Finance Minister Mohammed al-Jadaan of Saudi Arabia stated on Tuesday that the country is open to exploring possible replacements for the U.S. dollar in international trade.
Since 1986, the Saudi riyal has been fixed in value relative to the U.S. dollar. This connection was established following the Arab-Israeli War and the subsequent OPEC oil boycott against the United States in the early 1970s.
As part of their efforts to mend fences with the United States, the Saudis agreed to price their oil in U.S. dollars on the international market and invest their oil revenues with the U.S. Treasury.
The result was the creation of the powerful “petrodollar,” which benefited both the Saudi and American economies. The Saudi riyal and the U.S. dollar tied the knot in 1986, bringing much-needed stability to the once unstable Saudi economy.
It would be a massive shift for both countries and the global oil market if the riyal were unpegged from the dollar. While the Saudis are engaged in Crown Prince Mohammed bin Salman’s Saudi Vision 2030, an ambitious reform drive to diversify their economy away from petroleum, analysts have long regarded such a transition as possibly apocalyptic but unlikely.
According to statements made by Al-Jadaan at the World Economic Forum (WEF) in Davos, the Saudi government is willing to examine adopting alternative currencies.
If you want to talk about whether or not our trade agreements will be settled in U.S. dollars, European Union euros, or Saudi Arabian riyals, that’s fine with us. When asked if he thought we were “waving away” or “ruling out” any dialogue that could benefit global commerce, he responded neither.
According to Al-Jadaan, the Saudis want more economic freedom, so they may forge more significant economic ties with other countries like China, which is a voracious consumer of fossil fuels.
“We enjoy a highly strategic relationship with China, and we enjoy that with other nations, including the U.S., and we want to build that with Europe and other countries that are ready and able to work with us,” he said.
The Saudi finance minister continued, saying that the country would find it simpler to take part in international efforts to strengthen “weak” economies like Pakistan’s if it could operate with currencies other than the riyal.
At a gathering of Gulf Arab leaders in Riyad last December, Chinese dictator Xi Jinping announced Beijing’s intention to use the yuan to purchase oil and gas. While in China, Crown Prince Mohammed bin Salman (MBS) met with President Xi twice and inked several cooperation agreements. Despite U.S. warnings that Huawei technology poses security dangers, Saudi Arabia sealed a deal with the Chinese telecom giant Huawei for cloud computing services last month.
Our perspective is not that of a zero-sum game. We do not believe in polarization or picking sides,” Prince Faisal bin Farhan al-Saud, the Saudi Arabian foreign minister, declared recently.
Since President Joe Biden vowed to make him a global “pariah” during the 2019 Democrat Party race, MBS has been attempting to realign and broaden Saudi Arabia’s foreign connections. Later, Biden was down to pleading with MBS for oil, to no effect; shortly, he may be reduced to begging with MBS to maintain the riyal’s peg to the dollar.
The Minister of State for Foreign Affairs of Saudi Arabia, Adel al-Jubeir, made a forceful suggestion from Davos on Wednesday that Biden could gain favor with Riyadh by killing the stalled nuclear deal with Iran and stepping up efforts to prevent Tehran from acquiring nuclear weapons.