Fact-Check: Reports of Saudi Arabia ending Petrodollar Deal is misleading
Washington D.C. — Recent reports suggesting Saudi Arabia's termination of a longstanding petrodollar deal with the United States have ignited widespread online discussions regarding the potential decline of the US dollar as the world's reserve currency. However, several experts have pointed out a fundamental flaw in these reports: there was never a formal petrodollar agreement to begin with.
Paul Donovan, chief economist at UBS Global Wealth Management, addressed the issue in a blog post, highlighting that the narrative had gained unwarranted traction, serving as a clear example of "confirmation bias." He noted, "The story seems to have started in the crypto world. Many crypto speculators desperately want to believe in the dollar’s demise."
The reports suggested that an agreement, allegedly signed between Saudi Arabia and the US in 1974, expired on June 9, 2024, without renewal. This so-called 'petrodollar deal' was purportedly crucial for maintaining the dollar's global dominance. Donovan clarified that while the US and Saudi Arabia did establish a Joint Commission for economic cooperation in June 1974 to help Saudi Arabia spend its sudden influx of oil dollars on US products, this was not a formal petrodollar agreement. In July of that year, Saudi Arabia agreed to invest oil revenues in US Treasuries, a move that was confidential until 2016.
Furthermore, Donovan explained that oil has historically been traded in various currencies, not exclusively the dollar. "In January 2023, Saudi indicated it was happy to negotiate oil sales in other currencies. The possibility changes little for financial markets. Saudi Arabia’s riyal remains pegged to the dollar, and its stock of financial assets are dollar-focused. The dollar’s reserve status depends on how money is stored, not how transactions are denominated," Donovan stated.
The US-Saudi relationship remains robust, with Riyadh continuing to be a key ally in the Middle East. This alliance is particularly significant for the purchase of US arms, which are priced in dollars. Despite China's substantial dollar reserves compared to Saudi Arabia's, efforts to diminish the dollar's global reserve currency status have seen minimal success.
The dominance of the dollar in global oil trade, encompassing transactions, transport, and insurance, is unlikely to wane even if Saudi Arabia were to consider selling oil in yuan. This preference for dollars simplifies transactions, unlike India's experience of buying Russian oil in local currency, where surplus accumulation poses investment or lending challenges for Moscow.
While Riyadh might explore using oil payments for Chinese exports, this is feasible with dollars as well. The oil industry's reliance on the dollar as the primary trade medium is expected to remain unchallenged, maintaining the dollar's predominant role in global financial markets.
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India proposes preferential trade agreement with Mexico to deal with high tariffs
New Delhi (PTI): India has proposed a preferential trade agreement (PTA) with Mexico to help domestic exporters deal with the steep tariffs announced by the South American country, a top government official said on Monday.
Mexico has decided to impose steep import tariffs - ranging from about 5 per cent to as high as 50 per cent on a wide range of goods (about 1,463 tariff lines) from countries that do not have free trade agreements with Mexico, including India, China, South Korea, Thailand and Indonesia.
Commerce Secretary Rajesh Agrawal said that India has engaged with the country on the issue.
"Technical level talks are on...The only fast way forward is to try to get a preferential trade agreement (PTA) because an FTA (free trade agreement) will take a lot of time. So we are trying to see what can be a good way forward," he told reporters here.
While in an FTA two trading partners either significantly reduce or eliminate import duties on maximum number of goods traded between them, in a PTA, duties are cut or removed on a limited number of products.
Trading partners of Mexico cannot file a compliant against the decision on imposing high tariffs as they are WTO (World Trade Organisation) compatible.
The duties are within their bound rates, he said, adding that their primary target was not India.
"We have proposed a PTA because its a WTO-compatible way forward... we can do a PTA and try to get concessions that are required for Indian supply chains and similarly offer them concessions where they have export interests in India," Agrawal said.
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Citing support for local production and correction of trade imbalances, Mexico has approved an increase in MFN (most favoured nation) import tariffs (5-50 per cent) with effect from January 1, 2026 on 1,455 tariff lines (or product categories) within the WTO framework, targeting non-FTA partners.
Preliminary estimates suggest that this affects India's around USD 2 billion exports to Mexico particularly -- automobile, two-wheelers, auto parts, textiles, iron and steel, plastics, leather and footwear.
The measure is also aimed at curbing Chinese imports.
India-Mexico merchandise trade totalled USD 8.74 billion in 2024, with exports USD 5.73 billion, imports USD 3.01 billion, and a trade surplus of USD 2.72 billion.
The government has been continuously and comprehensively assessing Mexico's tariff revisions since the issue emerged, engaging stakeholders, safeguarding the interests of Indian exporters, and pursuing constructive dialogue to ensure a stable trade environment benefiting businesses and consumers in both countries.
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Federation of Indian Export Organisations (FIEO) Director General Ajay Sahai has said that Mexico's decision is a matter of concern, particularly for sectors like automobiles and auto components, machinery, electrical and electronics, organic chemicals, pharmaceuticals, textiles, and plastics.
"Such steep duties will erode our competitiveness and risk, disrupting supply chains that have taken years to develop," Sahai said, adding that this development also underlines the little urgency for India and Mexico to fast-track a comprehensive trade agreement.
Domestic auto component manufacturers will face enhanced cost pressures with Mexico hiking duties on Indian imports, according to industry body ACMA.
