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

Added: 2026-05-11

[00:00:00]Today we are looking at one of the most significant developments in global finance in the past 50 years. This is a moment that carries profound implications for the international economic order that has been in place for decades, influencing everything from trade patterns to national economic strategies across the globe. The crown prince of Saudi Arabia did not call the president of the United States. He did not call the leaders of China or Russia either. Instead, he called the Prime Minister of Canada, Mark Carney. And what the two men agreed to in that phone call has sent the United States Treasury Department, the Federal Reserve, and central banks around the world into emergency consultation as they work carefully to assess the full scope and potential ripple effects of this unexpected development that has caught many observers by surprise. Saudi Arabia and Canada have signed a $1 trillion energy and economic partnership. This comprehensive agreement covers key sectors including energy, critical minerals, investment, technology, and financial infrastructure in considerable depth. Each of these areas represents substantial commitments that will shape cooperation between the two nations for years to come, laying a foundation for ongoing collaboration and mutual economic benefits. But the part that has rattled global currency markets more than anything else is a single clause inside that agreement. That clause specifies that all energy transactions between the two countries will be settled in a basket of currencies consisting of the euro, the Chinese yuan, the British pound, and a new digital token managed jointly by the Bank of Canada and the Saudi Arabian Monetary Authority. The United States dollar is not included in this arrangement at all. This exclusion was not by accident, but by deliberate design, reflecting careful and intentional planning on the part of both parties involved. For the first time since 1974, a significant volume of global oil trade will be priced and settled outside the dollar system. It is important to note that this does not represent the majority of global oil trade by any means. It accounts for roughly 4%. Yet, even at 4%, this shift is enough to crack a foundation that has never cracked before in the modern era.

[00:02:17]And when a foundation cracks for the first time, the size of the crack matters less than the simple fact that it happened at all because it challenges longheld assumptions about stability and permanence in the global financial structure that many had come to take for granted over the decades. Within hours of the announcement, the dollar dropped 2.3% in a single trading session. Gold prices rose as investors sought traditional safe havens amid the uncertainty. The euro strengthened against the dollar and the yuan also gained ground in currency trading.

[00:02:49]Treasury bond yields moved higher, reflecting shifting investor sentiment in response to the news. Currency markets were not overreacting to the news in any exaggerated way. Instead, they were carefully adjusting to a structural shift that could have lasting consequences for how international trade and reserves are managed in the future, prompting a measured re-evaluation among participants. The Federal Reserve privately briefed the United States Senate Banking Committee on the matter.

[00:03:18]Senators from both parties quickly requested an emergency joint hearing to discuss the implications in greater detail. President Trump called the Saudi crown prince directly to ask him to reconsider the key elements of the agreement. The crown prince said no. The call lasted 11 minutes. This video uses AI presentation technology. All information is sourced from verified reporting and publicly available financial and policy analysis. To understand why this matters so deeply, it is necessary to go back to 1974 and examine the historical context that shaped the current system in meaningful ways. After the 1973 oil embargo pushed the American economy into recession, creating widespread economic challenges and uncertainty for many households and businesses. The Nixon administration sat down with the Saudi royal family and made a deal. It was not a formal treaty that went through traditional channels of approval. Congress never voted on it.

[00:04:13]There was no public announcement at the time. It was a private understanding between two governments that quietly reshaped the entire global economy in ways that would influence trade, finance, and geopolitics for generations to follow. The deal was straightforward in its core terms. Saudi Arabia would price all of its oil and US dollars.

[00:04:33]Every country that needed Saudi oil, and at that time, every industrialized country needed Saudi oil, would have to hold US dollars to pay for it. In return, the United States would protect Saudi Arabia militarily and provide access to American weapons and security guarantees. Over the following years, the other OPEC nations gradually joined the arrangement. By the early 1980s, nearly all global oil trade was priced in dollars. The petro dollar system was firmly in place, creating a self-reinforcing cycle that supported dollar dominance across international markets. The effects of that system were enormous and far-reaching in their impact. Most Americans never noticed them directly because the benefits were largely invisible, built into the background of everyday life in ways that felt natural and permanent. Because oil was priced in dollars, every country on Earth needed a steady supply of dollars to conduct essential energy transactions. To get those dollars, countries sold goods and services to the United States in large volumes. That dynamic is one of the main reasons American consumers have had access to relatively affordable imported goods for 50 years, supporting a high level of consumption and variety in the domestic market that many have come to expect.

[00:05:48]Countries also stored their accumulated dollars by purchasing US Treasury bonds.

[00:05:52]That steady and reliable demand for Treasury bonds is why the American government has been able to borrow money at relatively low interest rates, even while carrying enormous levels of debt over many decades. And because global trade ran extensively through the dollar system, the United States gained the ability to impose financial sanctions that reached every corner of the world with considerable effectiveness. Any country cut off from the dollar was effectively cut off from the ability to buy oil on the open market, giving the system powerful leverage in international affairs. The entire chain runs from one starting point. Oil is priced in dollars. Remove that condition and every link in the chain begins to loosen over time, potentially leading to broader adjustments across the international financial landscape that could unfold gradually but meaningfully.

[00:06:44]Now, consider who made this new deal happen. Muhammad bin Salman is the crown prince of Saudi Arabia. He controls the world's largest proven oil reserves, giving him enormous influence over global energy markets. His family's 1974 decision helped create the original petro dollar system. His strategic choices today carry consequences that very few people on earth can match in terms of their potential global impact.

[00:07:08]Mark Carney is the prime minister of Canada. But what makes him uniquely significant in this context is his extensive background in central banking and finance. He served as governor of the Bank of Canada. Then he served as governor of the Bank of England. He is the only sitting head of government in the world who has run two major central banks during his career. He understands how reserve currency systems are built, how they are sustained through various economic cycles, and how they can be restructured when conditions change. He possesses deep knowledge of clearing systems, exchange rate management, and the regulatory frameworks needed to build a functioning alternative to the dollar settlement system. Saudi Arabia had the oil. Saudi Arabia had the money.

[00:07:51]Saudi Arabia had the motivation to pursue greater diversification. What it needed was someone who could actually design and build the alternative financial architecture with credibility and technical expertise. Carney was that person. The phone call was the commission that brought these capabilities together in a practical way. Now, here is exactly what they agreed to in the partnership. The agreement is built across five distinct but interconnected areas. The first is energy. It involves $400 billion to combine Canadian oil and gas production with Saudi refining and distribution capacity. This creates a situation where two of the world's significant energy producers are now operating as one coordinated supply chain, enhancing efficiency and market reach for both sides through improved coordination. The second is critical minerals. This area allocates $200 billion dollar for pairing Canadian mineral reserves with Saudi petrochemical processing capabilities, strengthening supply chains for essential materials that are increasingly important in modern industries. The third is investment. It includes $200 billion in a joint fund managed by Saudi Arabia's public investment fund and Canadian pension funds with assets held in non-dollar currencies to support the broader goals of the partnership. The fourth is technology. This commits a hundred billion dollars to connecting Canadian expertise in artificial intelligence and clean energy with Saudi capital and markets, fostering innovation and development in key emerging fields. Each of those four areas would be a major agreement on its own, representing significant economic value and strategic alignment between the partners. But they were all supporting the fifth area, which is the one that changed everything and captured the world's attention. The fifth dimension allocated a h 100red billion to build the infrastructure for a settlement system that prices all energy transactions between the two countries outside the dollar. Oil, natural gas, and refined products will all be priced in a basket of currencies that includes the euro, the yuan, the pound, and a new digital token jointly run by the Bank of Canada and the Saudi Arabian Monetary Authority. The dollar is not in the basket. The clause covers roughly 3 to four million barrels of oil per day. That is about 4% of global oil trade. The number itself is not large enough to collapse the dollar overnight, but that is not the point. The point is the precedent it establishes and the signal it sends to markets and other nations around the world. For the first time since the petro dollar system was built, a major oil producer has officially priced a significant volume of oil outside the dollar. A working system now exists in practice. A template is now available for others to study and potentially adapt. And the nation that originally created the petrod dollar has just endorsed the idea that oil does not have to be priced in dollars exclusively. Every other oil producing country that had been thinking about moving away from the dollar now has something they did not have before.

[00:10:48]A proven model, a functioning system, and Saudi cover to make the decision look like responsible financial management rather than a purely political statement. Currency markets reacted immediately to the news. The dollar dropped 2.3% in a single session.

[00:11:03]Gold, the euro, and the yuan all strengthened as investors repositioned their holdings. Treasury yields moved higher, signaling that foreign demand for American government debt had weakened at the margin. Markets were not panicking in a chaotic sense. They were calmly repricing a structural reality that had begun to emerge. The Federal Reserve's internal response was serious and thorough. The Fed chair briefed the Senate Banking Committee privately, describing the currency clause as the most significant threat to dollar dominance he had seen in his career. The briefing leaked within two days. It included a scenario analysis that traced the claus's potential consequences from global energy markets all the way through to the monthly budgets of American families, illustrating the connected nature of these systems in clear terms. The logic runs as follows.

[00:11:53]Less oil traded in dollars means less global demand for dollars overall. Less demand for dollars means countries buy fewer US Treasury bonds. Fewer Treasury bond purchases means the United States has to offer higher interest rates to attract buyers. Higher Treasury rates mean higher rates on mortgages, car loans, and business loans. Because Treasury rates serve as the baseline that all other American interest rates are built upon. The Fed estimated that if the Saudi Canadian template spread to just three more oil producers, producing a 5% reduction in global dollar demand, the average American mortgage rate could rise by between 75 and 1.5 percentage points on a $400,000 home loan. That means between a $180 and $360 more every single month. That is not a theoretical figure about foreign policy. That is real money out of a family's budget every month affecting housing affordability and household finances directly. 12 senators from both parties responded by requesting an emergency joint session of the banking and foreign relations committees. The bipartisan reaction reflects something important.

[00:13:00]Rising mortgage rates and higher borrowing costs do not discriminate by political party. The financial consequences of ddollarization reach every American household regardless of how they vote or their political affiliations. Warren Buffett addressed the issue directly in his comments. He described the reserve currency privilege as the most valuable thing the United States has ever possessed. More valuable than the military, more valuable than the technology industry, more valuable than all American real estate combined.

[00:13:29]The privilege is worth trillions in a direct and measurable way. It allows the government to borrow cheaply. It allows consumers to import goods at favorable prices. It gives American sanctions their global reach. And every single one of those advantages depends on one key condition. Oil is priced in dollars.

[00:13:46]Buffett then drew a parallel to the British pound and its historical experience. The pound was the world's dominant reserve currency for roughly 150 years. It financed the British Empire and settled much of global trade during that period. It lost that status not in a sudden crash but through slow steady erosion over time. A trade deal settled in Franks here. A colonial nation holding dollar reserves alongside pound reserves there. An oil transaction in a mixed currency basket elsewhere.

[00:14:15]Each crack seemed small at the time.

[00:14:17]Each was explained away by analysts who believed pound dominance was permanent and unassalable. Then in the late 1940s, the accumulated damage reached a tipping point and the transition happened faster than anyone had prepared for. Buffett said the dollar is following the same pattern. The cracks have been building for years. China settling trade in Yuan, Russia pricing energy and rubles, the BRICS nations pushing for alternatives.

[00:14:42]Each development was dismissed with the same arguments British analysts used in the 1930s. The alternatives are too small. The infrastructure is not ready.

[00:14:51]nothing can match the depth of the dominant currency. Those arguments were right about the pound in 1935. They were wrong about the pound in 1950. The Saudi Canadian clause in his assessment moves the dollar into a more vulnerable position. Not because 4% of oil trade is enough to end dollar dominance on its own, but because the precedent is now set. The template is now available and the nation that built the petro dollar system has just signed its name to the idea that the system can work differently. Three additional oil producing nations moved quickly in response. The United Arab Emirates, Kuwait, and Nigeria all initiated formal consultations with the Saudi Canadian framework within one week of the announcement. A Saudi official called those conversations exploratory. The speed told a different story. These were countries that had been watching the United States apply economic pressure to Canada, one of its closest allies, for months. They drew a straightforward conclusion. A financial system that can be used as a weapon against an ally today can be used as a weapon against anyone tomorrow. Trump's phone call to the Saudi Crown Prince 72 hours after the announcement was itself a signal of how seriously Washington was taking the development. According to accounts from both sides, Trump asked Muhammad bin Salman to reconsider the currency clause. It was phrased as a request. The crown prince declined. He said the decision reflected Saudi Arabia's sovereign interest in diversifying its financial exposure and was not open to revision. The call lasted 11 minutes.

[00:16:20]American officials called it frank.

[00:16:22]Saudi officials called it clear. In diplomatic language, both words mean the same thing. The answer was no. Here is where things stand. Saudi Arabia and Canada have signed a $1 trillion partnership that prices oil outside the US dollar for the first time since 1974.

[00:16:39]Currency markets have already repriced the dollar downward in response. The Federal Reserve has warned Congress that the consequences could include higher mortgage rates and increased government borrowing costs for American households.

[00:16:51]Three more oil producing nations have begun consultations to potentially join the framework. The BRICS nations now have a working template and Saudi endorsement for ddollarization efforts that previously existed only in theory and a direct request from the president of the United States to reverse the currency clause was declined in an 11-minute phone call. The petro dollar system was built on trust between two nations. It is being restructured because that trust has eroded. whether the dollar can maintain its reserve currency status, whether American households can absorb the financial consequences of reduced global dollar demand, and whether the United States can rebuild the trust that sustained the system for 50 years are the defining economic questions of the period ahead.

[00:17:36]What do you think happens next? Does the dollar hold its position, or is this the beginning of a longer transition? Share your view in the comments below.

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