Petrodollar deal expiry could be ‘catastrophic’: If you take ‘petro’ from the ‘dollar,’ the USD will be backed by ‘nothing’ – Andy Schectma

“There are way more dollars outside the U.S. than inside because of stockpiling of the greenback to buy oil for 50 years,” Schectman said. “As those dollars come home and are sold back to the issuer – because no one wants to hold them anymore as they are no longer a necessity to buy oil – inflation rates would go higher and higher. As those currency units are added to the currency base, it would raise interest rates.”

The foundation of the petrodollar system lies in a 1974 agreement between Saudi Arabia and the United States. Under this deal, Saudi Arabia agreed to recycle its petrodollars into U.S. Treasuries in exchange for a security guarantee from the U.S., creating a strategic alliance that has significantly influenced global politics for decades. By 1975, all OPEC members had agreed to price oil in dollars and invest in U.S. government debt.

For a quick historical recap of the Bretton Woods deal, Former President Richard Nixon taking the U.S. dollar off the gold standard, and the origins of petrodollar deal, watch the video above. 

There has been some speculation as to the veracity and formality of the Petrodollar deal and therefore the significance of it expiring. For Schechtman’s response to those claiming there has never been a deal to price oil in U.S. dollars watch video above. 

If the U.S. dollar is no longer the primary payment option for oil, Schectman foresees a massive spike in interest rates as one of the consequences, with the situation getting quite chaotic for the U.S.

“If this happened all at once, it would be catastrophic. It would be chaotic because the natural reaction of the dollar being dumped globally is hyperinflation. It would hit our shores in a tsunami of inflation,” Schectman said. “The dollar would collapse, the stock market would collapse, the bond market would collapse, the banking system would collapse, the insurance companies would collapse. Everything. This is the great reset.”

For the significance of oil being priced in U.S. dollars for five decades, watch the video above.

The global move away from the greenback has been accelerating as nations opt to de-dollarize, with Schectman describing this as logarithmic decay. “Little by little, it starts to chip away at those dollars. It hasn’t turned out into a full-fledged dumping, which I could see it turning into at some point,” he said.

Schectman noted the so-called Project Sandman, which entails a group of 150-175 countries agreeing to dump dollars at a predetermined time. For more on this, watch the video above.

Is the petrodollar deal expiry fake news?

Despite the reports of the petrodollar deal expiring, several experts have labeled this as a conspiracy theory, stating that there was no formal agreement for Saudi Arabia to price its crude oil exclusively in dollars.

Paul Donovan, chief economist at UBS Global Wealth Management, described the story that a petrodollar deal was not renewed as “fake news.” He claims that the 1974 agreement between the U.S. and Saudi Arabia, known as the Joint Commission on Economic Cooperation, had no stipulations about only using the U.S. dollar. Donovan contends that Saudi Arabia continued to accept other currencies, like the British pound for a year after this deal was signed.

However, Donovan did point out that there was a secret agreement between the U.S. and Saudi Arabia that had been reached in late 1974 which promised U.S. military aid and equipment in exchange for the Saudi Arabia investing billions of dollars of its oil-sale proceeds into U.S. Treasuries.

Jeffrey Kleintop, Chief Global Investment Strategist at Charles Schwab & Co., added to this debate, stating that the end of the petrodollar agreement between the U.S. and Saudi Arabia is pretty meaningless for three reasons: “[1] The global oil financing, insurance and transport system remains almost entirely dollar based. [2] While oil could be increasingly bartered or sold in other currencies once the proceeds are received by Saudi they are likely to be invested in dollar denominated assets (Treasuries) rather than yuan or rupee denominated ones. [3]There is about 10 times as much oil traded in futures than physically delivered and the futures are dominated by dollars,” Kleintop posted on X.

For Schectman’s rebuttal to this reasoning, watch the video above.

Schectman added that those who say Saudi’s decision to let the petrodollar agreement expire is a “nothing burger” are wrong.

“When you see Saudi Arabia decline an invitation from the G7 and immerse itself in projects like mBridge, which is a system that experiments with multiple central bank digital currencies for wholesale cross-border payments outside the dollar and the SWIFT system,” he said. “We are setting ourselves for a big letdown if we believe this is non-consequential.”

Schectman added that the dollar is not likely to be replaced by another completely fiat-based system. Instead, he forecasts a comeback of commodity-backed money. Watch the video above to learn the kind of new monetary order he sees in store for the world, including Schectman’s updated timeline.

De-dollarization accelerates

The move away from using the U.S. dollar in international trade transactions is not new, but it has been accelerating, especially after the West’s sanctions on Russia following its invasion of Ukraine.

JPMorgan Chase estimated that in 2023, around 20% of global oil was bought and sold in non-US dollars.

The most recent development was China selling a record $53.3 billion worth of U.S. Treasurys and agency bonds in the first quarter while adding to its gold reserves. The yellow metal now makes up 4.9% of Chinese reserves, the highest since at least 2015.

At the same time, the share of U.S. dollar reserves held by central banks fell to 58.4% during the fourth quarter of 2023, according to the IMF’s Currency Composition of Official Foreign Exchange Reserves (COFER) survey. This marks the lowest level since 1999.

On top of that, following new sanctions from the U.S. on China and Russia, Moscow has also officially adopted the Chinese yuan as its primary foreign currency.

“Over the past two years, the role of the U.S. dollar and euro in the Russian market has consistently declined. This is the result of a redirection of trade flows to the East and a change in the currency of settlements to rubles, yuan, and other currencies of friendly countries,” Russia’s central bank said in a statement. “The yuan/ruble exchange rate will set the trajectory for other currency pairs and will become a reference point for market participants.”

Posted by:

Jack Dempsey, President

401 Gold Consultants LLC

jdemp2003@gmail.com