Petrodollar deal with Saudi Arabia has expired: What will be the consequences?

The U.S. standard of living has been artificially boosted by the dollar’s status as the global reserve currency, but what happens as that status crumbles?

The 50-year-old petrodollar agreement between the U.S. and Saudi Arabia has been allowed to expire, according to multiple news reports.

The so-called petrodollar refers to the U.S. dollar’s role as the currency used for crude oil transactions on the world market. This arrangement has its roots in the 1970s when the United States and Saudi Arabia struck a deal shortly after the U.S. went off the gold standard that would go on to have far-reaching consequences for the global economy.

Writes Paul Hoffman for

“In the history of global finance, few agreements have wielded as many benefits as the petrodollar pact did for the U.S. economy.”

Hoffman explains that the petrodollar agreement, formalized after the 1973 oil crisis, stipulated that Saudi Arabia would price its oil exports exclusively in U.S. dollars and invest its surplus oil revenues in U.S. Treasury bonds. In return, the U.S. provided military support and protection to the kingdom. This arrangement was a win-win situation for both; the U.S. gained a stable source of oil and a captive market for its debt, while Saudi Arabia secured its economic and overall security.

With the deal now collapsing, the U.S. will no longer have a financial support structure in place to support its massive national debt of $34.5 trillion. The dollar will collapse, it’s just a matter of when not if.

This new economic reality, with the nations of the world turning up their nose at the dollar, represents a tectonic shift in the world economic order. And therein lies the real reason for the Washington establishment’s eagerness to start World War III with Russia. Those who have benefitted most from this arrangement of endless wars financed by endless debt see that their gig is up. Those who are reading the tea leaves can see for the first time the potential end of the American empire coming into focus. Whether it will happen or not remains to be seen, but this much is not in dispute: No empire in history has gone down without a fight.

If you are still living in denial, it’s time to wake up. It’s time to prepare for war. The governments of Germany and Great Britain are already telling their people to prepare for war with Russia, but the corrupt Biden regime has been silent on the matter, even as it continues to poke the bear with more and more armaments sent to kill Russians in Ukraine, and now they’ve even given the green light for Ukraine to use U.S. weapons to strike into the heart of Russia.

No election and no politician is going to save us. So let’s get on our knees and pray for peace, while preparing ourselves and our families for hard times ahead.

Hoffman explains that by mandating that oil be sold in U.S. dollars, the agreement with Saudi Arabia elevated the dollar’s status as the world’s reserve currency, adding:

“This, in turn, has profoundly impacted the U.S. economy. The global demand for dollars to purchase oil has helped to keep the currency strong, making imports relatively cheap for American consumers. Additionally, the influx of foreign capital into U.S. Treasury bonds has supported low interest rates and a robust bond market.”

In his December 2023 book, Bonfire of the Sanities, investment manager David Wright argues that the strength of the dollar has been a key factor behind America’s high standard of living. Wright states that the reason why people in the U.S. enjoy “as high of a standard of living as we do is because the dollar is strong.” And this strength is largely due to a perceived faith in our economy “and because energy can’t be bought without U.S. dollars.”

I concur with Hoffman when he says, “This expiration has far-reaching implications, as it has the potential to disrupt the global financial order.”

The agreement between the U.S. and Saudi Arabia expired on June 9, 2024.

That means the dollar is now going to sink or swim on its own merits. The problem is, it no longer has any merits. Our currency was taken off the gold standard decades ago, and for the first time in more than 50 years it won’t be backed by oil, either. In the meantime, our politicians have recklessly piled up unprecedented debt that can never be paid back. The central bankers will always get theirs. Hence the need for a reset. The new system won’t come into being without birth pains, war being among them. Yes, global resets can be messy, and we’re about to find out just how messy this one will get.

©2024. Leo Hohmann. All rights reserved.

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