Reuters: Saudi Arabia Threatens the U.S. to Avoid Dollar in Oil Transactions

On Friday, April 5, Reuters reported that Saudi Arabia threatened the U.S. to avoid using the dollar in oil transactions if the "NOPEC" bill is approved and enacted. The NOPEC bill, aimed at combating monopolistic practices in the oil market by the Organization of the Petroleum Exporting Countries (OPEC), has been proposed in the U.S. Congress since 2000, but U.S. presidents have previously stated they would veto it if Congress passed it to prevent it from becoming law. However, current U.S. President Donald Trump has repeatedly accused OPEC of "monopolistic" behavior in the oil market and has even threatened to take action against it. Reuters reported on Friday, citing three unnamed sources, that "Saudi Arabia's threat to avoid the dollar in oil transactions" was raised during meetings between senior energy officials from both countries in recent months and was even discussed at the OPEC summit. Saudi Arabia's refusal to use the dollar could impact U.S. influence in global trade, and the U.S. could lose the necessary leverage to impose sanctions. Currently, oil transactions in global markets are conducted in dollars, and Saudi Arabia, producing 10% of the world's oil, is the largest oil exporter. Depending on its price, oil accounts for 2-3% of the global economy, and with the current price of $70 per barrel, the value of global oil production reaches $2.5 trillion annually, with 60% of it traded among countries almost entirely in dollars. On the other hand, this action by Saudi Arabia could intensify the desire of Russia, China, and the European Union to reduce dollar influence and diversify international currencies for trade transactions. Russia, which has been under U.S. sanctions, has previously decided to sell oil in euros and Chinese yuan, but only a small portion of Russian oil is sold in these currencies. Iran and Venezuela, also facing U.S. sanctions, sell their oil using non-dollar currencies, but the volume of transactions is less than what would impact dollar dominance in global markets, while Saudi Arabia has an annual oil production worth $356 billion. Additionally, in the two major energy exchanges in the world (ICE and CME), transactions worth $5 trillion are conducted annually in U.S. dollars. The Saudi Ministry of Energy declined to respond to Reuters' questions, and the U.S. State Department stated it would not comment on a bill that has not yet become law. Reuters also reported that U.S. Energy Secretary Rick Perry indicated that the passage of NOPEC could have "unintended consequences." Qatar exited OPEC last December to avoid the repercussions of the NOPEC bill, yet two sources told Reuters that Saudi Arabia does not see a high likelihood of the NOPEC bill being passed. Saudi Arabia has also invested $1 trillion in the U.S. and saved $160 billion in U.S. banks and financial institutions. OPEC and allied countries led by Russia have decided to reduce their production by 1.2 million barrels in the first half of this year to raise oil prices. According to international statistics, including OPEC, Saudi Arabia has cut production twice as much as it committed to. Oil prices have increased by about 27% since the beginning of 2019, which has provoked U.S. complaints. Recently, some OPEC members announced the possibility of extending the oil production cut agreement for the second half of 2019.