Monday, June 10, 2024 is the first since the expiration of the military and economic assistance agreement signed in 1974 between the Nixon administration and Prince Fahd ibn Abdulaziz Al Saud. International business days. From now on, Saudi Arabia is free to sign oil trade deals involving payments in any currency, whereas previously it was limited to U.S. dollars. While the actual impact of the agreement’s termination will only be felt over time, it is difficult to imagine a future in which the dollar’s status as the main foreign exchange reserve currency will not be threatened among the United Nations’ G77 countries. In 1999, the U.S. dollar accounted for 71% of global foreign exchange reserves, but by 2022 it had dropped to 58%.
Could Nixon and Kissinger predict current economic conditions? Maybe some of them. Russia and the United States are once again at loggerheads, but not at direct war. The opinions of Middle Eastern countries still matter, although in an age where anyone organized (or indeed unorganized) with access to the Internet has the ability to broadcast propaganda directly to a computer, the term “buffer state” is less important than Much smaller, smartphones, smart watches… the list goes on. Until his death in November last year, Kissinger believed that relations between Russia and the United States were more tense than when Brezhnev was prime minister. But crucially, neither man could predict that the demise of the petrodollar would be replaced by the petroyuan. This is partly due to China’s immeasurably stronger economic position under Hong Kong’s (increasing) jurisdiction – a pipe dream without the integrity shown by the UK in respecting the 1898 Convention (remember – —Modern China does not have a convention that takes effect fifty-one years after it is signed).
Across the G77 countries, there are many local and regional reasons for this decline. One of the key lessons of the 2008 financial crisis is that globalization often leads to the creation of economies that are actually more regional and localized in terms of capital accumulation and distribution. However, the vast majority of this has been driven by the rapid growth in the size of China’s economy. Saudi Arabia’s King Mohammed bin Suleiman’s decision to oppose the renewal of the 1974 agreement will only accelerate this growing dependence. Few other countries have access to resources that can provide oil currency. RMB foreign exchange reserves will grow, taking advantage of the vacuum created in a system where a single trading currency dominates. These changes can only bring good news for China’s soft power strategists in the Politburo and/or private business heads. This assessment may seem vague, but it must be so. In the twelve years since Xi Jinping has had to consolidate his authoritarian reforms, there has been little credible public information about the true boundaries between China’s state-owned enterprises and private enterprises. However, we have enough information to make some broad predictions.
There are wide differences in the G-77’s sympathies with the U.S. government, meaning pre-existing roles are likely to be strengthened. Let’s look at Asia first. Eyes will be on Singapore, which has maintained some form of consistent economic loyalty to the United States since the lull in U.S. foreign aid spending in the early 1960s before the 1974 agreement. For a country of its size and population, Singapore has a staggering amount of U.S. dollar reserves. Indeed, despite China’s attempts to win over Singapore’s large ethnic Chinese population through various forms of media influence, the country’s leaders still cringe when Singapore is described as a “Chinese country”, insisting that its majority The population is Chinese. Despite advances in “green” energy production, consumption of petroleum products is still growing, and the petro-yuan will be divisive among an increasingly politically savvy population.
Others, such as Vietnam, have made significant improvements in relations with the United States since 1974 but will never develop the instinctive partnership that the United States has with Singapore. There’s also the Philippines, whose location in the South China Sea is strategically important for oil moving in and out of Chinese ports. The Philippines has perhaps the most complex relationship with the United States among Asian countries, having been annexed to the United States as an unincorporated territory during the rebellion against Spanish rule in the late 19th century.th and early 20sth centuries. U.S. awareness in the Philippines is high, with approval ratings hovering around 90%. However, Rodrigo Duterte’s term (2016-2022). In a sign that the country’s loyalties can easily be tested, his tenure as prime minister increased trade with Chinese brands linked to oil production. By 2018, Volkswagen Philippines had completely replaced its model lineup with models produced in China for the domestic market. While the U.S. position under Marcos was relatively stable, a retelling of China will undermine U.S. soft power advantages in Southeast Asia more than it has in the past decade.
ASEAN’s mixed response to the legislation to end oil purchases in dollars will seriously affect the development of Brazil’s economy. The South American industrial giant’s interest in trade with Southeast Asia is evident in the resources its government has recently devoted to improving relations with countries such as Indonesia. It is also caught between two superpowers and has compelling reasons not to commit to either. Still, Saudi Arabia exported nearly $4.8 billion worth of crude oil to Brazil last year.
What about Iran? The end of the petrodollar deal leaves Iran with little direct contribution to China’s wealth: Iran produces its own oil, has tense relations with Saudi Arabia, and has an ethnic and religious background that transcends the economics of the oil trade. In short, Iran will not be a trading partner. However, China’s export automobile market is about to change, and Iran is now an important consumer of China’s automobile exports. Oil for Cheap Cars: Suggesting that China use yuan to buy oil from Iran is reasonable and almost predictable. Proportionally speaking, the most widespread changes will occur slightly further south from Iran: in the sub-Saharan subcontinent. Over the past two decades, China has stepped up its stadium diplomacy in Africa. Nonetheless, Chinese developers are also involved in infrastructure. More construction projects in Africa means more Chinese fuel consumption, more Chinese vehicles on the road and more yuan reserves. In short, the petro-yuan will effectively serve as a discount card for infrastructure development in the region.
Finally there is Oceania. Australia and New Zealand’s loyalty to the United States appears to be a foregone conclusion, with historic agreements such as the 1951 Australia, New Zealand and United States Security Treaty (ANZUS) and, more recently, the 2021 Australia, United Kingdom and United States Treaty (ANZUS) ). Still, money talks. In Australia, road trains still carry the income and survival of many remote communities. Despite the country’s ample oil production, annual crude oil production has steadily declined from 16,570 megaliters to 5,210 megaliters between 2012 and 2024. The right to freedom of expression in the media and academic circles in Australia and New Zealand has been severely interfered with by China. Protests and government promises often go nowhere and the Chinese government will invest $2 billion in Australia in 2022 and 2023.
The end of the petrodollar agreement and the rise of the petro-yuan will cause a chain reaction of global economic input and output. Xi Jinping and the Chinese Communist Party have been waiting for policy missteps like this. It would be foolish to underestimate the impact of the petrodollar agreement on domestic economies around the world over the past half century. As critical elections approach, the United States would do well to discuss economic opportunities with Britain’s new Labor government in a bipartisan manner. With the Israel-Hamas war and Russia’s invasion of Ukraine, protecting oil interests is more important than ever.
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