dollars to China and then using those dollars to purchase Chinese goods. However, now, they are selling oil in U.S. dollars to America (and Europe) and then recycle those export proceeds into imports and financial assets from the United States (and Europe). Originally, Saudi Arabia and other Gulf Cooperation Council (GCC) economies would sell oil in U.S. What this indicates is that the petrodollar recycling loop has been broken. ![]() Trade also has evolved into a much deeper investment relationship between Saudi Arabia and China. In fact, China is the Kingdom’s biggest trading partner, purchasing nearly 20 percent of its exports, and will soon overtake the entirety of the European Union as its biggest international supplier. China now buys three times as much oil from Saudi Arabia as the United States does. Saudi trade with the United States has been declining for decades. Biden is even thought to be unwilling to directly communicate with the Crown Prince.Īccompanying this rise in tensions are profound geo-economic and financial developments. Biden’s description of Saudi Arabia as a “pariah” state with “no redeeming social value” made growing animosities more personal. Things have deteriorated further under the Biden administration, including Biden’s release of an intelligence report implicating Saudi Crown Prince Mohammed bin Salman in the murder of the journalist Jamal Khashoggi in Istanbul. This feeling has been reinforced by various barriers to the sale of military hardware, while Washington has refused to offer intelligence and logistics to support the Saudis in their battle against the Iran-backed Houthis in Yemen. was neglecting their strategic interests. Saudi grievances include the Iran nuclear deal and the Pivot to Asia under the Obama administration. The decline in ties started as far back as 9/11, but has accelerated recently. This arrangement has persisted for nearly 50 years, but the overall U.S.-Saudi relationship has grown fraught over the last two decades. Born was the petrodollar, assuring American global financial hegemony. ![]() It forced all oil importing nations to hold dollars in reserve to finance their oil imports, a fact reinforced when Saudi Arabia convinced other OPEC nations to invoice oil in dollars as well. dollar’s liquidity and global attractiveness. dollars, then recycle those proceeds into treasury bills, other American financial assets, and American exports to Saudi Arabia, especially arms. The Kingdom would invoice oil exports exclusively in U.S. This deep financial link was forged in 1974, when President Nixon struck a deal with the House of Saud. dollar, providing a liquid and so far stable financial backstop. After all, the Saudi riyal is pegged to the U.S. Given Saudi Arabia’s deep ties with the United States, both in the security and financial realm, such a move is likely to be cautious and restrained. Such discussions between Riyadh and Beijing have been ongoing for more than half a decade, but seem to have accelerated recently. One indication of these tectonic shifts is a report by the Wall Street Journal that Saudi Arabia is in active talks to price some of its oil sales to China in yuan. These sanctions are not just introducing much uncertainty and instability into trade and financial ties with Russia, but for global trade as a whole.Īlthough the situation on the ground is evolving rapidly, the bigger picture indicates a coming sea change in several key commodity trades that could reshape geo-economics. This is both due to the disruptions that the war itself is causing as well as the extensive sanctions Western countries have levied against Russia. One of the most immediate and profound transformations is the rerouting of basic supplies, including oil, gas, food staples (such as wheat), fertilizer, and various metals. ![]() ![]() As the war in Ukraine drags on, the global economy is experiencing upheaval and change.
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