Monday 10 June 2024 marked the first international business day since the end of the 1974 agreement on military and economic aid signed between the Nixon administration and Prince Fahd Ibn Abd al-Aziz Al Saud. From now on, Saudi Arabia is free to sign oil trade agreements that involve payment in any currency, as previously it was limited to US Dollars. Although the real impact of the end of this agreement will be seen in time, it is difficult to imagine a future in which the status of the US dollar as the leading currency for the maintenance of this agreement will not be at risk among the countries of the United Nations G77. In 1999, US dollars accounted for 71% of the world’s foreign exchange, which will decrease to 58% by 2022.
Could Nixon and Kissinger have predicted the current economic climate? Maybe some of it. Russia and the United States clashed again, but not directly into war. The views of the Middle Eastern states are still important, although the term ‘buffer state’ counts for very little in an era where any organized (or indeed unorganized) body of people with access to the Internet has the ability to broadcast propaganda directly from computers, smartphones, smart watches… the list goes on. Kissinger, who died only last November, believed until his death that Russian-American relations were more difficult than during Brezhnev’s prime ministership. But most importantly, no one could have predicted what the Petrodollar would be replaced with when it disappeared: the Petroyuan. This is, to some extent, due to China’s incomparably stronger economic situation with Hong Kong (increasingly) under its control – a disingenuous dream shown by Britain in relation to the 1898 Convention (remember – modern China did not come into existence fifty-one years later of the signing of the convention).
Among the G77 nations, there are many local and regional reasons for this decline. One of the key lessons of the 2008 financial crisis was that globalization has led to the creation of an essentially regional and local economy in terms of capital accumulation and distribution. However, most of these things are made only by the rapid growth of the size of the Chinese economy. The decision of Saudi King Mohammad Bin Suleman against the renewal of the 1974 agreement will accelerate this growing confidence. Few other countries have access to the resources that enable the supply of oil money. Renminbi (RMB) foreign currencies will grow, occupying the space created within the system when a single trading currency dominates. These changes bring good news only for China’s soft power strategists in the Politburo, and/or private sector heads. This test seems vague, but it really is. There is little reliable public information about the true demarcation between the state and the private sector in China, in the twelve years that Xi Jinping has had to consolidate his reforms around privatization. However, we have enough information to make broad predictions.
There are many differences in the sensitivity of the G77 to the US government, which means that pre-existing roles are likely to be developed. Let’s take Asia first. All eyes will be on Singapore, which has been an economic ally of the United States since the reduction of US foreign aid spending in the early 1960s before the signing of the 1974 Treaty. For a country of its physical size and population, Singapore has an impressive amount of USD reserves. Indeed, despite China’s efforts to gain a large Chinese population in Singapore through various forms of media influence, the country’s leaders are still shocked when Singapore is described as a ‘Chinese country’, insisting that even though the majority of its population is of Chinese descent. , its values and worldviews are unique. Consumption of fossil fuels is still growing, despite advances in ‘green’ energy production, and the Petroyuan will create a divide among an increasingly politically aware population.
Others, such as Vietnam, have seen significant improvements in relations with the United States since 1974, but will never see the natural relations the United States has with Singapore. There is also the Philippines, whose location in the South China Sea is very important for oil exports to (and out of) Chinese ports. The relationship between the Philippines and the United States is probably the most complicated among Asian countries, linked as an unincorporated area during their struggle against the Spanish Empire in the late 19th century.th and in the early 20thth centuries. The United States is well-regarded in the Philippines, and approval ratings hover around 90%. However, Rodrigo Duterte’s term in office 2016-2022). showed that the country’s credibility can be easily tested, increasing trade with Chinese products relevant to oil production during the Prime Minister’s term. In 2018, Volkswagen Philippines had changed its model range only to models produced in China in its home market. Although America’s position has stabilized under Marcos, a retrenchment in China will undermine America’s soft power advantage in Southeast Asia more than it has in the past decade.
The hodgepodge of ASEAN reactions to the end of the greenback rule on oil purchases will weigh on the development of the Brazilian economy. The South American industrial heavyweight’s interest in trade with South East Asia is well documented in the resources its government has recently invested in developing relations with countries such as Indonesia. It is also caught between two superpowers, with strong reasons not to commit to either. Nevertheless, Saudi Arabia exported about US$4.8 billion worth of crude oil to Brazil last year.
And what about Iran – another geographically expanding nation with mixed feelings about being on the receiving end of Anglo-American soft power? The direct Iranian contribution to China’s wealth as a result of the termination of the Petrodollar Agreement is very small: Iran produces its own oil, and its relations with Saudi Arabia are difficult, with ethnic and religious conditions that exceed the economy of the oil trade. In short, Iran will not be a trading partner. However, changes are imminent in China’s auto export market, where Iran is already an important buyer. Cheap motor oil: it is reasonable – predictable, almost – to suggest that China buy oil from Iran in RMB. Equally, the most widespread change will take place a little south from Iran: the sub-Saharan continent. Over the past two decades, China has intensified its efforts to consult on the field of sports in Africa during the past decade. Meanwhile, Chinese developers have also put together infrastructure. More construction projects in Africa mean more Chinese fuel, more Chinese cars on the road and more RMB reserves. In short, Petroyuan will effectively serve as a discount card for infrastructure development in the region.
Finally, there is Oceania. America’s loyalty to Australia and New Zealand appears to be the end, with historic agreements such as the 1951 Australia, New Zealand and the United States Security Treaty (ANZUS) and, more recently, the 2021 agreement Australia, the United Kingdom and the United States ( AUKUS). However, money talks. In Australia, street railways still transport the income and existence of many remote communities. Although the country produces a sufficient amount of oil, annual crude oil production has steadily declined from 16,570 to 5,210 megaliters between 2012 and 2024. The rise of the Petroyuan has not been immediate in terms of China’s soft power on the mainland. Both Australia and New Zealand have experienced significant Chinese interference in the right to freedom of expression in the media and in their education. The government’s protests and promises are going nowhere, with China investing $2 billion in Australia in 2022 and 2023.
The end of the Petrodollar Accord, as well as the rise of the Petroyuan, will cause changes in the world’s economic outlook and results. Xi Jinping and the Chinese Communist Party are waiting for the end of this policy. It would be foolish to underestimate the impact the Petrodollar Accord has had on domestic economies around the world over the past half century. With a key election looming, the US would do well to meet closely with Britain’s new Labor government to discuss economic opportunities. With the hostilities of the Israel-Hamas War and Russia’s invasion of Ukraine, the protection of petroleum interests is more important than ever.
Further Studies in E-International Relations
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