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- 1 80% of the global oil trade is conducted in dollars. Recently, Saudi Arabia ended the historical petro-dollar agreement which mandated dollar’s status as the global oil trade currency.
- 2 Russia, Iran, Saudi Arabia, China, and few other countries are increasingly shifting to local currencies or regionally dominant currencies for energy trade.
- 3 Bitcoin reserve can create a stable solution for the energy trades between various nations.
China has become one of the top customers for Oil trade with Saudi Arabia. Both these countries do billions of dollars of trade each year for the energy exchange. As per various reports China accounts for over 20% of all Saudi Arabia oil exports while having a close tie with the country.
Source: Crude Oil Price By Investing
In the aftermath of Saudi Arabia not renewing the petro-dollar agreement, the US is likely to see a spike in inflation along with a surge in their existing debt.
Saudi Arabia’s decision to accept other currencies for oil trade might impact negatively on the Dollar and could loose its dominance. The global oil trade could also see a paradigm shift if Saudi Arabia starts to accept other currencies. Lets have a look at what the petro dollar agreement is and what the USA is doing to save it.
Is the USA Silent With the End of the Petrodollar Agreement?
Petro Dollars is crude oil export revenue which is denominated in the USD. This term gained significant traction in 1970 when oil trade generated huge revenue for the oil exporting countries.
The United States-Saudi Arbaian Join commission on economic cooperation was established in 1974. The Commission was formed shortly after the 1973 OPEC oil embargo in order to strengthen economic ties between these countries. The two countries were motivated to forge a more formal arrangement which could ensure mutual benefits.
Source: USD/SAUDIRIYAL By Investing
The US is not sitting silently. As per the Reuters, the Biden administration is close to finalizing a treaty with Saudi Arabia. The treaty would commit the USA to defend the Gulf nations as a part of the deal while improving diplomatic ties between Riyadh and Israel as per the WSJ. This will also bind Riyadh closer to Washington by not allowing China to build bases in the Kingdom or pursue any security cooperation with Riyadh as reported by Reuters.
The world is seeing a paradigm shift in the overall energy trade and there is no clear solution as of now.
Can Bitcoin be the Solution for Energy Trades?
The problem with energy trade is that at any point, an economic titan will dominate the trade. If Bitcoin could be the solution to this problem, here’s what would be important to note.
Bitcoin is no country’s currency and is decentralized. Meanwhile, global trade would involve denominating debt in Bitcoin rather than US dollars. However, it might be difficult to exchange due to the volatile nature of Bitcoin.
If these countries allocate some amount of surplus in BTC denomination or create a CBDC with BTC reserves, it could become possible some day.
Bitcoin poses technical difficulties, but using it for global trade could end the global dominance of any one currency over energy trade.
Disclaimer
The views and opinions stated by the author or any people named in this article are for informational purposes only. They do not establish financial, investment, or any other advice. Investing in or trading crypto or stock comes with a risk of financial loss.
Adarsh Singh is a true connoisseur of Defi and Blockchain technologies, who left his job at a “Big 4” multinational finance firm to pursue crypto and NFT trading full-time. He has a strong background in finance, with MBA from a prestigious B-school. He delves deep into these innovative fields, unraveling their intricacies. Uncovering hidden gems, be it coins, tokens or NFTs, is his expertise. NFTs drive deep interest for him, and his creative analysis of NFTs opens up engaging narratives. He strives to bring decentralized digital assets accessible to the masses.
