The petrodollar is not collapsing, but BRICS nations and parts of Europe are increasingly settling trade using local and alternative currencies, particularly in energy and bilateral trade agreements. The de facto use of the US dollar for oil settlements is encountering scrutiny recently as the currency is consolidating power. Though it remains the most dominant currency, the pressure of geopolitical shifts remains.
The data from investment advisory firm Sowell Management shows that 80% of oil trades are being settled in the petrodollar, but 20% of them are being paid in local currencies, mostly by the BRICS bloc and a few countries from Europe. 20% is a bigger number, as it could increase over time to come towards the 25% to 30% level. The pressure is already on the US dollar to maintain its hegemony, and it is under growing pressure.
For instance, BRICS member China is playing an active role in dimming the lights on the petrodollar. China is aggressively promoting the petro-yuan as an alternative to the US dollar for oil deals. A handful of purchases in oil, coal, and copper have already been settled in the Chinese yuan.
Apart from China, BRICS members India and Russia have also been promoting the ‘non-use’ of the petrodollar. India has paid the yuan in some of its oil deals, and also settled payments in the ruble and rupee. The country has used a diverse set of payments for oil deals, including the UAE’s dirhams.
Also Read: BRICS Hardly Using the Dollar: 60% of Transactions in Local Currencies
BRICS: Energy and Trade Payments Are Gradually Moving Away From the Petrodollar
So the key for a tectonic change is being laid out by BRICS to shake the roots of the petrodollar. Though the numbers now look small, they could turn significant over time. They control nearly 40% of the global oil production. The alliance is a major energy superpower and is gearing up to tilt the balance to make local currencies the de facto payment.
