The End Of The Petrodollar

Submitted by QTR's Fringe Finance

For the better part of the last two years on this blog, I’ve been writing (and talking) about a long string of waypoints that I believe are eventually leading to de-dollarization and the inability of the United States to meet its financial obligations.

While the long-term idea of de-dollarization is hardly ever talked about by those in the financial industry, over the last 48 hours it has become clear to me that we have moved well further down this path, and there still remains only one investment that I believe is best for what’s coming down the pike.

As I said I would be doing, last week I was watching the BRICS summit in South Africa closely.

The key development was that the consortium of nations, previously only including Brazil, Russia, China, India and South Africa, will soon be expanding to include Iran, Saudi Arabia, United Arab Emirates, Argentina, Egypt and Ethiopia.

Another key development (or non-development) was that no BRICS currency was announced, as had been previously speculated by me, based on previous reports by Kitco, among other sources.

“No one has tabled the issue of a BRICS currency, not even in informal meetings. Setting up a common currency presupposes setting up a central bank, and that presupposes loosing independence on monetary policies, and I don’t think any country is ready for that,” Bloomberg reported Enoch Godongwana, South Africa’s finance minister, as saying.

But the idea isn’t totally off the table, with Brazil’s President Luiz Inacio Lula da Silva urging last week for the BRICS nations to create a common currency for trade.

Saudi Arabia’s inclusion into the BRICS nations stuck out like a sore thumb for me. It’s a move that the South China Morning Post called “taking a step away” from the United States and strengthening the hand of China, and I couldn’t agree more:

While keen not to be seen as promoting an anti-West alliance, Riyadh and Abu Dhabi have effectively “taken a step away” from Washington by attaining Brics membership, Middle East observers said.

Kristin Diwan, a senior resident scholar of the Arab Gulf States Institute in Washington, said Saudi Arabia and the UAE were “eager to diversify and deepen their global partnerships independent from US dominance”.

They are looking for a “more neutral global playing field where independent sovereign countries can choose their partnerships” pragmatically and based on particular interests, she told This Week In Asia.

In the case of Brics membership, that means “taking a step away from the US and effectively strengthening the hand of China”, Diwan added.

For anybody that has been listening to my repeated discussions with Andy Schectman over the last two years, you know that after the United States took the dollar off the gold standard, it was all but assured to remain global reserve currency because Saudi Arabia, in exchange for U.S. protection of the kingdom, would settle trades of oil in U.S. dollars only. This effectively created a petrodollar.

In 2022, it was reported that Saudi Arabia would start considering settling these trades in Chinese yuan instead of U.S. dollars, with a Saudi official telling the Wall Street Journal that “The dynamics have dramatically changed. The U.S. relationship with the Saudis has changed, China is the world’s biggest crude importer and they are offering many lucrative incentives to the kingdom.”

Andy told me back in September 2022: “The dollar hegemony is right about ready to break when you realize that Saudi Arabia is about to join the BRIC nations. Do you think Biden is going to fly there to ask for more oil? He went there to beg them not to join BRIC.”

“Saudi Arabia is open to discussions about trade in currencies other than the US dollar, according to the kingdom’s finance minister,” Bloomberg reported back in January 2023.

And now, just hours ago...(READ THIS FULL ARTICLE HERE).