After the expiration of the 50-year US dollar oil agreement between Saudi Arabia and the United States on June 9, Saudi Arabia chose not to renew it. Saudi Arabia can now sell oil in various currencies, including the yuan, euro, and yen, and will expand in the future.

Industry insiders analyzed that Saudi Arabia's choice not to renew also means that the global financial market may undergo significant changes and promote countries to abandon the US dollar as the main reserve currency.

The Kitco financial website analyzed on Thursday (June 13) that as the US dollar-oil agreement between the United States and Saudi Arabia expired on Sunday, June 9th, the financial world order established in the past 50 years is transitioning to a new and unknown paradigm.

The term 'petrodollar' describes the role of the US dollar (USD) as the currency for crude oil trading on the world market. It can be traced back to the early 1970s when the United States and Saudi Arabia reached an agreement shortly after the US abandoned the gold standard, which had a profound impact on the global economy.

The petrodollar agreement was reached after the 1973 oil crisis. The initial petrodollar agreement was signed by US Secretary of State Henry Kissinger and Saudi Arabia's Prince Fand ibn Abdul Aziz on June 8, 1974.

The agreement stipulated that Saudi Arabia would completely price its oil exports in US dollars and invest its remaining oil income in US Treasury bonds. In exchange, the United States provides military support and protection to Saudi Arabia. The dollar reserves were thus anchored to oil, and this was a strategically significant agreement after the US abandoned the gold standard.

The petrodollar agreement helped consolidate the US dollar's status as the world's reserve currency and created a prosperous era for Americans as the preferred market for global companies to sell their products. In addition, foreign capital inflows into US Treasuries supported low interest rates and a strong bond market.

All of this will change because Saudi Arabia is seeking to go beyond its exclusive relationship with the United States - becoming the newest member of the BRICS.

Although many people have pointed out that the escalation of global tension and the shift in geopolitical loyalty are the reasons for the expiration of the agreement, the changing global power balance in the oil market has also played a key role in this development.

In the past decade, the rise of renewable energy and natural gas has steadily reduced the world's reliance on oil, and even oil-rich countries like Saudi Arabia have changed.

By 2030, Saudi Arabia will have half of its electricity come from renewable energy and natural gas, and plans to plant 100 billion trees as part of a larger goal to achieve net-zero emissions by 2060. To achieve this goal, they have implemented more than 80 public and private sector initiatives with investments exceeding $188 billion.

The rise of emerging oil-producing countries such as Brazil and Canada has also influenced Saudi Arabia's decision to move in this direction, challenging the traditional dominant position of the Middle East.

Although many analysts have said that the threat to the status of the US dollar as a reserve currency has been exaggerated, most people agree that the expiration of the petrodollar agreement may weaken the US dollar in the long term, thereby weakening the US financial market. The decline in global demand for the US dollar may lead to higher inflation rates, higher interest rates, and a soft bond market in the United States.

Currently, the Kingdom of Saudi Arabia still accepts the US dollar for the exchange of oil, but some of the world's largest economies are trying to change this, especially China. For many years, China has been actively trying to get Saudi Arabia to accept the yuan to buy oil, and although Saudi Arabia has not made any changes to this day, they are open to the idea.

According to Sputnik, 'Nearly 80% of global oil sales are priced in US dollars. However, Russia, Iran, Saudi Arabia, China, and other countries are increasingly turning to their own currency in energy trade. By 2023, 20% of the world's oil will be purchased with other currencies, according to The Wall Street Journal.'

Sputnik said, 'According to international economists, if countries around the world sharply reduce the use of the US dollar, the US ability to issue dollar debt and earn dollar exports will weaken, and the US economy will shrink.'

Although the current situation of exchanging oil for the US dollar is still effective, the expiration of the petrodollar agreement represents a major shift in the global power structure, highlighting the changing energy pattern and the growing influence of emerging economies.

There are reports that the Biden administration is about to reach a treaty with Saudi Arabia, which will promise to help defend Saudi Arabia as part of the agreement to encourage Saudi Arabia and Israel to establish diplomatic relations. This indicates the importance the United States places on maintaining a strong relationship with Saudi Arabia. In terms of product structure, the overall sales volume of the company was 18,000 kiloliters in 2023, with a year-on-year increase of +28.10%. The operating income of 10-30 billion yuan products was 401/1288/60 million yuan, respectively.

According to Reuters, "the possible agreement, which has been widely communicated by US and other officials over the past few weeks, is part of a broader package agreement that also includes a US-Saudi civilian nuclear agreement, steps to establish a Palestinian state, and ending the Gaza war."

The treaty, called the Strategic Alliance Agreement, requires a two-thirds majority vote in the US Senate to pass. According to US and Saudi officials, the draft of the treaty is largely based on the Washington-Japan Mutual Security Treaty.

According to The Wall Street Journal, the draft of the treaty will allow Washington to enter Saudi territory and airspace to protect US interests and regional partners, as the United States has promised to protect Saudi Arabia in the event of an attack.

Impact on the US dollar, Bitcoin, and gold

Daniel Krupka, director of research at Coin Bureau, said in a report to Kitco Crypto: "The end of the US-Saudi oil dollar agreement is unlikely to have a significant impact on the dollar. This is because Saudi Arabia is likely to convert its oil payments in non-dollar currencies into dollars anyway."

He added:"Although the currency of the BRICs may have some degree of adoption, without stable economic support, it will not reach the level of adoption similar to that of the US dollar, gold or Bitcoin. Neither side will benefit from the end of the agreement in the short term, as it will only complicate matters. In the long run, this may reduce Saudi Arabia's dependence on the US dollar, depending on how the country handles its non-dollar revenue."

Regarding the defense treaty draft, Krupka said that it "may maintain bilateral relations at the strategic level, but it will not directly replace the economic aspects of the oil dollar agreement." He also pointed out that the Saudi riyal is pegged to the US dollar, which means that "Saudi Arabia needs the US dollar to support its currency."

Krupka said:"However, the end of the agreement may be disadvantageous to the US dollar, as Saudi decides to convert these non-dollar currency proceeds into other assets, such as gold or Bitcoin. Further diversifying Saudi's assets into gold or Bitcoin may help push up prices, though this depends on the degree of diversification."

Brian Mahoney, co-founder of Acre, said in a report:"The symbolic significance of the end of the US-Saudi oil dollar agreement is that it marks further economic and geopolitical division in the future. This means that the global valuation currency of top energy assets such as oil is no longer priced solely in dollars, but opens the door to other assets."

He added:"Given the relationship between Bitcoin and energy companies (through its proof-of-work consensus mechanism), and Bitcoin's status as the most valuable native digital asset in an increasingly digitized global economy, Bitcoin as an exploratory asset makes sense."

Although the details of future BRICs currencies are unclear, Russian President Vladimir Putin said Wednesday:"Within the BRICs, we are working to shape an independent payment system that is not subject to political pressure, abuse and external sanctions."

Some suggest that BRICs currencies can be supported by a basket of commodities, of which gold will be a part-which may benefit gold prices.

Most analysts believe that it will take several years for the US dollar to lose its reserve currency status, but X user Bullion Buzz emphasized that the transition from Western currencies is accelerating in the face of geopolitical tensions.

Jaime Carrasco, senior investment advisor and senior investment portfolio manager at Canaccord Genuity Financial, said:"For every Western investor, the important thing is that the Petrodollar is being replaced by gold-redeemable yuan contracts in the sale of oil, and I believe Saudi Arabia, the UAE, and Iran, like Russia, would be happy to accept gold rather than the US dollar as a trade settlement for oil."

Carrasco also pointed out that:"Saudi Arabia has announced that they will join the Bank of International Settlements' mBridge payment system, making the Petrodollar system no longer the only energy payment system."

X user Doctor Profit said that the termination of the agreement will lead to more US debt being printed and ultimately lead to increased inflation.

He added:"This is more like a long-term rise. The impact of this change will be evident in 8-12 months. The result is that inflation will worsen and the prices of everything, including stocks, Bitcoin, real estate, and gold, will rise."