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Saudi Arabia threatens to ditch dollar oil trades to stop ‘NOPEC’

Public Policy

Saudi Arabia is threatening to sell its oil in currencies other than the dollar if Washington passes a bill exposing OPEC members to U.S. antitrust lawsuits, three sources familiar with Saudi energy policy said.

FILE PHOTO: An oil tanker is being loaded at Saudi Aramco’s Ras Tanura oil refinery and oil terminal in Saudi Arabia May 21, 2018. REUTERS/Ahmed Jadallah

They said the option had been discussed internally by senior Saudi energy officials in recent months. Two of the sources said the plan had been discussed with OPEC members and one source briefed on Saudi oil policy said Riyadh had also communicated the threat to senior U.S. energy officials.

The chances of the U.S. bill known as NOPEC coming into force are slim and Saudi Arabia would be unlikely to follow through, but the fact Riyadh is considering such a drastic step is a sign of the kingdom’s annoyance about potential U.S. legal challenges to OPEC.

In the unlikely event Riyadh were to ditch the dollar, it would undermine the its status as the world’s main reserve currency, reduce Washington’s clout in global trade and weaken its ability to enforce sanctions on nation states.

“The Saudis know they have the dollar as the nuclear option,” one of the sources familiar with the matter said.

“The Saudis say: let the Americans pass NOPEC and it would be the U.S. economy that would fall apart,” another source said.

Saudi Arabia’s energy ministry did not respond to a request for comment.

A U.S. state department official said: “as a general matter, we don’t comment on pending legislation.”

The U.S. Energy Department did not respond to a request for comment. Energy Secretary Rick Perry has said that NOPEC could lead to unintended consequences.

DOLLAR HEGEMONY

NOPEC, or the No Oil Producing and Exporting Cartels Act, was first introduced in 2000 and aims to remove sovereign immunity from U.S. antitrust law, paving the way for OPEC states to be sued for curbing output in a bid to raise oil prices.

While the bill has never made it into law despite numerous attempts, the legislation has gained momentum since U.S. President Donald Trump came to office. Trump said he backed NOPEC in a book published in 2011 before he was elected, though he not has not voiced support for NOPEC as president.

Trump has instead stressed the importance of U.S-Saudi relations, including sales of U.S. military equipment, even after the killing of journalist Jamal Khashoggi last year.

A move by Saudi Arabia to ditch the dollar would resonate well with big non-OPEC oil producers such as Russia as well as major consumers China and the European Union, which have been calling for moves to diversify global trade away from the dollar to dilute U.S. influence over the world economy.

Russia, which is subject to U.S. sanctions, has tried to sell oil in euros and China’s yuan but the proportion of its sales in those currencies is not significant.

Venezuela and Iran, which are also under U.S. sanctions, sell most of their oil in other currencies but they have done little to challenge the dollar’s hegemony in the oil market.

However, if a long-standing U.S. ally such as Saudi Arabia joined the club of non-dollar oil sellers it would be a far more significant move likely to gain traction within the industry.

WHAT IF?

Saudi Arabia controls a 10th of global oil production, roughly on par with its main rivals – the United States and Russia. Its oil firm Saudi Aramco holds the crown of the world’s biggest oil exporter with sales of $356 billion last year.

Depending on prices, oil is estimated to represent 2 percent to 3 percent of global gross domestic product. At the current price of $70 per barrel, the annual value of global oil output is $2.5 trillion.

Not all of those oil volumes are traded in the U.S. currency but at least 60 percent is traded via tankers and international pipelines with the majority of those deals done in dollars.

Trading in derivatives such as oil futures and options is mainly dollar denominated. The top two global energy exchanges, ICE and CME, traded a billion lots of oil derivatives in 2018 with a nominal value of about $5 trillion.

Just the prospect of NOPEC has already had implications for the Organization of Petroleum Exporting Countries. Qatar, one of the core Gulf OPEC members, quit the group in December because of the risk NOPEC could harm its U.S. expansion plans.

Two sources said that despite raising the dollar threat, Saudi Arabia did not believe it would need to follow through.

“I don’t think the NOPEC bill will pass but the Saudis have ‘what if’ scenarios,” one of the sources said.

ASSET SALES

In the event of such a drastic Saudi move, the impact would take some time to play out given the industry’s decades-old practices built around the U.S. dollar – from lending to exchange clearing.

Other potential threats raised in Saudi discussions about retaliation against NOPEC included liquidating the kingdom’s holdings in the United States, the sources said.

The kingdom has nearly $1 trillion invested in the United States and holds some $160 billion in U.S. Treasuries.

If it did carry out its threat, Riyadh would also have to ditch the Saudi riyal’s peg to the dollar, which has been exchanged at a fixed rate since 1986, the sources said.

The United States, the world’s largest oil consumer, relied heavily on Saudi and OPEC supplies for decades – while supporting Riyadh militarily against its arch-foe Iran.

But soaring shale oil production at home has made Washington less dependant on OPEC, allowing it to be more forceful in the way it deals with Saudi Arabia and other Middle Eastern nations.

Over the past year, Trump has regularly called on OPEC to pump more oil to lower global oil prices, and linked his demands to political support for Riyadh – something previous U.S. administrations have refrained from doing, at least publicly.

Reuters



16 Comments on "Saudi Arabia threatens to ditch dollar oil trades to stop ‘NOPEC’"

  1. Robert Inget on Fri, 5th Apr 2019 11:51 am 

    If the Saudis sink the buck they shoot themselves in BOTH feet. It’s one thing for VZ, they are having a tough time meeting domestic requirements.

    At this point in history US can’t sustain our foreign debt unless USD stays the reserve currency.

    On the oil front, Putin is moving on Libya. Once
    all Libyan production rests in Putin’s control it chaos for ruinous (for US) oil prices.
    Is Putin making another power grab in the Middle East? Moscow denies backing renegade Libyan general who is marching on Tripoli – amid suspicions of a Russian hand in looming civil war

    https://www.dailymail.co.uk/news/article-6890201/Is-Putin-making-power-grab-Middle-East-Moscow-denies-backing-renegade-Libyan-general.html

    Libya gets more interesting by the day
    http://www.cnbc.com/2019/04/04/libyan-forces-move-on-tripoli-threaten-to-tip-oil-producer-into-war.html

    Soon, all eyes will be on Libya and off Venezuela.

    Not to worry, we have the SPR and packed full pipelines from Canada.

  2. Robert Inget on Fri, 5th Apr 2019 12:06 pm 

    John Kemp

    COLUMN-Saudi Arabia tries to develop counter-leverage with dollar threat: Kemp – Reuters News
    05-Apr-2019 13:17:40
    John Kemp is a Reuters market analyst. The views expressed are his own

    By John Kemp
    LONDON, April 5 (Reuters) – Saudi Arabia’s threat to sell its oil in currencies other than the dollar if the United States enacts anti-OPEC legislation is an empty one, but it illustrates the extent of tensions between the two governments over oil prices.

    Senior Saudi officials have discussed a plan to stop invoicing oil in dollars and switch to other currencies if the No Oil Producing and Exporting Cartels Act (NOPEC), recently introduced in Congress, becomes law.

    The threat has been communicated to top officials in Washington and leaked to signal the strength of the kingdom’s opposition (“Saudi Arabia threatens to ditch dollar oil trades to stop NOPEC”, Reuters, April 5).

    Invoicing oil sales in euros or yuan would aim to damage the U.S. dollar’s status as the petro-recycling currency and its reserve status more generally, weakening its value and taking aim at U.S. financial dominance.

    In practice, the threat is not credible since the kingdom relies almost totally on the United States for its security, including purchases of armaments and training, intelligence sharing, and support in its conflict in Yemen.

    The kingdom could not afford to jeopardise its security relationship and close ties with the present U.S. administration.

    But it does illustrate the strain on relations that has emerged between the kingdom and the United States, especially the White House, over the desirable level of oil prices.

    Those tensions are likely to intensify as the United States gears up for congressional and presidential elections in November 2020.

    Just google Reuters for additional

  3. makati1 on Fri, 5th Apr 2019 6:38 pm 

    If the Saudis swing and start selling their oil for yuan, euros, yen, the US is dead.

    http://theduran.com/russia-saudi-arabia-neither-allies-nor-enemies-friends/
    or…
    https://orientalreview.org/2019/02/20/saudi-arabia-wants-to-be-the-next-hotspot-for-russian-chinese-tourists/
    or…
    http://english.alarabiya.net/en/News/gulf/2019/02/22/Saudi-Arabia-to-include-Chinese-language-in-educational-curriculum.html

    If the US corporate owned congress stops protecting the beheading, immoral, terrorist Saudis, it is game over for the US. We shall see. Pass the popcorn.

  4. Davy on Fri, 5th Apr 2019 6:48 pm 

    ‘If the Saudis swing and start selling their oil for yuan, euros, yen, the US is dead.”

    total bullshit makato. Wipe your ass please or in your case change the diaper.

    Give me some content from your empty links. It’s not our job to verify your point from stupid empty links.

  5. makati1 on Fri, 5th Apr 2019 7:34 pm 

    Davy, if you payed attention to the real world, you would know my assertion is true. No refs required. But you are nothing more than a flag waver for your baby killing, plundering, terrorist country. You deserve what is coming. You asked for it.

    Trying to put down the messenger with immature name calling does not work with intelligent, mature adults. You are not on a grade school playground Davy. Grow up.

    BTW: Friday night and you are on here? No life? It is a sunny, 82F, Saturday morning here. I’m catching up on the events in the real world, listening to the birds and getting ready to go to the wet market for some fresh fish. A typical Saturday here in the land of eternal summer.

  6. Davy on Fri, 5th Apr 2019 7:42 pm 

    Nope, makato, just more bullshit from you like the bric bank and gold backed petroyuan. Everyday is a workday here on the farm makato. Friday doen’t matter. I am turning in soon and will be up early. 71 degrees tomorrow. I am glad I am here and not in your bug infested 3rd world dump.

    BTW, have fun putting me down with a drunk juanpee and drugged up annon tonight. You guys party hardy at night. Too bad you don’t make much sense.

  7. makati1 on Fri, 5th Apr 2019 8:12 pm 

    Delusional Davy, your hypocrisy is showing in huge neon flashing lights. You live in a country going down the shitter and cannot get out. Locked in your cheap cabin on the Titanic and the water is coming under the door.

    The “American Dream” is becoming the “American Nightmare”. Well deserved as the US has been destroying countries and millions of lives for the last 70+ years. You get to reap the blow-back. Aren’t you lucky.

    You keep pretending you live on a farm. but only the low IQs here believe you. You have too much online time to be a real farmer. I didn’t have a farm when I was raising my family, but I still never had tome to even read a book or watch TV. Your lies are blatant Davy.

    Now you will disappear and your sock MOB will appear. LOL

  8. Davy on Sat, 6th Apr 2019 2:06 am 

    “ I am glad I am here and not in your bug infested 3rd world dump.”

    BTW makato, ever been eaten alive by pesky gnats?

    stupid dumbass

  9. makati1 on Sat, 6th Apr 2019 2:21 am 

    Delusional Davy, shouldn’t a “farmer” be asleep at 2AM? LOL

    I have been in the forests in West Yellowstone in May with snow still several feet deep, being eaten by dozens of mosquitoes thru my sweatshirt. I’ve been in the jungles of Puerto Rico and enjoyed the critters there, including tarantulas as big as your hand. I’ve mucked out stables in Idaho six inched deep in winter shit. Worked on a sheep ranch with 1,200 ewes giving birth. I can go down the list of discomforts I have experienced. Many more than you ever have. What does that have to do with anything? Pests are everywhere.

  10. makati1 on Sat, 6th Apr 2019 2:39 am 

    I have lived over 27,000 days Davy and you can experience a lot in that time. You can also get a good idea of the real world and where to sit to watch events unfold. For me, it is the Philippines. You couldn’t pay me to live in the US again.

    “Flea-borne typhus outbreak, rats taking over Los Angeles city buildings”(A 3rd world disease Davy?)
    “Sexually transmitted diseases surge for the 4th straight year, CDC reports” (3rd world?)
    “27 Kansas students test positive for tuberculosis” (Isn’t that a 3rd world disease Davy?)

    ALL USAToday articles. Mother Natures does not recognize “exceptional/indispensable” as an immunity to her plagues. LMAO!

  11. Not Davy on Sat, 6th Apr 2019 5:43 am 

    Juanp posted this not Davy

    Davy on Sat, 6th Apr 2019 2:06 am

  12. Davy on Sat, 6th Apr 2019 5:47 am 

    “Many more than you ever have. What does that have to do with anything? Pests are everywhere.”

    makato, I live in a temperate climate meaning half the year no bugs. I like that. You live in a wet more tropical region with bugs year round. As far as you being so much more experienced, this is the internet makato when you make statements like that you are fantasizing.

  13. Davy on Sat, 6th Apr 2019 5:54 am 

    “ALL USAToday articles. Mother Natures does not recognize “exceptional/indispensable” as an immunity to her plagues. LMAO!’

    LOL, makato a few years ago you would shame anyone who admitted to reading USAToday and now it is used by you all the time. Makato, your P’s ranks near the top for climate related danger. I have referenced this so many times that I will pass on that. The P’s is likely a nice place to hang out in the right places. When have I said it is not? I am not interested in the place so don’t shove it down my throat and tell me my place sucks when it is fine for me. You glowing praise of the P’s is excessive. When people try too hard to talk something up many times there are other issues going on. In your case you are likely feeling a congestive dissonance for leaving the US and this is why you are constantly saying how glad you are to have left and how very very wonderful the P’s are.

  14. Davy on Sat, 6th Apr 2019 8:43 am 

    I hope y’all are enjoying my ‘mental’ exercises this morning as much as I am. They make me feel all important like.

  15. Not JuanP on Sat, 6th Apr 2019 8:51 am 

    Davy posted this not JuanP

    Not Davy on Sat, 6th Apr 2019 5:43 am
    Juanp posted this not Davy
    Davy on Sat, 6th Apr 2019 2:06 am

  16. Not Davy on Sat, 6th Apr 2019 9:20 am 

    JuanP posting not Davy

    Davy on Sat, 6th Apr 2019 8:43 am
    Not JuanP on Sat, 6th Apr 2019 8:51 am

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