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OPINION JANUARY 27, 2023 | The Indian Eye 10

US–Saudi Tensions: Implications

for the Petrodollar System

With the emergence of Asian countries as the main consumer of petroleum products, oil is being in-
creasingly traded in currencies other than the US dollar, even as Western states are rapidly shifting

their energy dependence out of oil and into alternative, mainly renewable, sources of energy

ADIL RASHEED
ith the US and Europe
becoming less dependent
Won West Asian oil imports
and China and India becoming the
main markets for GCC hydrocar-
bons exports, the petrodollar system
that came into existence in the 1970s
has come under stress, with oil be-
ing traded increasingly in non-US
denominated currencies. The recent
tensions between the US and Saudi
Arabia over a range of issues, in the
wake of the ongoing Russia–Ukraine
war, and growing ties of GCC states
with both Russia and China has only
worsened problems for the petro-
dollar system, which may potential-
ly have serious implications for the
global financial and economic order.

Recent tensions between the
United States and Saudi Ara- petrodollar system, which for almost Europe and increase oil produc- Arabia to delay its decision on oil
half a century made the US dollar tion to ease rising petroleum pric- output by a month, until after the
bia, an influential member of the standard for global trade and fi- es during the Russia–Ukraine war. US mid-term elections, the MBS-led
the Organization of the Pe- nance. In fact, President Biden out- Saudi government did not relent, but
At the heart of the petrodollar lined a five-part “new framework defended its output cut by saying all
troleum Exporting Countries system lies the relationship between for the Middle East” that included OPEC decisions are based solely on
(OPEC) countries, in the wake the US and Saudi Arabia, the lead- supporting economic development economic forecasts and needs.
and military security. However,
In fact, Saudi Arabia’s Kingdom
ing member state of the OPEC.
of the ongoing Russia–Ukraine In 2022, tensions between the Saudi Arabia did not accept de- Holding Company invested US$
war, has revived concerns US and Saudi Arabia over issues re- mands of the US and its allies to 500m in Russia’s three main ener-
lated not only to production of oil, increase oil production to reduce gy companies, almost at the time of
about new challenges to the but also to trading of oil in US dol- prices, and did not take up Western the commencement of the Russia–
so-called ‘petrodollar system’, lars has revived fears over the future calls to join countries putting sanc- Ukraine war.
What is more surprising is that
of the petrodollar system.
tions on Russia. The Kingdom also
which plays a pivotal role in the In March 2022, relations be- decided to side with the decision of Saudi Arabia in 2022 more than
functioning of the global finan- tween the US and OPEC member the 23-member state OPEC Plus doubled its import of Russian oil to
organisation, founded in 2016 that
states became so tense, that lead-
meet its domestic requirements such
cial and economic order. ers of Saudi Arabia and the Unit- includes Russia, to cut daily oil pro- as for electricity generation, even as
ed Arab Emirates (UAE) declined duction by 2 million barrels per day. it sold much of its costlier oil around
With the emergence of Asian to arrange calls with US President This resulted in a 2 per cent reduc- the world.
countries as the main consumer of Joe Biden as the US and its allies tion in global oil supply, the biggest This behaviour peeved Joe Biden
petroleum products, oil is being in- sought to contain a surge in energy cut in the last two years. The Saudi no end, who issued a warning to the
creasingly traded in currencies other prices caused by Russia’s invasion of decision was perceived by the White Kingdom of ‘consequences’ in early
than the US dollar, even as Western Ukraine. House and Western commentators October last year. Similarly, Dem-
states are rapidly shifting their ener- This led to a flurry of West- as being coordinated with Russia, ocratic Senator Bob Menendez of
gy dependence out of oil and into al- ern Heads of State visiting Ri- which currently sells more crude oil US Senate Foreign Relations Com-
ternative, mainly renewable, sources yadh, mainly to urge Saudi Ara- than Saudi Arabia. mittee threatened to stop the sale of
of energy. This has weakened the bia to stand with the US and Even when Biden asked Saudi Continued at next page... >>

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