On June 9, Saudi Arabia did not renew its petrodollar agreement with the United States that had been in force since 1974. The decision will allow Riyadh to sell oil and other goods in multiple currencies, including the yuan and the euro, rather than just dollars. In addition, the possibility of using digital assets such as bitcoin is allowed.
Oil for bitcoin or stablecoins ceases to be speculation and could become reality. Is it possible to trade and execute oil transactions in digital assets? How will this change the oil and crypto markets?
The ability to trade oil for cryptocurrencies is becoming increasingly realistic after Saudi Arabia’s decision not to renew the petrodollar agreement with the United States. This paves the way for Riyadh to diversify the currencies in which it trades its oil, including digital assets. Trading and transacting oil in cryptocurrencies such as bitcoin or stablecoins can now be considered as an option.
Using cryptocurrencies to pay for oil contracts has both advantages and drawbacks:
Advantages:
1. No intermediaries and low transaction fees.
2. Fast and secure cross-border payments.
3. Protection from currency risks and sanctions for oil buyers/sellers.
Drawbacks:
1. High volatility of cryptocurrencies can create pricing risks.
2. Most oil market participants lack experience in working with cryptocurrencies.
3. Regulatory uncertainty in some jurisdictions.
If major oil exporters such as Saudi Arabia start to accept cryptocurrencies, this could significantly raise demand and increase adoption of digital assets in energy markets. It would also attract the attention of institutional investors and help the development of the crypto market.
It’s unlikely that cryptocurrencies will completely replace traditional currencies in oil trading anytime soon. However, we can expect a gradual introduction of digital assets alongside the dollar, euro, yuan and other fiat currencies in oil transactions, depending on the preferences of counterparties.