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“The Ministry of Energy, Industry and Mineral Resources affirmed today that recently circulated claims that the Kingdom of Saudi Arabia is threatening to sell its oil in currencies other than the dollar are inaccurate and do not reflect Saudi Arabia’s position on this matter,” a statement from the Saudi Press Agency reads. This is the official state news agency of the Kingdom.
The statement follows reports that Riyadh was considering switching from the greenback to other currencies in its oil trade in response to anti-OPEC legislation plans in the U.S. Congress.
Reuters reported last week, citing unnamed sources, that the switch from U.S. dollars to other currencies had been discussed in senior Saudi circles and that it had also been shared with U.S. government officials from the energy department.
The reported threat takes OPEC’s—Saudi Arabia’s—offensive against the No Oil Producing and Exporting Cartels Act a step further after last month UAE oil minister, Suhail al-Mazrouei, reportedly told lenders at the meeting that if the bill was made into law that made OPEC members liable to U.S. anti-cartel legislation, the group, which is to all intents and purposes indeed a cartel, would break up and every member would boost production to its maximum.
According to the SPA statement, however, “The Kingdom has been trading its oil in dollars for decades which has served well the objectives of its financial and monetary policies.”
The traditionally close relationship between Washington and Riyadh began to strain in the wake of the 2014 oil price collapse and the straining intensified after the public outcry in the West over the killing of Saudi dissident Jamal Khashoggi, a vocal critic of Crown Prince Mohammed.
Tension flared higher when a group of U.S. legislators introduced the so-called NOPEC bill seeking to make OPEC members accountable under U.S. cartel legislation. According to the Reuters sources, Riyadh kept dropping the dollar for oil trading up its sleeve as “the nuclear option.”
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
Even without the threat from NOPEC, there is no reason for Saudi Arabia to continue pricing its global oil exports in petrodollar with the exception of its exports to the United States.
Saudi Arabia currently sells less than 1 million barrels of oil a day (mbd) to the United States. More than 75% of Saudi crude oil exports go now to the Asia-Pacific region particularly China. Saudi Arabia is under pressure from China to accept the petro-yuan as payment for its oil exports if it wants to avoid losing more market share to Russia in the Chinese oil market.
It is logical, therefore, for Saudi Arabia to accept the petro-yuan, the yen, the euro and the dollar for its oil exports to China, Japan the European Union (EU) and the United States respectively.
Moreover, there is no financial justification for Saudi Arabia to continue pegging its currency to the dollar. Aside from its huge oil wealth, Saudi Arabia could further bolster support for its domestic currency with a basket of hard currencies made up of the petro-yuan, yen, euro and the dollar.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London