisscross 2y ago
  > dollar=oil relationship has been used as the argument for US dominance for a long time The dollar’s dominance was won at Bretton Woods (decades before the petrodollar) on the back of WWII. The petrodollar was a contributor to dollar hegemony from the 1970s through the 2000s. But the combination of the USSR falling and American energy independence thoroughly ruined it as an explanatory factor for dollar and Treasury pricing and utilisation in the post-crisis landscape.
elzbardico 2y ago
This is itself inconsequential. Nobody is going to start frenetically doing oil business in Yuan just because this agreement has expired. While it is true that the will probably slowly shift during the coming decades to some degree of de-dolarization, it is not going to happen overnight and neither is the expiration of this agreement a prime mover of that. Freezing Russia's sovereign assets was far more consequential as it eroded the trust on the westerns financial system somehow. But all those upcoming powers like China, India have a vested interest in the continued survival of the dollar, as they hold (both the states and private companies) vast amounts of assets tied to the dollar. They may try to reduce their exposure a bit, but they know that they can't do a firesale of US bonds as it would obliterate a lot of their wealth. Things will keep running as today probably for the next 20 years. Meanwhile the US will have the chance to re-industrialize itself as the dollar gradually weakens. And this leads us to the other dollar's secret. NOBODY wants to hold the world's reserve currency anymore. It may be good to make your rich absurdly rich, to sustain absurdly high levels of consumption fueled by imports, but it inexorably erodes your industrial base.
- scrubs 2y ago
  Do you agree this is yet another tactical or strategic setback meaning it's only more critical to get our debt spending in order since we can less depend on outside investing on t bills?
  - elzbardico 2y ago
    Of course! Not only is essential that the US starts tackling its debt, but also it needs to be aware that the massive trade debt days where the US imports the industrial output of the world in exchange for treasure YOUs will someday come to an end. Re-shoring industry is essential for the US to keep itself as a major player in the future multi-polar world.
    - scrubs 2y ago
      Fine/cool - my question was rhetorical. And I see nothing on the horizon that dc has got the message. Apparently the in-the-know ppl don't talk to dc and kick their butt around.
bparsons 2y ago
This could have been a cataclysm 30 years ago, but the global energy picture has shifted a lot. US/Canada produce way more oil and gas than Saudi Arabia and are now exporting significant amounts of energy. With China now shrinking, we are likely somewhere around (or past) peak global gasoline demand, with strong, but slowly diminishing demand into the mid-2030s. The Saudis will remain a supplier of cheap oil to their trading partners, but they are sitting atop an asset that can be thought of as a perishable good as the world moves toward greater electrification. The size and shape of the global economy is very, very different than the 1970s. GE, GM, Aramco and Exxon have been replaced by Amazon, Google and NVIDIA. These companies are global juggernauts, and will ensure healthy demand for US currency well into the future.
dexzod 2y ago
I think this will have some interesting consequences. The US dollar used to be backed by gold, then Nixon ended that and then it got tied to oil, so in effect it was still backed by something tangible. The rest of the world currencies being somewhat linked to dollar were also indirectly tied to oil. Now the dollar is backed by nothing and by extension the rest of the currencies. In that sense dollar is now just a digital currency.
- advisedwang 2y ago
  The price of oil varies, so the petrodollar is nothing like the gold standard, where a dollar was pegged to a specific amount of gold.
  - fuzzfactor 2y ago
    I would say you're both correct. >the petrodollar is nothing like the gold standard, where a dollar was pegged to a specific amount of gold. >in effect it was still backed by something tangible. I expect for the foreseeable future, with a few hundred dollars you will still be able to drive your Corvette (or other pleasure craft) around for quite a pleasurable tour. The thing that changes is the number of miles you can go according to the present asset value of your fuel at any one time. People got accustomed to that part of it a long time ago, after Nixon sacrificed the currency to the Saudis. With complete discharge as a petrocurrency, that could end up with some place other than the US, one which average income is abysmal by comparison, being fully able to collectively purchase more Corvettes for cash than Americans because of debt levels relative to tangible assets.
- deleted 2y ago
  [deleted]
highwayman47 2y ago
Surprised to see TipRanks on HN. That's not a real news source.
treebeard901 2y ago
Expect the U.S. Dollar to lose reserve currency status faster than expected to the Yuan. This can be seen in the Treasury market and with other nations going around sanctions or avoiding future sanctions. For a petrodollar specifically, or petroyuan in the future, the idea could be that the largest manufacturer is going to be the largest consumer of energy for manufacturing. In the past this was the United States which is why the Saudi petrodollar, while overhyped, made sense after the Nixon shock. China has played a key role using its increasingly gold backed currency to settle transactions for sanction reasons and is expanding it to others. It will take time for this change to happen and before long it will be interesting what kind of result this has on funding U.S. Govt debt, if more business is done in yuan than the dollar. All it will take is China loosening controls. The other reason the dollar has been so resilient has been the U.S. Navy providing the backbone to defense agreements. Now China also has a comparable number of ships that will move out of the South China Sea and play an international role with a yuan reserve currency, this advantage isnt what it used to be.
- hylaride 2y ago
  If China was a rule of law country without capital controls you’d be right, but nobody is rushing. Yuans are worthless unless you want to buy goods in China and if you amass too much, the Chinese government can control how it’s used without much recourse. This is a country whose government banned Winnie the Poo on social media because somebody started a meme of Poo and Tigger walking next to a photo of Obama and Xi walking. The only real alternatives today are the Euro and to a lesser extent the Japanese Yen, and they have their own issues (in particular, the Eurobond market is fragmented between its member states and while the EU does issue its own bonds, it’s not institutionally or politically designed to issue at massive levels). Even Russia, which tried to bypass sanctions and sell oil direct to India was left with either collecting in rupees (that it couldn’t really spend much of) or in rubles (which India had a hard time finding a market to trade rupees for). But again, don’t underestimate the basics of recourse in rule of law. You can own shit tons of US Treasuries and still speak ill of or go against the US government or its leaders. Do you think Saudi Arabia or anybody else wants have to bend the knee to anybody else?
  - 2y ago
avsteele 2y ago
So is this real or not? I can't find any article actually naming the 'agreement'
thoiu2423l43243 2y ago
[flagged]
neilwilson 2y ago
Something being priced in dollars, doesn't mean it is bought with dollars. Oil has been bought in every currency on the planet for a very long time. The dollar clearing system is a transit route, not necessarily a destination. Buyers buys things with the currency they have, and sellers end up holding the currency they want to hold. Those involved in FX make a turn causing that match to happen. Otherwise the transaction never happens in the first place. The expiration of the agreement merely means that Saudi now has the option to move its oil retained profits out of US Treasuries and into something else, which may very slightly affect the yield curve.
ble 2y ago
Seems like a source that one should not generally take seriously (Tipranks) being syndicated by a source associated with an important name (Nasdaq) as part of a larger wave of articles about how some "pact", "treaty", or "contract" ended on a specific day. Having done a little more digging, I could find lots and lots of pieces about this topic, but I could not even one coming from a recognizable journalistic source. (Far from the top of search results was a piece that seemed to have some value: it noted the wave of coverage of the purported end of this pact despite the fact that no such pact existed. It also identified a possible connection between pushing this story, which makes the dollar sound endangered, and attempting to promote cryptocurrency.) Lots of HN commenters taking this at face value. To me, the overall situation looks like an object lesson in basic critical media literacy.
- JumpCrisscross 2y ago
  > Lots of HN commenters taking this at face value It's monetary policy, international finance and geopolitics. Famous HN fortes. (For the avoidance of doubt, only one of those is even remotely something I have competence in.)
photochemsyn 2y ago
As far as I know there is no formal petrodollar recycling pact between the United States and Saudi Arabia, nor any termination of the underlying understanding, which is that most of the dollars flowing into the oil states in the Gulf get reinvested back into US and British (and European) economies, and into the IMF and similar entities, in the names of the oil states. There are a lot of diplomatic cables from the 1970s about the origins of the concept (petrodollar recycling), but fundamentally it was that the Gulf Arab states had few options about where to put their oil money, and so most of it went back to western banks and international loan programs or into expensive property investments and financing Uber by at least $3.5B and so on. In exchange, they get their security guaranteed by US military and economic power. See [1] for a fascinating and well-written history of the period when the deal was implemented. However, it does seem Iran under the Shah was the first big petrodollar recycler, and he'd already invested a billion dollars each in Britain and France by 1974, which is part of why the Iranian revolution came as such a shock in Washington (and also accounting for the U.S. and Britain and France and Germany pouring material support and loans into Saddam's regime in Iraq as he went to war to seize Iranian oilfields in the early 1980s). Regardless there's no formal pact I've ever heard of on this, it's more some kind of diplomatic agreement, possibly enforced by the threat of freezing assets for various reasons real or pretend. The problem now is, what if the Gulf states decide they want to put those reserves into big domestic infrastructure projects? what if a majority of contracts going to Chinese firms, who seem better at large-scale solar PV and high-speed trains than the US or Europe does? Will Uber rates have to go up? [1] "The Oil Kings: How the U.S., Iran, and Saudi Arabia Changed the Balance of Power in the Middle East" by Andrew Scott Cooper.
happyjack 2y ago
I worked in oil / gas on international projects for 10ish years. I think the dollar will still be the de-facto reserve currency in 20 years, but it will be more as a medium of exchange rather than a true "reserve" currency for central banks. Central banks are buying gold like crazy. Comparatively speaking, the dollar is pretty stable. But, the inflation genie is out of the bottle. The USA keeps deficit spending like there's no tomorrow, and is on an unsustainable path. If tax receipts don't increase, we will have to print our way to debt servicing. Also, the western global hegemony is shifting. Many non aligned countries frankly don't care about the wests causes; they simply want cheap energy and to grow themselves out of poverty. The middle east is facilitating all this for southeast asia and the like. TL;DR the dollar will remain, but it will be an intermediary exchange between currencies and not a real "reserve" store of wealth.
janandonly 2y ago
There is no pact that ends. There is a non binding gentleman’s agreement. Never put on paper and never enforced. See also: https://news.ycombinator.com/item?id=40714405 https://news.ycombinator.com/item?id=40714405

295 points by _ddzr 2y ago

The title should say "50 year old petrodollar pact between Saudi Arabia and US expires." Anyways, I'm curious to see what happens next. I can't see Saudi Arabia ditching the dollar overnight.

wazoox 2y ago
Nobody's ditching the dollar. However Saudi Arabia and China significantly reduced their investment in US bonds lately. Also notice that the interests on US debt come dangerously close to the whole of US discretionary government revenue. "May you live in interesting times" as the (apocryphal) Chinese malediction says. edit : added missing "discretionary". My mistake (you know, a simple honest error, not a "lie" or whatever).
- malfist 2y ago
  > Also notice that the interests on US debt come dangerously close to the whole of US government revenue. That is no where close to true, interest on debt last year was 985b, tax revenue was 3.29t
- supplied_demand 2y ago
  ==Also notice that the interests on US debt come dangerously close to the whole of US government revenue.== This is not true. Revenue was $4.44 trillion in 2023 [0] and debt interest was $650 billion [1]. [0] https://fiscaldata.treasury.gov/americas-finance-guide/government-revenue/ https://fiscaldata.treasury.gov/americas-finance-guide/gover... [1] https://www.crfb.org/blogs/2023-interest-costs-reach-659-billion https://www.crfb.org/blogs/2023-interest-costs-reach-659-bil...
- iamthirsty 2y ago
  > Nobody's ditching the dollar. However Saudi Arabia and China significantly reduced their investment in US bonds lately. Also notice that the interests on US debt come dangerously close to the whole of US government revenue. Revenue for 2023 was $4.4T[0], debt servicing cost was $624B. This year it's projected to be in the ~800s. [0]: https://www.statista.com/statistics/216928/us-government-revenues-by-category/#:~:text=In%202023%2C%20the%20total%20revenues,payroll%20taxes%20and%20other%20taxes https://www.statista.com/statistics/216928/us-government-rev....
  - ReptileMan 2y ago
    I'll bite - how much of this 4.4T revenue is non discretionary spending and how much is the discretionary? Because I think that roughly 25% of USG income was discretionary. Which is quite close to the 800 figure.
  - drivebyhooting 2y ago
    Does the debt servicing include repaying the principal of maturing treasuries or just the interest? I haven’t been able to figure out if the principal is not counted in these numbers because it is getting refinanced by rolling over to new treasuries. If so, it’s like continuously rolling over an Interest Only loan and taking more and more out over time to refinance the ballooning principal.
    - iamthirsty 2y ago
      It's both, although an extremely low percentage of people, IIRC, actually "cash out", most just roll the funds into a new bond once the previous one matures.
      - drivebyhooting 2y ago
        So you mean 800B includes the principal repayment?
        iamthirsty 2y ago
        It does, but like I said most people just automatically buy new bonds, instead of actually removing the money from the Government.
        deleted 2y ago
        [deleted]
        csomar 2y ago
        As far as I know, only the interest is considered as an expense. The principal is not accounted but I might be corrected.
- tekla 2y ago
  Why do people lie about trivially disprovable things?
  - wazoox 2y ago
    Because you never make mistakes or misremember, I suppose? How graceful of you.
- JumpCrisscross 2y ago
  > Saudi Arabia and China significantly reduced their investment in US bonds lately They’re both massively deficit spending.
westcort 2y ago
Made this change

samspenc 2y ago

Finance influencers and online forums have been abuzz with this news the past few days but now that it is happened ... looks like nothing changed? Oil prices, the US dollar and the markets seem stable? Is this one of those events that turn out to have been "much ado about nothing"? I'm not an expert in this area, curious if anyone has more insights into this.

deleted 2y ago
[deleted]
vel0city 2y ago
If this causes major shifts, I don't imagine they'll be apparent on day 1. Its not like Saudi Arabia was eagerly awaiting to burn some major bridges with the US. Check back on day 365, or day 3650.
- rickydroll 2y ago
  I would not be surprised if this became an "October surprise" to weaken Biden and the Democrats further.
  - vel0city 2y ago
    Right? Its a card in the Saudi Royal Family's pocket to be played when it suits them. Not something to just throw down all willy-nilly.
  - bequanna 2y ago
    I don’t follow. By pretty much every measure, Biden appears to be the establishment candidate. Who is out to get him?
    - consumer451 2y ago
      > By pretty much every measure, Biden appears to be the establishment candidate. Who is out to get him? Certainly the fossil fuel establishment, one of the strongest forces on the planet, would always prefer a GOP candidate over a Dem. Other parties out to get Biden are likely corporate lobbying groups as the Dems have been showing some backbone with regard to regulations in recent times.

daedrdev 2y ago

A key thing is that the US is now the biggest oil producer, so the exact agreement is less important since the US uses more of its own oil, with the money never having left the US in the first place

taylodl 2y ago
The US is unable to refine the oil it produces. We're setup to refine Saudi oil and no, they're not the same thing. Also no, you can't just change the refinery without a significant capital investment. That money has to come from somewhere.
- deleted 2y ago
  [deleted]
- woodruffw 2y ago
  Do you have a source for this? I couldn't find one with some quick searching. (Not that I don't believe you, I hadn't heard it before.)
- vel0city 2y ago
  As someone who lived down the street from a significant number of refineries which refined US oil, you're pretty wrong about this. Most oil produced in the US is refined and used in the US. For a long time US oil couldn't be sold overseas. I don't know who would have been refining that oil if not for the US, given they literally couldn't sell it internationally. The US produces around 12 million barrels of oil a day. The US exports under 4 million barrels a day. What do we do with the other 8 million barrels??
  - causal 2y ago
    Not only is it wrong, it's backwards: the US has some of the only refineries capable of processing heavier crudes, and so other countries depend on us to refine it, especially Canada. US is a net energy exporter, and ship out a lot of light crudes. Edit: Maybe GP comment means we don't have as much capacity to refine light sweet crude? That's probably true, but wouldn't be financially advantageous to do so. https://www.eia.gov/todayinenergy/detail.php?id=54199 https://www.eia.gov/todayinenergy/detail.php?id=54199

moralestapia 2y ago

People who make a big fuzz about this haven't truly done the math on the scale of it vs. the US dollar worldwide. Saudi Arabia oil exports are 200B USD/year, give or take. The world has a GDP of ~100T USD, how much of that is traded in US dollars? We could put an estimate based on total currency reserves, of which USD is about half of that. 200B out of 50T is "merely" 0.05% ... Sure, they may be one of the single major traders of USD, but at 0.05% what this tells you is that the USD is extremely diversified, and that's good! (Also, this is implying Saudi Arabia bins the whole deal overnight, which is very unlikely to happen)

shortsunblack 2y ago
Oil, as any energy, has multiplier effects. That 200B USD is responsible for major part of the 100T USD.
- JumpCrisscross 2y ago
  > That 200B USD is responsible for major part of the 100T USD We are the world’s largest oil producer [1]. [1] https://en.m.wikipedia.org/wiki/List_of_countries_by_oil_production https://en.m.wikipedia.org/wiki/List_of_countries_by_oil_pro...
  - thsksbd 2y ago
    We don't (net) sell it. In fact we don't sell very much the world wants
    - JumpCrisscross 2y ago
      > We don't (net) sell it We export a metric fuck tonne of it; half as much as Saudi Arabia [1]. > we don't sell very much the world wants We’re the world’s second-largest exporter [2]. [1] https://en.m.wikipedia.org/wiki/List_of_countries_by_oil_exports https://en.m.wikipedia.org/wiki/List_of_countries_by_oil_exp... [2] https://en.m.wikipedia.org/wiki/List_of_countries_by_exports https://en.m.wikipedia.org/wiki/List_of_countries_by_exports

taylodl 2y ago

Looks like the US is going to have to finally start paying its bills. That is going to be a shock to Americans. Easy credit may be a thing of the past as well. I'd really hate to see the financial turmoil of the 70s come back - it was tough enough living through it the first time. What if gasoline prices start soaring in the US, putting US prices on parity with the rest of the world? Remember the financial collapse of 2008? That didn't happen overnight either - it took a couple of years for everything to unfold and collapse.

georgeecollins 2y ago
The US is the largest producer of oil in the world. If the price of oil went way up a lot of things would happen including the US would start producing more oil as marginal projects would start to make economic sense. The second thing that would happen is people would start buying more hybrid and electric cars. I have no idea what will happen to the price of oil. I do think that in general people who say things like "finally the US will start paying its bills!" are often not very sophisticated investors. They don't have finance degrees, work on wall street, or have long history as investors. Not that that precludes them from being right! But they could also just be people with an axe to grind and little to lose.
matthewdgreen 2y ago
Oil demand is set to peak by 2030, mostly due to massive buildouts of renewables (with China taking the lead.) Oil isn’t going away, but anyone taking the “oil prices are going to soar long term” side of the bet is making an incredibly stupid bet that will end in tragedy. (Anyone making the “US oil prices will soar in the short term” bet has to deal with record US shale production.) The losers here are the middle eastern countries that didn’t sufficiently diversify.
graeme 2y ago
This really shouldn’t be the top comment. USD is very convenient and desirable to use and no other currency comes close as a replacement reserve currency. If the agreement was extremely inconvenient the Saudis would surely have found a way around it. Rare is the economic agreement that stands against efficiency. There’s a meme going around certain circles that the USD is doomed and everyone is going to use….Yuan, Rubles? The Euro? Yen? It simply isn’t plausible. The USD wins out because it is very useful. I write this as a non-American who transacts business mostly in USD, including with non-American contractors and companies. The US may or may not have to pay its debts but this pact does not seem very relevant.

gbr4 2y ago

These types of geopolitical shifts are not ones that will unfold over a matter of weeks, but rather over years or even decades. The intricate and multifaceted discussions around energy and economic interests between the BRICS nations and the West will play a crucial role in shaping this long-term transition.

toomuchtodo 2y ago

OPEC is desperate. 20% of vehicles sold globally last year were EVs and hybrids (to a lesser extent). The world is getting off of oil and the sandbox is not prepared for life after. A petrodollar was always to become irrelevant if climate goals were to be met. https://www.cnbc.com/2024/06/13/opec-calls-for-more-fossil-fuel-investment-dismisses-peak-oil-demand.html https://www.cnbc.com/2024/06/13/opec-calls-for-more-fossil-f... https://www.iea.org/news/slowing-demand-growth-and-surging-supply-put-global-oil-markets-on-course-for-major-surplus-this-decade https://www.iea.org/news/slowing-demand-growth-and-surging-s... https://about.bnef.com/blog/electric-cars-have-dented-fuel-demand-by-2040-theyll-slash-it/ https://about.bnef.com/blog/electric-cars-have-dented-fuel-d...

jerry1979 2y ago
The other side of this argument is that the world is not getting off oil. We will need the oil if we want to get every nation up to a Euro/US standard of living.
- toomuchtodo 2y ago
  BYD would like to have a word. They now employ twice as many workers as Toyota. https://www.statista.com/chart/30754/byd-passenger-car-sales/ https://www.statista.com/chart/30754/byd-passenger-car-sales... https://electrek.co/2024/05/29/byds-workforce-nearly-doubles-toyotas-ev-sales-surge/ https://electrek.co/2024/05/29/byds-workforce-nearly-doubles... https://electrek.co/2024/05/15/byd-just-hit-new-weekly-ev-sales-record-2024-china/ https://electrek.co/2024/05/15/byd-just-hit-new-weekly-ev-sa...
- JumpCrisscross 2y ago
  > the world is not getting off oil It’s destroying demand at a massive clip, if the IEA is to be believed [1]. With Riyadh’s elevated break-even price [2] that doesn’t leave them a lot of time. [1] https://www.axios.com/2024/06/12/oil-peak-demand-iea-projections https://www.axios.com/2024/06/12/oil-peak-demand-iea-project... [2] https://fred.stlouisfed.org/series/SAUPZPIOILBEGUSD https://fred.stlouisfed.org/series/SAUPZPIOILBEGUSD

bananaflag 2y ago

Any serious source on this?

JumpCrisscross 2y ago

Yawn. Wake me up when Saudi Arabia floats its currency and unpegs from the dollar [1]. (Which, to be clear, I think they should do if they’re serious about diversifying their economy. It would be difficult, however, as it would likely de-value domestic assets which hurts the elite,) [1] https://www.arabnews.com/node/1682011 https://www.arabnews.com/node/1682011

localfirst 2y ago
Unlikely as SA depends on US for security And unlike other regions, quantity is just not possible due to environmental constraints so they must rely on Western high tech The Saudi's want nothing to change but people think EV sales is a threat (couldn't be further from the truth).
- JumpCrisscross 2y ago
  Agree. Just saying it would be good for their economy. (And if done properly, could be supported by the U.S.)
lyu07282 2y ago
Yeah it's just a piece of paper at the end of the day, the US just invades/coups anyone who seriously threatens the us dollar anyway. https://en.wikipedia.org/wiki/United_States_involvement_in_regime_change https://en.wikipedia.org/wiki/United_States_involvement_in_r...

janandonly 2y ago

I am very confused now because usually nasdaq is a highly regarded and well informed source of information. But here there are some glaring mistakes and omissions in the article: 1. Saudi Arabia has already been trading oil in other currencies for some years now. Have they been violating their own protection deal? 2. Or was the deal never put on paper and more of a “gentleman’s agreement” to begin with? 3. The suggestion is made that the end of this deal will mean a declining US dollar. The fact is that the dollar has been declining for a while already and this hasn’t sped up after the end of this “deal”. Also, for context: https://news.ycombinator.com/item?id=40674426 https://news.ycombinator.com/item?id=40674426

JumpCrisscross 2y ago
> usually nasdaq is a highly regarded It’s a TipRanks article syndicated by Nasdaq. Sort of like what Fortune did to its brand.
- consumer451 2y ago
  Thanks for mentioning this, I hadn't noticed.

hackandthink 2y ago

Always bet on Javascript and the dollar. https://www.nakedcapitalism.com/2024/06/dollar-doomsters-have-got-it-all-wrong.html https://www.nakedcapitalism.com/2024/06/dollar-doomsters-hav...

aylmao 2y ago
I mean, the conclusion of this post isn't precisely claiming a USD victory: > So at this point, the most likely next regime is of fragmentation, of multiple major currencies used for trade and investment rather than a dominant currency. [...] So this remains an unsettled area. Stay tuned. And I agree. I don't think the Renminbi will necessarily take over, but I also don't think the dollar will maintain the strong dominance it has on global trade and as a reserve currency.
- hackandthink 2y ago
  Noah Smith agrees as well: "I’ve argued that dollar-euro financial hegemony won’t be replaced as a result of these sanctions, simply because none of the alternatives is ready to replace it. But ..." https://www.noahpinion.blog/p/dont-worry-about-de-dollarization https://www.noahpinion.blog/p/dont-worry-about-de-dollarizat... I think the system is stable instable: Dollar Inflation will continue. China will continue to have problems investing its trade surpluses sensibly. Western policy towards Russia and China will become even more hostile, but it will not come to a big bang. At some point, we will realize that we have to solve the problems together, perhaps the Bancor will be introduced after all.

pkaye 2y ago

There is a another agreement long in the works that involves a defense treaty but also involves normalization with Israel and path to Palestinian state. But it will probably risk getting dragged into another conflict given the Houthis are their neighbors. Also Saudi Arabia has human rights issues. So in the end I don't know how Congress will vote on this. Would having a Palestinian state resolve all tensions in that region?

AnimalMuppet 2y ago
All? No. There would still be Sunni vs. Shiite, at a minimum. I think Saudi vs. Houthi has an element of that, though I'm not sure.

FrustratedMonky 2y ago

Any theories if this is beginning of the end of Dollar, and thus US? This dollar=oil relationship has been used as the argument for US dominance for a long time. Or, used to explain how the US maintains dominance. And consequently, this is also used as the boogie man in many theories about a US collapse. So doom scenario would be Saudi, Russia, China forming some new Oil market that does not use US Dollars.

JumpCrisscross 2y ago
> dollar=oil relationship has been used as the argument for US dominance for a long time The dollar’s dominance was won at Bretton Woods (decades before the petrodollar) on the back of WWII. The petrodollar was a contributor to dollar hegemony from the 1970s through the 2000s. But the combination of the USSR falling and American energy independence thoroughly ruined it as an explanatory factor for dollar and Treasury pricing and utilisation in the post-crisis landscape.

elzbardico 2y ago

This is itself inconsequential. Nobody is going to start frenetically doing oil business in Yuan just because this agreement has expired. While it is true that the will probably slowly shift during the coming decades to some degree of de-dolarization, it is not going to happen overnight and neither is the expiration of this agreement a prime mover of that. Freezing Russia's sovereign assets was far more consequential as it eroded the trust on the westerns financial system somehow. But all those upcoming powers like China, India have a vested interest in the continued survival of the dollar, as they hold (both the states and private companies) vast amounts of assets tied to the dollar. They may try to reduce their exposure a bit, but they know that they can't do a firesale of US bonds as it would obliterate a lot of their wealth. Things will keep running as today probably for the next 20 years. Meanwhile the US will have the chance to re-industrialize itself as the dollar gradually weakens. And this leads us to the other dollar's secret. NOBODY wants to hold the world's reserve currency anymore. It may be good to make your rich absurdly rich, to sustain absurdly high levels of consumption fueled by imports, but it inexorably erodes your industrial base.

scrubs 2y ago
Do you agree this is yet another tactical or strategic setback meaning it's only more critical to get our debt spending in order since we can less depend on outside investing on t bills?
- elzbardico 2y ago
  Of course! Not only is essential that the US starts tackling its debt, but also it needs to be aware that the massive trade debt days where the US imports the industrial output of the world in exchange for treasure YOUs will someday come to an end. Re-shoring industry is essential for the US to keep itself as a major player in the future multi-polar world.
  - scrubs 2y ago
    Fine/cool - my question was rhetorical. And I see nothing on the horizon that dc has got the message. Apparently the in-the-know ppl don't talk to dc and kick their butt around.

bparsons 2y ago

This could have been a cataclysm 30 years ago, but the global energy picture has shifted a lot. US/Canada produce way more oil and gas than Saudi Arabia and are now exporting significant amounts of energy. With China now shrinking, we are likely somewhere around (or past) peak global gasoline demand, with strong, but slowly diminishing demand into the mid-2030s. The Saudis will remain a supplier of cheap oil to their trading partners, but they are sitting atop an asset that can be thought of as a perishable good as the world moves toward greater electrification. The size and shape of the global economy is very, very different than the 1970s. GE, GM, Aramco and Exxon have been replaced by Amazon, Google and NVIDIA. These companies are global juggernauts, and will ensure healthy demand for US currency well into the future.

dexzod 2y ago

I think this will have some interesting consequences. The US dollar used to be backed by gold, then Nixon ended that and then it got tied to oil, so in effect it was still backed by something tangible. The rest of the world currencies being somewhat linked to dollar were also indirectly tied to oil. Now the dollar is backed by nothing and by extension the rest of the currencies. In that sense dollar is now just a digital currency.

advisedwang 2y ago
The price of oil varies, so the petrodollar is nothing like the gold standard, where a dollar was pegged to a specific amount of gold.
- fuzzfactor 2y ago
  I would say you're both correct. >the petrodollar is nothing like the gold standard, where a dollar was pegged to a specific amount of gold. >in effect it was still backed by something tangible. I expect for the foreseeable future, with a few hundred dollars you will still be able to drive your Corvette (or other pleasure craft) around for quite a pleasurable tour. The thing that changes is the number of miles you can go according to the present asset value of your fuel at any one time. People got accustomed to that part of it a long time ago, after Nixon sacrificed the currency to the Saudis. With complete discharge as a petrocurrency, that could end up with some place other than the US, one which average income is abysmal by comparison, being fully able to collectively purchase more Corvettes for cash than Americans because of debt levels relative to tangible assets.
deleted 2y ago
[deleted]

highwayman47 2y ago

Surprised to see TipRanks on HN. That's not a real news source.

treebeard901 2y ago

Expect the U.S. Dollar to lose reserve currency status faster than expected to the Yuan. This can be seen in the Treasury market and with other nations going around sanctions or avoiding future sanctions. For a petrodollar specifically, or petroyuan in the future, the idea could be that the largest manufacturer is going to be the largest consumer of energy for manufacturing. In the past this was the United States which is why the Saudi petrodollar, while overhyped, made sense after the Nixon shock. China has played a key role using its increasingly gold backed currency to settle transactions for sanction reasons and is expanding it to others. It will take time for this change to happen and before long it will be interesting what kind of result this has on funding U.S. Govt debt, if more business is done in yuan than the dollar. All it will take is China loosening controls. The other reason the dollar has been so resilient has been the U.S. Navy providing the backbone to defense agreements. Now China also has a comparable number of ships that will move out of the South China Sea and play an international role with a yuan reserve currency, this advantage isnt what it used to be.

hylaride 2y ago
If China was a rule of law country without capital controls you’d be right, but nobody is rushing. Yuans are worthless unless you want to buy goods in China and if you amass too much, the Chinese government can control how it’s used without much recourse. This is a country whose government banned Winnie the Poo on social media because somebody started a meme of Poo and Tigger walking next to a photo of Obama and Xi walking. The only real alternatives today are the Euro and to a lesser extent the Japanese Yen, and they have their own issues (in particular, the Eurobond market is fragmented between its member states and while the EU does issue its own bonds, it’s not institutionally or politically designed to issue at massive levels). Even Russia, which tried to bypass sanctions and sell oil direct to India was left with either collecting in rupees (that it couldn’t really spend much of) or in rubles (which India had a hard time finding a market to trade rupees for). But again, don’t underestimate the basics of recourse in rule of law. You can own shit tons of US Treasuries and still speak ill of or go against the US government or its leaders. Do you think Saudi Arabia or anybody else wants have to bend the knee to anybody else?
- 2y ago

avsteele 2y ago

So is this real or not? I can't find any article actually naming the 'agreement'

thoiu2423l43243 2y ago

[flagged]

neilwilson 2y ago

Something being priced in dollars, doesn't mean it is bought with dollars. Oil has been bought in every currency on the planet for a very long time. The dollar clearing system is a transit route, not necessarily a destination. Buyers buys things with the currency they have, and sellers end up holding the currency they want to hold. Those involved in FX make a turn causing that match to happen. Otherwise the transaction never happens in the first place. The expiration of the agreement merely means that Saudi now has the option to move its oil retained profits out of US Treasuries and into something else, which may very slightly affect the yield curve.

ble 2y ago

Seems like a source that one should not generally take seriously (Tipranks) being syndicated by a source associated with an important name (Nasdaq) as part of a larger wave of articles about how some "pact", "treaty", or "contract" ended on a specific day. Having done a little more digging, I could find lots and lots of pieces about this topic, but I could not even one coming from a recognizable journalistic source. (Far from the top of search results was a piece that seemed to have some value: it noted the wave of coverage of the purported end of this pact despite the fact that no such pact existed. It also identified a possible connection between pushing this story, which makes the dollar sound endangered, and attempting to promote cryptocurrency.) Lots of HN commenters taking this at face value. To me, the overall situation looks like an object lesson in basic critical media literacy.

JumpCrisscross 2y ago
> Lots of HN commenters taking this at face value It's monetary policy, international finance and geopolitics. Famous HN fortes. (For the avoidance of doubt, only one of those is even remotely something I have competence in.)

photochemsyn 2y ago

As far as I know there is no formal petrodollar recycling pact between the United States and Saudi Arabia, nor any termination of the underlying understanding, which is that most of the dollars flowing into the oil states in the Gulf get reinvested back into US and British (and European) economies, and into the IMF and similar entities, in the names of the oil states. There are a lot of diplomatic cables from the 1970s about the origins of the concept (petrodollar recycling), but fundamentally it was that the Gulf Arab states had few options about where to put their oil money, and so most of it went back to western banks and international loan programs or into expensive property investments and financing Uber by at least $3.5B and so on. In exchange, they get their security guaranteed by US military and economic power. See [1] for a fascinating and well-written history of the period when the deal was implemented. However, it does seem Iran under the Shah was the first big petrodollar recycler, and he'd already invested a billion dollars each in Britain and France by 1974, which is part of why the Iranian revolution came as such a shock in Washington (and also accounting for the U.S. and Britain and France and Germany pouring material support and loans into Saddam's regime in Iraq as he went to war to seize Iranian oilfields in the early 1980s). Regardless there's no formal pact I've ever heard of on this, it's more some kind of diplomatic agreement, possibly enforced by the threat of freezing assets for various reasons real or pretend. The problem now is, what if the Gulf states decide they want to put those reserves into big domestic infrastructure projects? what if a majority of contracts going to Chinese firms, who seem better at large-scale solar PV and high-speed trains than the US or Europe does? Will Uber rates have to go up? [1] "The Oil Kings: How the U.S., Iran, and Saudi Arabia Changed the Balance of Power in the Middle East" by Andrew Scott Cooper.

happyjack 2y ago

I worked in oil / gas on international projects for 10ish years. I think the dollar will still be the de-facto reserve currency in 20 years, but it will be more as a medium of exchange rather than a true "reserve" currency for central banks. Central banks are buying gold like crazy. Comparatively speaking, the dollar is pretty stable. But, the inflation genie is out of the bottle. The USA keeps deficit spending like there's no tomorrow, and is on an unsustainable path. If tax receipts don't increase, we will have to print our way to debt servicing. Also, the western global hegemony is shifting. Many non aligned countries frankly don't care about the wests causes; they simply want cheap energy and to grow themselves out of poverty. The middle east is facilitating all this for southeast asia and the like. TL;DR the dollar will remain, but it will be an intermediary exchange between currencies and not a real "reserve" store of wealth.

janandonly 2y ago

There is no pact that ends. There is a non binding gentleman’s agreement. Never put on paper and never enforced. See also: https://news.ycombinator.com/item?id=40714405 https://news.ycombinator.com/item?id=40714405