Canada and Saudi Arabia Agree to Price Oil Outside the Dollar — The Petrodollar Era Cracks

本站添加: 2026-05-10

[00:00:00]Three days ago on May 6th, 2026, NPR published a piece titled how the petrodollar regime came to be and what losing it would mean for the US. The timing was not accidental. It arrived the same week that Iran's newly established Persian Gulf Strait Authority began collecting tolls from ships seeking to transit the Strait of Hormuz, not in dollars, but in Chinese yuan. It arrived two weeks after a phone call between Saudi Crown Prince Mohammed bin Salman and Canadian Prime Minister Mark Carney in which the two leaders discussed deepening the Canada-Saudi Arabia partnership in energy, critical minerals, defense, and aerospace. And it arrived in a week when Deutsche Bank's analysts were circulating a note to clients warning that the Iran war could be remembered as a key catalyst for erosion in petrodollar dominance and the beginnings of the petroyuan. That is a sentence from one of the most important financial institutions in the world, not from a geopolitical newsletter, not from a think tank producing a theoretical white paper, from Deutsche Bank in a client note in May 2026 warning that the system that has wired the global economy for 52 years may be at its most structurally vulnerable moment since Henry Kissinger sat across from Saudi officials in 1974 and assembled the arrangement that produced it. The petrodollar did not die this week. It has not died at all in the sense that a system dies cleanly and visibly on a specific date, but something happened this week and last week and in the weeks before that which constitutes a more consequential development than most of the headlines being generated by the same events have managed to capture. It is not the drama of the tariff court rulings or the Spirit Airlines collapse or the Strait of Hormuz tolls paid in yuan, though each of those stories is real and verified and significant. It is the structural convergence of those stories into a single visible pattern, the pattern of a world that spent 52 years organizing its energy trade around the American dollar now building the architecture of an alternative, not in theory, not in academic papers, in phone calls between prime ministers and Crown Princes, in memorandums of understanding signed at mineral forums in Riyadh, in pipeline decisions pointed west toward Asian buyers instead of south toward American refineries. And in the specific and unprecedented decision by the country that created the petrodollar to let the 50-year-old agreement that governed it expire quietly in June of 2024 2 years ago without a press conference and without a formal announcement in a move that went almost entirely unreported until the Iran war made it impossible to ignore. Warren Buffett said, "In 70 years of business, the most expensive systemic transitions are the ones that have been happening for years before the moment that makes them visible." He said the moment of visibility is never the moment the transition began. It is the moment the transition becomes undeniable, the moment it has accumulated enough structural weight that the people whose job it is to notice such things can no longer frame it as a theoretical possibility or a minor erosion at the edges. He said the petrodollar is at that moment right now. The erosion did not begin with the Iran war. It did not begin with the Carney MBS call. It began when China became Saudi Arabia's largest oil customer, when the economic gravity of the trade relationship between Riyadh and Beijing began pointing in a different currency direction than the security arrangement between Riyadh and Washington had locked in for 50 years.

[00:03:02]The Iran war did not create the crack.

[00:03:04]It made the crack impossible to ignore.

[00:03:06]Hit subscribe because the Strait of Hormuz is now being managed by an Iranian authority that is collecting transit tolls in yuan because Saudi Arabia's 50-year petrodollar commitment expired in June 2024 and was not renewed because Canada signed a memorandum of understanding with Saudi Arabia's Minister of Industry and Mineral Resources on January 13th, 2026 covering critical mineral supply chains, trade, and investment because Saudi Investment Minister Khalid Al Falih spent a full day in Ottawa with Carney and senior ministers and then a full day on Bay Street with Canadian capital markets exploring the investment framework that the Canada-Saudi relationship is building because the Carney MBS call on April 29th produced a readout from the Prime Minister's Office describing discussions on deepening the partnership in energy, agrifood, critical minerals, defense, and aerospace. And because the full architecture of what that partnership means for the dollar's role in the energy system that Canada and Saudi Arabia are building together, and for the American financial position in a world where that system no longer automatically routes through the greenback, requires understanding exactly what the petrodollar was, exactly how it ended, and exactly what is being built in the space it occupied.

[00:04:14]Let me take you through exactly what happened because the convergence of events that this week has made visible has been building for years in a way that the individual news cycles covering each piece have systematically obscured.

[00:04:24]The petrodollar was not a formal treaty.

[00:04:26]There is no official document. The Atlantic Council, which tracks these arrangements with more precision than most institutions, has noted that there is no official agreement between the United States and Saudi Arabia to sell oil in US dollars. What there was, beginning in 1974, was an arrangement, an understanding, the kind of deal that Secretary of State Henry Kissinger and Treasury Secretary Bill Simon assembled in a series of meetings with the Saudi royal family following the Yom Kippur War and the oil embargo, in which the Saudis agreed to price their oil exports in dollars and to invest their dollar surpluses in American Treasury bonds, and in exchange the United States agreed to provide economic and military support, security guarantees for the kingdom, advanced weapons, and the protection of the Saudis' ability to export oil through the waterways of the Persian Gulf. The deal was not written down in a way that either party has officially confirmed, but it shaped the global financial architecture for 50 years. Because when the world's most important commodity is and the countries producing that commodity reinvest their dollar revenues into American debt, the dollar becomes structurally indispensable to the global economy in a way that no other currency can match. The world saves in dollars, Deutsche Bank wrote in its March 2026 client note, in large part because it pays in dollars for oil. Saudi Arabia let that arrangement expire quietly in June 2024 without a press conference, without a formal announcement, without the kind of visible declaration that would have triggered the market reaction and the diplomatic crisis that the significance of the decision warranted.

[00:05:53]The 50-year petrodollar commitment, the one that Kissinger assembled in 1974, simply ran to the end of its term and was not renewed. EBC Financial Group analyst Michael Harris, writing about the expiration, noted that this shift reflects a basic economic reality. China displaced the United States as Saudi Arabia's largest oil customer. The economic gravity pointed toward yuan while the currency pointed dollars.

[00:06:16]Saudi Arabia now sells four times more oil to China than it sends to the United States. The country that agreed to price its oil in dollars in 1974 because the United States was its most important customer and security partner has watched its most important customer become China, whose currency is the yuan, and whose interest in the dollar-denominated oil trade is at best ambivalent. The dollar share of global foreign exchange reserves has fallen from 71% in 1999 to roughly 57% today.

[00:06:44]The Saudis are largely still doing deals in dollars, Harris wrote, even with China, but the door is now open. The Iran war opened it further. On February 28th, 2026, the United States and Israel attacked Iran's nuclear program and military infrastructure. On March 4th, Iran effectively closed the Strait of Hormuz, through which 20% of the world's oil supply transits. Brent crude surged past $120 per barrel within days. Qatar declared force majeure on all LNG exports. The collective oil production of Kuwait, Iraq, Saudi Arabia, and the United Arab Emirates dropped by a reported 6.7 million barrels per day by March 10th and by at least 10 million barrels per day by March 12th. This is the energy shock that killed Spirit Airlines, that drove jet fuel to $4.26 per gallon, that is keeping crude above $100 a barrel as of today, May 9th. But the oil supply disruption, catastrophic as it has been for global energy markets, is not the most consequential consequence of the Iran war for the global financial system. The most consequential consequence is what Iran did with the Strait. Iran is allowing ships to pass through the Strait of Hormuz on condition that oil is paid for in Chinese yuan. This has been reported by CNN, confirmed by Lloyd's List Intelligence, and described by Deutsche Bank as the opening of a new place for business in Chinese yuan. The Strait of Hormuz, through which 20% of the world's oil flows, is now an active testing ground for yuan denominated oil transactions. Not in theory, not in a pilot program, in the specific commercial reality of tanker captains who need to move their cargo through the Strait, and who are filing paperwork with Iran's Persian Gulf Strait Authority, and paying tolls in a currency that is not the dollar. Each of those transactions is small in isolation. In aggregate, across the hundreds of vessels that the Strait processes, they represent the first time since 1974 that a significant choke point of the global oil trade has been formally administered in a non-dollar currency. The Deutsche Bank analyst who wrote the warning note, Malak Safdeva, said the conflict could be a catalyst for the erosion of petrodollar dominance and the beginning of the petroyuan era.

[00:08:41]She was describing something that was already happening in the specific administrative structure of an Iranian authority collecting transit fees in yuan from tankers that needed to move oil to buyers who were increasingly willing to transact in currencies other than the dollar. Saudi Arabia and the UAE have been watching this from both inside and outside the conflict. Saudi Arabia supported the US-Israeli offensive, opening King Fahd airbase to American forces, but the regional officials and analysts quoted by Middle East Eye are clear about the longer term calculation that the war has forced. In the longer term, the US-Israeli war on Iran has sparked serious doubts about the US's role as the region's security guarantor. Saudi Arabia's decision to support the offensive does not resolve those doubts. It manages them in the near term while the kingdom prepares the longer term architecture of relationships that it will need, regardless of whether the US security umbrella is extended or retracted. And the longer term architecture Saudi Arabia is building is the one visible in the Carney MBS call on April 29th in the Al-Fali visit to Ottawa, in the January 13th MOU on critical minerals, and in the deepening relationship with a country that is not an adversary of any Gulf state, that has the energy, the minerals, and the governance quality that Saudi Arabia's Vision 2030 transformation requires, and that is currently in the middle of its own strategic pivot away from single partner dependency that makes it the most compatible partner Saudi Arabia has identified for the specific diversification it needs. The Canada-Saudi relationship, which the RBC Trade Zone analysis published in November 2025 described as having gone from barely on speaking terms a few years ago to exploring trade deals and investment opportunities, is being built on a specific and mutually reinforcing logic. Canada has what Saudi Arabia's transformation requires. Saudi Arabia has what Canada's diversification requires. Canada has the critical minerals, the clean hydroelectric power for processing them, the LNG export capacity under development, the democratic governance standards that make bilateral agreements durable, and the strategic interest in building non-American market relationships that has been the organizing principle of Carney's economic diplomacy since the day he took office. Saudi Arabia has the capital of its Public Investment Fund, which manages assets of over $700 billion, and is actively looking for infrastructure investments that match Vision 2030's diversification targets.

[00:10:59]It has the purchasing power for LNG, for processed minerals, for clean energy technology, for the aerospace and defense products that Canada exports, and that Saudi Arabia's military modernization requires. And it has the geographic position in a global energy trade that is being reorganized by the Iran war in ways that make Canada's Pacific LNG corridor, running through British Columbia to Asian buyers, more valuable and more strategically relevant than any previous moment in the bilateral relationship's history. The specific elements of what the two countries are building together, as documented in the official Canadian government readouts and the RBC analysis and the future minerals form proceedings cover five domains: energy, including renewables, nuclear, and electric vehicles; advanced manufacturing, including drones and satellites; artificial intelligence and quantum computing; mining and critical minerals; and advanced education and health care.

[00:11:49]These are not the domains of a country buying another country's commodity. They are the domains of two countries building an economic relationship of the kind that was previously organized around the dollar-denominated oil trade, and that is now being organized around something else, around the clean energy transition, around critical mineral supply chains, around the AI and technology infrastructure that both countries are investing in, and around the financial settlement mechanisms that, as the $560 billion multilateral agreement signed while Washington slept, demonstrated earlier this year, are increasingly being designed to function without American financial system intermediation as the organizing requirement. The multilateral currency settlement mechanism in that agreement, the one that Canada, Germany, Japan, South Korea, Australia, and the United Kingdom signed in the early hours of the morning in January, covering more than $500 billion in annual trade between six nations, was designed explicitly to allow bilateral and multilateral transactions to settle without routing through the US dollar for a defined set of exchanges. The mechanism does not threaten dollar dominance in any single transaction. What it does is demonstrate that the technical and legal infrastructure for settling significant volumes of global trade outside the dollar system can be built by allied democratic nations, not just by Russia or Iran or China, and that building it is a rational response to the weaponization of dollar access that American sanctions policy and the tariff war have made the central fact of doing business with Washington. Canada's deepening relationship with Saudi Arabia is happening in this context. The Saudi Public Investment Fund, which manages $700 billion in assets, does not need to route every transaction through New York. The January 2026 MOU on critical minerals does not specify that the trade it governs will be settled in dollars.

[00:13:29]The conversations that Khalid al-Falih had on Bay Street with Canadian capital markets are the conversations of two financial systems exploring how to transact with each other in ways that serve both parties interests, which is not synonymous with in ways that require American financial intermediation. The dollar's position in this emerging architecture is not threatened in the dramatic sense that most commentary about de-dollarization implies. The dollar is not going away. Paul Bluestein, a scholar at the Center for Strategic and International Studies, has noted that even if the petrodollar weakens, dollar dominance still rests on other factors that other currencies cannot match, including the depth, breadth, and liquidity of US capital markets. The CFR's Brad Setser, writing in April 2026, said the glory days of the petrodollar are over, but that global dollar liquidity is driven far more by Asian manufacturing surpluses than by oil exporters stashing dollars offshore. These are serious analysts making serious points about a system that is genuinely more resilient than the most dramatic de-dollarization predictions suggest. But the question is not whether the dollar dies. The question is whether it retains the specific form of indispensability that 52 years of petrodollar arrangements have given it. The petrodollar's contribution to dollar dominance was not primarily about the volume of oil transactions. It was about the demand for dollars that oil pricing in dollars created across the entire global supply chain. Andres Arauz, former Ecuadorian Central Bank Director, described it precisely to Green Central Banking. Oil and gas are traded in dollars, but then also downstream with all the derivatives. And then also all the chemical elements derived from the oil industry and the petrochemical industry.

[00:15:02]And then likewise, upstream with all the technology and inputs required to extract the oil. This created a dollar-denominated value chain with global and international repercussions.

[00:15:11]The petrodollar was not one transaction.

[00:15:13]It was the organizing principle of an entire value chain that cascaded through the global economy, creating dollar demand at every level of of production.

[00:15:21]What Canada and Saudi Arabia are building is an alternative organizing principle for a portion of that value chain. Canada's critical minerals processed with Canadian hydroelectric power, sold to Saudi Arabia and to Asian buyers in the currency framework of their bilateral agreements, powered by LNG from Canadian West Coast terminals at world price, rather than at the landlocked discount American refineries have extracted from Alberta for decades, constitute a segment of the global energy and minerals trade that does not require dollar intermediation to function. It is not the entire petrodollar system. It is the beginning of the alternative architecture at the exact moment that the Iran war has demonstrated to every oil producing nation on Earth that the American security guarantee that underpinned the petrodollar was more conditional than 50 years of arrangements had suggested.

[00:16:05]Trump said publicly during the Iran war in the specific sentence that Middle East I quoted and that every Gulf official read with the attention it deserved that the United States does not use the Strait of Hormuz. We don't need it, he said. Europe needs it. Korea, Japan, China, a lot of other people need it, so they'll have to get involved a little bit. This sentence is the most consequential statement any American president has made about the petrodollar regime since Nixon closed the gold window in 1971. Not because it threatens to abandon the strait, but because it publicly reframes the American security commitment to Gulf energy transit as contingent on whether the United States perceives its own interests to be served by that commitment. The security guarantee that Henry Kissinger extended to Saudi Arabia in 1974, the guarantee that made the petrodollar arrangement rational from the Saudi side, was premised on American willingness to ensure free navigation in the Gulf. Trump said publicly that the navigation is someone else's problem.

[00:16:57]Saudi Arabia heard that statement. The Gulf Cooperation Council heard it. And the countries that have been quietly building alternative arrangements for years heard it as the loudest possible confirmation that the quiet building should accelerate. Warren Buffett said, "In 70 years of business, the most important signal in any long-term commercial relationship is the moment one party demonstrates publicly and without apparent awareness of the implication that it considers the relationship to be conditional on its own convenience. He said this is the moment the other party begins building in earnest the exit architecture they had previously only sketched in theory.

[00:17:29]He said the Saudi petrodollar arrangement was sustained for 50 years, not because dollar pricing was always in Saudi Arabia's commercial interest, but because the American security guarantee made the dollar arrangement rational regardless of the commercial inconvenience. The moment the American president says publicly that the security guarantee applies only when America perceives its own interest to be served by it, the commercial calculus changes. And the commercial calculus changing is what the Carney MBS call and the Alfali Ottawa visit and the January 2026 MOU are the institutional expression of. The specific financial architecture through which the Canada-Saudi relationship is being organized matters because it tells you what kind of alternative to the dollar system is being built and how fast. The Enbridge platform, which Saudi Arabia, China, the UAE, and Hong Kong have been developing since 2021, is a blockchain-based system for settling cross-border transactions using central bank digital currencies without routing through correspondent banking networks that require dollar access. Saudi Arabia joined Enbridge as a full member in 2024. Canada has not joined Enbridge, but the conversations that Alfali had on Bay Street in November 2025 and that the April 29th Carney MBS call extended are conversations between two countries, both of which are building new financial infrastructure for their commercial relationships about the terms on which their deepening partnership will be settled. Canada's bilateral currency settlement mechanism, the one included in the January 2026 multilateral deal with five other nations, provides the model. An arrangement that covers specific categories of bilateral trade in domestic currencies without requiring dollar intermediation for those specific flows while leaving the broader dollar system intact. The dollar share of global foreign exchange reserves fell from 71% in 1999 to 57% today. That is a 14 percentage point decline over 25 years. It is not a collapse. It is a gradual structural shift of exactly the kind that does not produce a single dramatic headline, but that accumulates compounding at the edges of the system until the edges have become a substantial portion of the whole. Saudi Arabia's petrodollar commitment expired in June 2024. The Strait of Hormuz is now collecting tolls in yuan. Canada and Saudi Arabia signed a critical minerals MOU in January 2026. The Carney MBS called deepen the partnership in energy, agri food, minerals, aerospace. The $560 billion multilateral settlement mechanism excludes dollar intermediation for $500 billion in annual allied trade.

[00:19:50]These are not individually the collapse of the petrodollar. They are the compound interest of a gradual structural shift. Each one small, each one adding to the accumulated weight of a system that is being built around the dollar rather than through it. So, here's where we stand. On May 6th, 2026, NPR published its analysis of the petrodollar regime and what its loss would mean for the United States, noting that Iran is now collecting Hormuz transit tolls in yuan. On April 29th, 2026, Prime Minister Mark Carney spoke with Saudi Crown Prince Mohammed bin Salman, and the two leaders discussed deepening the partnership in energy, agri food, critical minerals, defense, and aerospace. On January 13th, 2026, Canada signed a memorandum of understanding with Saudi Arabia's Minister of Industry and Mineral Resources at the Future Minerals Forum in Riyadh, committing to cooperation across critical mineral value chains and supply chain security. In November 2025, Saudi Investment Minister Khalid al-Falih spent a day in Ottawa with Carney and senior Canadian ministers and a day on Bay Street exploring investment frameworks. Saudi Arabia's 50-year petrodollar commitment expired in June 2024 and was not renewed. The dollar share of global foreign exchange reserves has fallen from 71% in 1999 to 57% today. Saudi Arabia now sells four times more oil to China than to the United States. Iran's Persian Gulf Strait authority is collecting Hormuz tolls in Yuan. Deutsche Bank has warned clients the conflict could be a key catalyst for erosion in petrodollar dominance and the beginning of the petroyuan. Canada's $560 billion multilateral settlement mechanism provides a non-dollar settlement framework for $500 billion in allied trade. Brent crude is above $100 per barrel. Jet fuel is at $4.26 per gallon. The Cosmo review begins July 1st. The Section 122 tariffs were ruled illegal 2 days ago. The Section 301 investigations are being built on an accelerated timeline. And Canada, which declined to make deep energy integration with the United States the organizing principle of its strategic future, is building that future instead with a Saudi Arabia whose own strategic future is being built around something other than the dollar arrangement that has organized it for 50 years. Can a petrodollar system survive the simultaneous expiration of the foundational Saudi commitment, the Hormuz transit tolls in Yuan, the $560 billion allied settlement mechanism that routes around dollar intermediation, the Canada-Saudi partnership building the critical minerals and energy supply chains of the clean energy era in a framework not designed around American financial centrality, the dollar's 14-point reserve share decline since 1999, and the American president's public statement that the Strait of Hormuz is someone else's problem? Can the specific form of dollar indispensability that 52 years of petrodollar arrangements produced survive the structural convergence of the world's major oil producers, middle powers, and critical minerals exporters building the alternative architecture that the Iran war has made urgent and that the tariff wars have made rational?

[00:22:42]And the question that Kissinger understood in 1974 and that Carney and Mohammed bin Salman discussed 11 days ago on a phone call whose read out described energy, critical minerals, agri-food, defense, and aerospace? The question that runs through every sentence of Deutsche Bank's client note and every barrel of oil being transited through the the of Hormuz in Yuan? When the system that organized the world's most important commodity in a single currency expires quietly and is not renewed, when the strait through which 20% of the world's oil flows begins processing in a different currency, and when the countries with the most valuable energy and mineral resources begin building their relationships with each other in frameworks not designed around the currency that has organized those relationships for 52 years, what exactly remains of the arrangement that Henry Kissinger assembled in 1974 in exchange for security guarantees that the current American president said publicly are someone else's problem? The petrodollar did not die this week, but it cracked two years ago when Saudi Arabia did not renew it. It cracked further when Iran opened the strait to Yuan-denominated tolls. It cracked again on January 13th in Riyadh when Canada and Saudi Arabia signed a memorandum about the critical minerals that will power the clean energy economy that neither country is organizing around the dollar any more than the economy requires. And it cracked on April 29th when a prime minister and a crown prince spoke for 11 minutes about energy, minerals, defense, and aerospace in a relationship that has gone from barely speaking terms to strategic partnership in two years in the specific context of a world where the American president said the Strait of Hormuz is someone else's problem and where 52 years of petrodollar arrangement had already quietly run out.