Saudi Arabia has threatened the United States to stop using dollars for its oil trades in an attempt to discourage legislators from passing a bill dubbed NOPEC aimed at holding OPEC liable for cartel practices under U.S. law.
Reuters reports, citing unnamed sources, that the switch from U.S. dollars to other currencies had been discussed in senior Saudi circles and that it had also been shared with U.S. government officials from the energy department.
The reported threat takes OPEC’s—Saudi Arabia’s—offensive against the No Oil Producing and Exporting Cartels Act a step further after last month UAE oil minister, Suhail al-Mazrouei, reportedly told lenders at the meeting that if the bill was made into law that made OPEC members liable to U.S. anti-cartel legislation, the group, which is to all intents and purposes indeed a cartel, would break up and every member would boost production to its maximum.
This would be a repeat of what happened in 2013 and 2014, and ultimately led to another oil price crash like the one that saw Brent crude and WTI sink below US$30 a barrel. As a result, a lot of U.S. shale-focused, debt-dependent producers would go under.
Now, one of the Reuters sources said, “The Saudis say: let the Americans pass NOPEC and it would be the U.S. economy that would fall apart.”
Another source commented “The Saudis know they have the dollar as the nuclear option.”
Other countries are already using other currencies in oil trades, notably Russia and Iran, but also China, for some of its trades. China even launched a yuan-denominated oil contract last year, which initially sparked concern. Later, this subsided as the hype died out and the contract failed to remove dollar-denominated European, Middle Eastern, and U.S. contracts from the market.
Still, if an oil seller as big as Saudi Arabia were to drop the dollar as its default trade currency, this would have strong reverberations for the greenback’s status as the world’s dominant currency and it might also spur similar moves by other oil exporters who are likely to feel threatened by the NOPEC bill.
By Irina Slav for Oilprice.com
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