From petrodollar to petrobitcoin

Saudi Arabia has reportedly ended the petrodollar system, as can be read all over X. What is the real situation?

The Quincy Pact

Saudi Arabia reportedly did not renew “its 50-year petrodollar agreement with the United States”. An agreement that expired on Sunday, June 9, 2024, it is said here and there.

While it is permissible to doubt the existence of a half-century-long agreement, it was indeed in 1974 that the petrodollar emerged. Three short years after the end of the Bretton Woods agreements.

From a historical perspective, the origins of the petrodollar date back even to 1945. On his way back from the Yalta conference, President Roosevelt made a stop unbeknownst to the British along the Suez Canal. It was aboard his cruiser USS Quincy that he met King Abdulaziz Al Saud. It will later be said that this meeting birthed the “Quincy Pact.”

This diplomatic anchorage went so well that Roosevelt offered his wheelchair to the Saudi king, who was also disabled. Despite this goodwill, the king refused to allow Jewish settlement in Palestine. However, the American president ensured the essential by sidelining British Petroleum in favor of American oil companies.

This tacit agreement prevented the creation of a Jewish state, but Roosevelt would die two months later. His successor, Harry Truman, would be a strong supporter of the founding of Israel. He would recognize the Hebrew state 11 minutes after the Israelis declared themselves a nation, against the advice of his Secretary of State.

Henry Kissinger’s Masterstroke

It was in 1974 that the second historic meeting between the Saudis and the American government took place. Henry Kissinger had been Secretary of State for a year. His mission? To impose the dollar on the ingrates of the old continent who dared to demand gold.

His strategy began with an intervention in favor of Israel in the Yom Kippur War.

[For more context, note that Henry Kissinger is Jewish. He fled Nazi Germany at the age of 15 and would return in uniform five years later to fight in France and Germany.]

In retaliation, Arab countries ceased their oil exports, primarily to European nations. The United States, for its part, was self-sufficient. By 1974, the price of a barrel had quadrupled, going from $3 to $12.

Les importations de pétrole américaines depuis l'Arabie saoudite commencèrent en 1971, année du pic pétrolier des États-Unis. pic.twitter.com/pHjC6ySXE0

— Nicolas Teterel (@NTeterel) June 11, 2024

This oil embargo was all the easier to implement as the United States had been pushing for years for the emancipation of Iraq, Iran, Kuwait, the United Arab Emirates, Qatar, and Libya from European companies (British Petroleum, Royal Dutch-Shell, and the French Petroleum Company, ex-Total).

Kissinger wanted the price of the barrel to explode to weaken the old continent. He knew well that the American army would have the last word if things escalated, allowing him to impose himself at the heart of international relations. International discord would reach its peak when President Gerald Ford recognized Jerusalem as the capital of the Hebrew state.

Petrodollar

In response, Saudi Arabia continued to raise the price of the barrel, without knowing that it was playing into the hands of Henry Kissinger, who would ultimately threaten to use force to remedy what he called “the strangulation of the industrialized world”. The London Sunday Times revealed in February 1975 the existence of the “Dhahran Option Four” plan, which planned to invade Saudi Arabia to take possession of its oil wells.

King Faisal would hear these drums of war very clearly. At the end of 1974, he finally gave in to Henry Kissinger’s demands, who promised him the unlimited sale of arms, a backpedal on the Jerusalem issue, and a return of Israel to its 1948 borders (plus a myriad of technologies).

In exchange, Saudi Arabia had to:

1. Sell its oil exclusively in dollars.
2. Invest its dollar surpluses in American debt (It was anyway impossible for a kingdom of 10 million inhabitants to spend the thousands of billions of petrodollars).

All OPEC countries would agree in 1975 to denominate their oil in dollars. Here are the broad lines of the genesis of the petrodollar. King Faisal would be assassinated on March 25, 1975, on the day of the Mawlid, the anniversary of the birth of the prophet Muhammad. Subsequently, Israel would never return to its 1948 borders.

Petrobitcoin

Fifty years later, Saudi Arabia’s Finance Minister, Mohammed Al-Jadaan, declared at the 2023 WEF “that there is no problem discussing how we settle our trade agreements, whether in US dollars, euros, or Saudi riyals.”

And this, just a few weeks after Xi Jinping called from Riyadh for the kingdom to accept the yuan. Another unmistakable sign, Saudi Arabia has significantly reduced its dollar reserves.

Finally, let’s remember that the Saudis joined the BRICS club at the beginning of the year, and this alliance openly advocates for de-dollarization.

Dollar share of global reserve is sinking, at 55 %.

Real number is 48 % when taking gold reserves into account. pic.twitter.com/EauSfY1YHJ

— Nicolas Teterel (@NTeterel) June 11, 2024

That being said, it will not be easy to entirely replace the dollar. A new pivot (standard) currency is essential. What will it be? Gold? We all know how the Gold Standard ended…

Moreover, the West will need to accept it, which is far from certain. A multipolar world could instead lead to a fragmentation of payment systems. The solution is a currency outside governmental control, a stateless currency.

This currency must be an absolute store of value while being an international payment system from which no nation could be banned. We are indeed talking about Bitcoin and its decentralized architecture.

Do not miss our article: Bitcoin, the new Bretton Woods.