Answer to a Question: The Reality of the Petrodollar Agreement

Question: On June 18, 2024, the Al-Hurra website published: (“News sites have recently circulated reports widely discussing a 1974 Saudi-American agreement, according to which Saudi Arabia would use the dollar for all its oil sales. According to these reports, this agreement, with a duration of 50 years, has now ended... but the Leader Insights website debunked these reports on Monday, confirming ‘the non-existence of such an agreement’”). I hope for a clarification on the reality of this agreement if it exists, the role of oil in maintaining dollar hegemony, and whether the BRICS bloc will affect the dollar's dominance in the future.

Answer: To clarify the answer to the above questions, we review the following matters:

First: Regarding the news circulating about the expiration of the Saudi-American agreement to restrict oil sales to the dollar, social media sites are teeming with it. However, no official from either country has spoken on this matter, as if they intentionally left it ambiguous! As for the media, they initially refrained from circulating it, then some began to speak about it due to the high volume of discussion. For example, the Russian RT website published on June 15, 2024: (Olga Samofalova wrote in Vzglyad: “The Petrodollar agreement between the Kingdom of Saudi Arabia and the United States, which was signed in 1974, has expired. This allows Saudi Arabia to sell its oil and other products not only in US dollars but also in other currencies, as confirmed by the media”). This is an unofficial confirmation from a Russian media source about the existence of such an agreement.

Second: However, American media sources deny this matter:

1. As mentioned in the question from the Al-Hurra website on June 18, 2024: (“...According to those reports, this agreement, with a duration of 50 years, has now ended, signaling the end of the American currency's hegemony. However, the Leader Insights website debunked those reports on Monday, confirming ‘the non-existence of such an agreement’”).
2. MorningStar newspaper reported on June 17, 2024, about the narratives spreading via social media regarding the collapse of the long-term Petrodollar agreement between America and Saudi Arabia, stating: “This agreement never existed.”
3. In a blog post published on Friday, Paul Donovan, Chief Economist at UBS Global Wealth Management, pointed out that (“the fake story of the ‘Petrodollar agreement’ has become surprisingly widespread, providing another lesson on the risks of ‘confirmation bias’... MorningStar, June 17, 2024”).

Third: Despite this, neither party has officially commented on the recent articles stating that the Petrodollar agreement concluded between the United States and Saudi Arabia in 1974 expired on June 9, 2024. Neither party has officially commented with a denial or confirmation; rather, the comments were from other media sources or similar outlets, as we explained above. However, there are other signs through which the existence of some agreement in this regard between America and Saudi Arabia can be weighed as likely. Among these signs are the following:

1. A report by the US Comptroller General issued in 1978 titled “The United States-Saudi Arabian Joint Commission on Economic Cooperation” stated: (“The Comptroller General recommends strengthening the work of the Saudi-American Commission established in June 1974 for economic cooperation and opening an office for the US Treasury Department in Riyadh for the purpose of ‘recycling petrodollars’”). The report confirms in its introduction the establishment of this joint commission.
2. After Paul Donovan said in his blog post that (“It is clear that the ‘Petrodollar agreement’ story circulating today is fake news”), he added, (“Perhaps the closest thing to a petrodollar deal was the secret agreement between the United States and the Kingdom of Saudi Arabia reached in late 1974, which promised to provide military aid and equipment in exchange for the Kingdom investing billions of dollars of oil sale proceeds into the US Treasury... MorningStar, June 17, 2024”).
3. After MorningStar stated on June 17, 2024, that the Petrodollar agreement between America and Saudi Arabia “never existed,” it returned to say, “Based on a report published by the US Government Accountability Office, the matter concerns a joint US-Saudi commission established to promote economic cooperation between the two countries, and the resolution for its establishment was signed on June 8, 1974, between US Secretary of State Kissinger and the then Saudi Crown Prince Fahd bin Abdulaziz.”
4. The Kuwaiti newspaper Al-Qabas, in its “News Memory” section dated October 20, 2020, published a report it had originally published in its June 7, 1974 issue, which stated: (“President Nixon today discussed with Prince Fahd bin Abdulaziz, Second Deputy Prime Minister and Minister of the Interior of Saudi Arabia, the possibilities of achieving lasting peace in the Middle East following the two disengagement agreements on the Egyptian and Syrian fronts with (Israel). They also discussed ways to expand economic, industrial, and defense cooperation between the Kingdom of Saudi Arabia and the United States. Their talks took place in President Nixon’s office at the White House before a luncheon hosted by the US President at the White House in honor of his guest, who arrived here yesterday for a three-day visit. It was mentioned that Prince Fahd is seeking increased US military assistance for his country in exchange for continued Saudi cooperation in supplying the United States with oil”).
5. The website businesstimes.com.sg mentioned on June 18, 2024: [On June 8, 1974, the New York Times reported on its front page: (“Secretary of State Kissinger and Prince Fahd bin Abdulaziz, Second Deputy Prime Minister of Saudi Arabia and half-brother of King Faisal, signed the six-page agreement at Blair House across the street from the White House this morning”)].

Fourth: By examining point “Third” above, especially US President Nixon’s reception of Fahd bin Abdulaziz, it indicates the great importance of that visit. Furthermore, the establishment of the US-Saudi Arabian Joint Commission on Economic Cooperation on June 8, 1974—which is referred to by official sources including the US Comptroller General’s report—indicates agreements were concluded as if this commission was tasked with implementation. All of this confirms the existence of some agreement between America and Saudi Arabia, whether it was written and kept secret or was a binding, unwritten understanding. Even such understandings between a small client state and the strongest power, America, are completely binding for the agents; they do not deviate from them even if they are not written!

All the preceding facts support what we consider likely: the existence of this agreement or the Petrodollar understanding, even though it remains shrouded in secrecy and is not officially acknowledged by official circles, yet they do not deny it either.

Fifth: What confirms or strengthens this is America’s interest in the dollar being the international currency of the world, as explained below:

1. Since the Bretton Woods Agreement in 1944, which set the price of an ounce of gold at 35 dollars, the dollar sat atop the global monetary system, equal to gold. However, due to America’s colonial projects, especially the Vietnam War and the exorbitant spending on it, the United States printed more dollars than it could convert to gold. By the late 1960s, the number of dollars in circulation increased, and there were more dollars in the world than gold. This encouraged foreign countries to demand gold instead of their dollars, leading to the depletion of US gold supplies. The US gold reserve fell from 574 million ounces at the end of World War II to about 261 million ounces in 1971. Consequently, US President Richard Nixon abolished the gold standard on August 15, 1971, thus completely decoupling the dollar from gold in what became known as the “Nixon Shock.”
2. However, this decoupling created a political and financial problem for America; specifically, countries no longer had a motive to acquire dollars. This led America to search for other means to drive countries to increase demand for the dollar to preserve its global status. America found its solution in the world’s desperate need for energy, represented by the primary energy source: oil. Saudi Arabia was the largest producer at the time.
3. The Nixon administration dealt with this through discussions with Saudi Arabia from 1972 to 1974 to establish the Petrodollar. This resulted in the agreement whereby the United States provides a security guarantee for the Saudi regime, and in return, Saudi Arabia—the world’s largest oil producer with the largest oil reserves—sells its oil in dollars. Saudi Arabia also agreed to recycle billions of US dollars of its oil revenues back into US Treasury bonds.
4. Before this agreement, Saudi Arabia dealt in the British Pound Sterling for oil, due to the influence of British agents in the Saudi government at that time. When this agreement was signed on June 8, 1974, between Secretary of State Kissinger and Prince Fahd bin Abdulaziz, it was a precursor to dealing in dollars with Saudi Arabia instead of Sterling as the price for oil.

Afterward, Prince Fahd’s star rose, and he became Crown Prince in 1975 during the reign of his brother, King Khalid. He held most of the powers during Khalid’s reign and continued so until King Khalid died and he became King on June 13, 1982. He was well known for his loyalty to America.

Thus, Saudi Arabia’s dealings regarding the price of oil were restricted to the dollar starting from early 1975. Sources mention that after 1974, Saudi oil sales were restricted to the US dollar, which also included the OPEC organization of oil-producing countries. It became mandatory for any country needing to buy oil to have a sufficient amount of the dollar, which became the exclusive currency for oil transactions. This meant these countries had to accept loans in dollars or buy dollars from financial markets or by any other means. The important thing is that America ensured the continued flow of the dollar, and the Federal Reserve ensured the continued production of the dollar... especially since the Saudi Riyal is pegged to the dollar, creating a motive for Saudi Arabia’s commitment to the US dollar to maintain economic stability. (Saudi Energy Minister Khalid al-Falih confirmed that the US dollar remains the approved currency for sales and crude oil trade for his country abroad... Anadolu, April 9, 2019).

Sixth: As for whether Saudi Arabia joining the BRICS bloc—led by China and Russia, both rivals of America—affects the continued restriction of Saudi oil pricing to the dollar, this issue is influenced by other factors. To clarify this, we review the following:

1. The term BRICS refers to the economies of Brazil, Russia, India, China, and South Africa. Brazil, Russia, India, and China formed the BRIC group in 2006 to give developing countries a greater role in international affairs. In 2011, the group’s name was changed to BRICS with the addition of South Africa. The inclusion of Saudi Arabia alongside Egypt, the UAE, Iran, Ethiopia, and Argentina in the BRICS group was announced at the group’s 15th summit, which concluded on August 24, 2023, in Johannesburg, South Africa. These countries began joining at the beginning of 2024. One of the goals of this summit was the attempt to rid themselves of dollar hegemony and issue a currency for BRICS members, but these countries did not agree on that. Instead, they focused on encouraging trade in their local currencies among themselves. Therefore, they invited Saudi Arabia, the largest oil exporter, to the group. It is worth noting that despite the official Saudi television announcement on January 2, 2024, regarding Saudi Arabia joining BRICS, Saudi Minister of Commerce Majid Al-Qasabi said in a panel discussion on the sidelines of the World Economic Forum in Davos, Switzerland: (“Saudi Arabia has received an invitation to join BRICS, but we have not officially joined yet.” Sky News Arabia, January 16, 2024). This means that Saudi Arabia was waiting for American approval to join BRICS so that its membership would serve American interests.
2. The entry of states subservient to America, such as Saudi Arabia, into the BRICS group makes this group fragile. We have seen South Africa’s opposition to issuing a BRICS currency. There are no independent states in the BRICS group except Russia and China; the rest are clients of the West, especially America. However, Russia and China want to appear as though they have managed to face the West and form a counter-front, and they always talk about a multipolar world. When America allows Saudi Arabia and others among its agents to enter BRICS, it is in order to influence it from within, just as it previously encouraged Eastern European countries subservient to it to enter the European Union in 2004 to influence it through these countries. Through Poland, which entered the Union, it managed to obstruct the drafting of a constitution for it that would have strengthened its political authority and brought it closer to a federal-like state, thus keeping it a fragile union prone to cracking and collapse. It did the same when it tasked Saudi Arabia—the largest producer in OPEC and a highly influential member—to be active in using the necessary methods to create some kind of alliance between OPEC and Russia to regulate Russian production within OPEC limits through coordination between Saudi Arabia and Russia.
3. Putin, whose country is a founding member of the group and who is very enthusiastic about issuing a currency for the group, surrendered to the political reality of the member states, saying: (“Continuing to expand BRICS would activate the bloc’s role on the international stage, and the issue of adopting a unified currency remains complex and needs further discussion”... Al-Jazeera, August 24, 2023). Al-Jazeera had previously published on August 23, 2023: (The subject of a unified currency for the BRICS group was not officially raised during the summit because the five members did not agree and there were differences between them... Putin called in a video speech before the group to expand transactions in local currencies...). Thus, Russia did not succeed in creating an alternative currency to the dollar, which is what it wanted to achieve through BRICS.

Seventh: As long as currency is paper with no intrinsic value, economic problems, economic speculation, political disputes, and even colonial hegemony will remain. Islam, by revelation from Allah (swt), made currency based on gold and silver—meaning a material that carries intrinsic value. The Messenger of Allah ﷺ appointed gold and silver as currency and made them the sole monetary standard to which the measurement of goods and labor is referred, as established in Sahih Hadiths. However, the colonialists, through methods of economic and financial colonialism, took currency as a tool of colonialism, transforming it into other systems not based on gold or silver. From here, these problems appeared. These problems cannot vanish unless the Islamic State is established and returns currency to gold and silver, whether it is itself circulating or whether there is circulating paper currency representing gold and silver that can be exchanged for them at any time. This is the law of Allah, which He revealed by His knowledge (swt):

أَلَا يَعْلَمُ مَنْ خَلَقَ وَهُوَ اللَّطِيفُ الْخَبِيرُ

"Does He who created not know, while He is the Subtle, the Acquainted?" (Surah Al-Mulk [67]: 14)

1st of Muharram 1446 AH Corresponding to July 7, 2024 CE