It is uncertain if the petrodollar is on its way out, but it is sure coming under threat. The petrodollar system refers to the practice of pricing and trading oil in US dollars. This system has been in place for several decades and has provided major global demand for the US dollar.
However, there have been recent indications that some countries, such as China and Russia, are looking to challenge the dominance of the US dollar in the oil trade and beyond. This could potentially lead to a shift towards other currencies being used for oil transactions, such as the Chinese yuan, the Russian ruble, or the proposed BRICS gold stablecoin.
Q4 2022 hedge fund letters, conferences and more
Nevertheless, it is important to note that this is still a developing situation and it is difficult to predict exactly how it will evolve in the future.
Russia, China, And Saudi Arabia Moving Closer To Drop Petrodollar?
There has been much speculation in recent years about the potential decline of the petrodollar in geopolitical circles, but it has yet to be openly discussed between leaders. However, as the world becomes more fragmented, the discussion has become more prevalent.
Recently, former NY Fed repo expert Zoltan Pozsar wrote a report outlining how Russia, led by President Putin, could disrupt the Western financial system by demanding payment for oil exports in gold instead of dollars. This would effectively link oil to gold and create "petrogold." Pozsar’s report highlights the damaging reality the US faces if the petrodollar collapses.
In addition to Zoltan Pozsar's report highlighting the potential disruption of the Western financial system, China's President Xi further solidified China's influence over OPEC+'s oil and gas reserves during a meeting with Saudi and GCC leaders. This was marked by Xi’s remarks about the emergence of the "petroyuan," which fortifies China's growing power in the oil trade.
Also, Saudi Arabia's finance minister stated that the country is open to discussing trade in currencies other than the US dollar, further strengthening the possibility of the shift towards the "petroyuan" and away from the "petrodollar." Saudi Arabia has also announced its willingness to engage in trade with India using the Indian rupee for non-oil trade.
Why Would China Or Russia Want To Stop The Use Of The Petrodollar?
There are a few reasons why China and Russia may want to reduce the use of the petrodollar in the oil trade:
- Reduce dependence on the US dollar: Both China and Russia have expressed concerns about their heavy dependence on the US dollar as the primary currency for international trade. By promoting the use of their own currencies in the oil trade, they could reduce their vulnerability to fluctuations in the dollar’s value and increase their own currency’s international standing.
- Increase economic power: Having their own currencies used in the oil trade would give China and Russia more influence over global oil prices and the global economy.
- Reduce US influence: The US dollar's role as the primary currency in the oil trade has given the US significant influence in the global economy. By reducing the use of the dollar in the oil trade, China and Russia could reduce US influence and increase their own.
- Reduce Sanctions impact: If the oil trade shifts away from the US dollar, it would be harder for the US to use economic sanctions as a tool of foreign policy, as it would become less effective.
Conclusion
In conclusion, the future of the petrodollar remains uncertain as countries such as China and Russia are pushing for alternative currencies to be used in the oil trade. This could potentially lead to a shift away from the US dollar and towards other currencies, such as the Chinese yuan or Russian ruble.
Furthermore, countries like Saudi Arabia are also open to discussing trade in currencies other than the US dollar, further strengthening the possibility of the shift towards the "petroyuan" and away from the "petrodollar."
It is clear that the US faces a potentially damaging reality if the petrodollar collapses, which is why the future of the petrodollar remains a topic of ongoing discussion which will possibly reshape the global geopolitical landscape in the near future.
