In the middle of June 2024 there were a plethora of rumours regarding the collapse of the “Petrodollar Agreement” between Saudi Arabia and the United States. These rumours took off like a rocket and were exacerbated on social media platforms such as X. The purported 50 year old agreement requiring Saudi Arabia to price its crude oil exports in US Dollars had apparently expired on Sunday 16^th June 2024. Many commentators on X were horrified and suggested that this would surely undermine the status of the US Dollar as the de facto global world reserve currency, leading to massive financial upheaval. As a result, according to Google Trend data, searches for the term “Petrodollar” spiked to the highest level on record, dating back to 2004.

However, mainstream media did not report this news. Indeed, a number of foreign-policy experts, plus some experts from Wall Street, announced that the agreement in itself did not exist, at least not in the way pronounced on many social media outlets. One well known chief economist advised that this was indeed fake news but did indeed confirm there was a joint agreement between Saudi Arabia and the United States on the 8^{th of} June 1974. 

This agreement is referred to as the United States-Saudi Arabian Joint Commission on Economic Cooperation and had nothing to do with currencies, as the Saudis were already selling their oil in Sterling and continued to do so after signing the agreement. Therefore there was no formal agreement requesting the Saudis to price their oil in USD Dollars only, however, later in 1974 they actually stopped receiving Sterling as payment for oil exports. The 1973 OPEC oil embargo was the reasoning behind the June 1974 agreement and both the United States and Saudi Arabia wished to come to a formal arrangement where each got more out of the other. 

Post the 1973 OPEC oil embargo saw a spike in oil prices which greatly enhanced Saudi Arabia’s surplus of US Dollars. They wished to use to industrialise their economy, whilst the United States were keen for them to recycle these dollars back into the US Economy. This led to a further agreement in late 1974 where the United States promised military aid equipment, and in return the Saudis would invest billions of dollars in US Treasury’s. This agreement was kept under wraps until 2016 when Bloomberg News filed a Freedom of Information Act request to the National Archives. 

However, Saudi Arabia are making noises about receiving payments for oil in other currencies apart from the US Dollar. This is heightening due to their membership of BRICS*, which was due on the 1^{st of} January 2024 but was delayed, however the South African government has since confirmed Saudi Arabia as a full member. Today, Saudi Arabia no longer has US dollar reserves and is borrowing heavily in the sovereign debt market, even selling parts of its national oil company (Saudi Aramco which has in excess of 270 billion barrels in reserve). Furthermore, whilst Saudi Arabia still owns significant reserves, some of which are tied up in US Treasury’s, data reveals that both Japan and China have more assets tied up in US debt. 

*BRICS – Is an intergovernmental agency and is an acronym for Brazil, Russia, India, China, (all joined 2009) followed by South Africa in 2010 as the original participants. Today, membership has grown to include Iran, Egypt, Ethiopia, the United Arab Emirates and Saudi Arabia, with Thailand, and Malaysia on the cusp of joining. Russia sees BRICS as continuing its fight against western sanctions and China, through BRICS, is increasing its influence throughout Africa and wants to be the voice of the “Global South”. A number of commentators feel as the years progress BRICS will become an economic and geopolitical powerhouse and will represent a direct threat to the G7 group of nations. Currently this group represents 44% of the world’s crude oil production and the combined economies are worth in excess of USD28.5 Trillion equivalent to 28% of the global economy. 

Indeed analysts suggest that in a sense the “Petrodollar” actually died about 30 years ago. Fifty years ago Saudi Arabia’s current account surplus was in excess of 50% of its GDP (Gross Domestic Product) with the petrodollar reflecting this. The only reason the United States benefited was due to Saudi Arabia recycling US Dollars into the American debt market. However, between 2003 – 2008, the value of these dollars became less and less as Saudi Arabia and other OPEC nations channelled these funds to improve their economy spending on items such as goods and services. In 2024, data released shows that the current account surplus of Saudi Arabia is 0.5%, with analysts suggesting that the country will fall into deficit in 2025 continuing until 2030. 

With speculation abounding that Saudi Arabia is about to move away from receiving US Dollars for oil, experts advise that the administration of Joe Biden is close to signing a security deal with Saudi Arabia. Analysts advise that this deal will also encompass efforts to solve the current Gaza conflict, making progress towards creating a Palestinian state and a civil nuclear agreement between Saudi Arabia and the United States.

Experts in foreign policy suggest that the signing of this agreement is President Joe Biden’s attempt to bring Saudi Arabia closer to the United States and mend some fences between the two countries. Furthermore these experts suggest that this agreement will also encourage Saudi Arabia to pull back from the current Sino-Saudi partnership involving security and increased diplomatic relations, thus putting an end to speculation of Saudi Arabia dumping the dollar in favour of other currencies.