Andrey Zik explains the major changes to the global economy that will come with the expiration of the long-standing petrodollar agreement between Saudi Arabia and the US on June 9, 2024.
This system lasted for 75 years, positioning the US dollar as the world's reserve currency and providing access to economic stability and rising asset prices. The US-Saudi arrangement helped maintain the US dollar's dominance in global trade.
However, last Sunday, the Saudi prince announced that the contract would not be renewed, signaling a major shift in the global financial landscape. The agreement, which began after World War II, gave the United States control over the world's energy and had a profound effect on the standard of living of Americans. The petrodollar system replaced gold as the standard of value and allowed the United States to maintain its dominance in international trade. The reasons behind Saudi Arabia's decision not to renew the contract are part of a larger story, the impact it will have on us and future generations, is yet to be fully understood.
Andrey discusses the trend of countries moving away from using the US dollar in international trade and oil transactions, with Saudi Arabia reportedly joining the trend recently. The speaker argues that this could signal the end of America's global financial dominance, and raises the question of what the US is famous for exporting that the world is buying. The answer, according to the speaker, is the US dollar. The speaker explains that the US economy benefits greatly from being able to export dollars and issue debt in the form of government bonds, which creates economic stability, lower interest rates, and liquidity in financial markets.
He discusses the potential impacts of Saudi Arabia's decision to stop using the US dollar for oil trading. He explains that the higher interest rates caused by this decision could make mortgages, rent, car loans, student loans and credit cards more expensive. It could also put strain on the banking system, the national deficit and the federal budget, leading to higher taxes. Additionally, the value of the dollar itself could be affected, making travel and purchasing goods to other countries more expensive.
Andrey also touches on the reasons for Saudi Arabia's decision, its involvement in the BRICS alliance and the trend of countries becoming less reliant on the dollar. He argues that the United States has limited options to counter this trend, and that global dollar-denominated foreign exchange reserves and the use of the dollar in foreign exchange transactions remain high. The speaker concludes by sharing his personal thoughts on the situation and offering some investment advice.
Read more – Saudi Arabia’s withdrawal from the petrodollar: a paradigm shift in global finance