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Following up on the assessment of the rapidly evolving world order in the crude oil trade, a series of recent oil-related international agreements raises questions about whether the dominance of the petrodollar is also evolving. – 'Forbes' puts a question.

While no one has been surprised by Russia's response to Western sanctions by pressuring its oil buyers to transact in rubles, recent agreements made between other nations to transact crude oil and petroleum products using other currencies have called more attention.

Here are some examples of recent international agreements and new alliances that raise questions about the future of the petrodollar:

– On March 28, Brazil and China, two members of the increasingly influential BRICS Alliance, announced an agreement to conduct all future business transactions using their own currencies. China ranks as Brazil's largest trading partner.

– On March 8, Reuters reported that “Indian customers have paid for most Russian oil in currencies other than the dollar, including the United Arab Emirates dirham and, more recently, the Russian ruble, multiple banking and trade sources said. of oil”.

– On March 29, Saudi Arabia announced that it has agreed to become a “dialogue partner” in the Shanghai Cooperation Organization, a Chinese-led political, economic and security organization designed to compete with similar Western organizations. This latest indication to strengthen ties between Saudi Arabia and China came just weeks after the Kingdom and Iran announced an agreement to restore diplomatic relations that had been brokered by China.

– On March 28, French oil giant Total Energies announced that it had completed its first purchase of liquefied natural gas (LNG) from Chinese oil company CNOOC using the Chinese yuan as currency...

These and other deals made in recent months have led to speculation that, as Oil markets continue to evolve, the petrodollar could be losing influence.

While a high percentage of international crude oil transactions had long been in US currency, the petrodollar was more formally established as the global brand currency for such transactions in 1973, following the first Arab oil embargo. The Richard Nixon administration then executed an agreement with Saudi Arabian Prince Fand Ibn Abdel Aziz in which the Kingdom of Saudi Arabia agreed to conduct its oil trading operations in US dollars in exchange for US military support and equipment. .

The establishment of this arrangement between what was at the time the largest buyer of crude oil (the United States) and the largest exporter of the product (Saudi Arabia) created a paradigm that other importing and exporting nations quickly began to follow. Since then, a vast majority of international oil transactions have traditionally been conducted in US currency, that is, the “petrodollar”.

Today, even amid global tensions, shifting international trade agreements, and a spate of new agreements to transact in competing currencies like the Russian ruble and Chinese yuan, a recent analysis by Ph.D. Economist Anas Alhajji, managing partner at Energy Outlook Advisors, points out that 60% of official foreign exchange reserves realized in the first quarter of 2022 were traded with US dollars, according to IMF data.

Alhajji adds: “Yes, with the rise of the euro, the Japanese yen and the Chinese yuan, the US dollar lost some ground, but here is the surprise: according to the most recent data from the International Monetary Fund (IMF), the US dollar dollar share is where it was in 1995.”

Such divisions and pressures to trade outside of the petrodollar are likely to continue to increase. The continued rise of China as a geopolitical power and competitor to US international dominance and the post-WWII liberal world order also appears to increase pressure on the current petrodollar system.

The growing influence of the BRICS Alliance and its expansion plans are also likely to result in stronger competition for the US dollar in international trade. BRICS (Brazil, Russia, India, China and South Africa) members voted last year to consider admitting new members, and Russia's Foreign Minister Sergei Lavrov recently said that "more than a dozen" nations have expressed interest in joining the group.

All these factors could lead to a decrease in the influence of the US and its currency in international transactions. Still, while he acknowledges all these factors, Alhajji emphatically states that "the US dollar is losing ground, but it is not losing dominance."

There is no doubt that the United States is in the process of gradually withdrawing from the role it adopted at the end of World War II to become the world policeman of the world. Despite their vast rhetorical differences, this gradual backtracking has been a predominant feature of the presidencies of Barack Obama, Donald Trump, and Joe Biden.

It is not an accident that the influence of the petrodollar has diminished rapidly with this US pullback, writes 'Forbes'.

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