50 years ago, U.S. was an oil importer in a pre-Mag7, pre-BRIC world economy
June 13, 2024
Key Observations:
In June 1974, the Kingdom of Saudi Arabia (KSA) and the United States signed a pact by which KSA agreed to sell its oil exports in U.S. dollars (USD). This week the parties allowed this fifty-year “petrodollar” accord to expire without renewal.
The outcome is neither unexpected nor disruptive.
De-dollarization in oil and other commodity sales has been increasing for several years. UAE sold oil to India in rupees last summer (Up, up, and away, 4-Dec-2023). Russia’s crude oil sales to China have surged since start of the Ukraine war and now routinely exceed 2 million b/d. The yuan’s share of Russia’s exports has risen from 0.4 to 34.5 percent over the past two years, according to Russia’s central bank as reported by SCMP*.
At the same time, oil sales account for a smaller share of world GDP and trade than 50 years ago.
And USA, not KSA, is now the world’s largest oil exporter. America’s 10.6 million b/d of petroleum exports will continue to be sold in USD.
Meanwhile, “can do” does not mean “will do” with respect to foreign exchange transactions in oil.
Expiration of the petrodollar pact is more nod to the status-quo rather than a new shakeup. It’s a good reason to buy gold but not a good reason to sell oil. USD will remain the juggernaut currency for international settlements (paper and real).
Source: *South China Morning Post (SCMP), Energy Institute, World Bank, EIA, Blacklight Research. Note: “Mag7” refers to “Magnificent Seven”, the market's wordplay on the movie title to group seven dominant stocks in the information technology sector (AAPL, AMZN, GOOG, META, MSFT, NVDA, TSLA). “BRIC” is an acronym coined by Goldman Sachs Research in 2001 to group four countries with foundational roles for driving global development and growth in the 21st century: Brazil, Russia, India, China.
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