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Emerging Threats to Petrodollar: A shift in Geopolitics of Oil



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By  Aishwarya Sanjukta Roy Proma

The politics of global oil are developing economic and political alliances. These are similar to those that existed during the Cold War. The Petro-bloc is highly political, and all countries involved in it are making continuous attempts to exert influence on each other. But in recent years, there has been a growing agreement that the dominance of the United States is diminishing to such a degree that the international system is transitioning from a unipolar global order to a multipolar order. The weakening of the petrodollar as a currency might perhaps be an indication that this shift is now taking place.

The term “petrodollar” refers to the preponderant position of the United States dollar. The US dollar serves as the reserve currency for international oil transactions. The fact that nations that export oil get compensated in US dollars for such exports has contributed to an increase in both the value of the currency and the demand for it around the globe. A worldwide Petro-bloc has been controlled by Russia, China, the United States of America, and the Middle East. Outside of the United States and Russia, oil companies such as Chevron, Shell, Exxon-Mobil, BP, Texaco, and Gulf Oil hold 88% of the world’s oil reserves. Due to multiple uncertainties in global politics, there has been a significant change in the geopolitical preferences of oil-exporting nations and oil-importing countries. But these geopolitical calculations would pose a danger to petrodollars in the short and long term. But this sudden shift in petropolitics has lately come to the forefront as a result of two key events. Firstly, the Russian war on Ukraine led to restrictions on imports of Russian oil. Secondly, the United States’ insistence on boosting oil output after the war was met with opposition from Saudi Arabia-dominated OPEC. This development is not unexpected given that the West, led by the United States, has imposed sanctions that have made it harder for Russia to export gas and oil. But the Middle Eastern countries did not comply with the demand of western nations, as it would further put OPEC’s own petrodollar business in danger. Also, Middle Eastern governments did not want to artificially drive down oil prices, so they kept production levels low and did not increase their output.

In global politics, China’s influence is expanding considerably among MENA nations. China has been making efforts to lessen its dependence on US dollars for importing commodities and to contest the dominance of the petrodollar. China has been in discussions with several OPEC members, including Saudi Arabia, Iran, and Venezuela, over the possibility of pricing some of those countries’ oil sales in yuan rather than in dollars. This may have repercussions for the international energy market as well as for ties between the United States and China. OPEC and its allies are moving in the opposite direction from the present American strategy, which is to advocate for a significant fall in oil prices. Additionally, Mohammed Al-Jadaan, the finance minister of Saudi Arabia, stated in January 2023 at the World Economic Forum in Davos that there were no issues settling trade arrangements, whether in the US dollar, the euro, or the Saudi riyal. Although they have not yet done so, the Saudis appear to be considering alternatives based on recent actions. In 2022, Saudi Arabia said that it was investigating the possibility of engaging in yuan-based oil trade with China. Further, other Asian nations, including India, Pakistan, Iraq, and the United Arab Emirates, have all reached agreements with China and Russia to pay for oil using the ruble. The BRICS countries of Brazil, India, China, and Russia had begun discussions on trading oil for their common currency. Several nations were doing research to determine the potential benefits and drawbacks of exchanging oil for other currencies. The most recent challenge to the petrodollar was NORD Stream 2, which Germany transacted in euros. This would have signaled the beginning of the Petro-Euro exchange even during the Russia-Ukraine war. Even when the war was ongoing, Russia demanded that the European Union pay for oil and gas in rubles. Other nations that were purchasing oil, including India and China, were also avoiding the use of the dollar for the time being and going with other currencies instead. Even OPEC nations had shown willingness for the euro to coexist alongside the petrodollar. The Saudis were in charge of this initiative, but the United States put an end to it. This change in strategic objectives for Saudi Arabia offered a possibly imminent challenge to the strategic interests of the United States. This transition would be amplified if Saudi Arabia decided to distance itself from the petrodollar. That alone will not be enough to bring the dollar to its lowest point, but it will be enough to further endanger the hierarchy of the US dollar in the global economy. In addition, ignoring the status of the petrodollar is particularly reckless due to the fact that the petrodollar’s position has ramifications for international politics. In such circumstances, Saudi Arabia is attempting to maintain equilibrium in its ties with both the United States and China. While the petrodollar is not going away, it is facing some stiff competition in 2023. After 40 years of American monopoly in Petrodollar, China is now a significant threat to the petrodollar’s dominance.

The petrodollar does not appear to be as stable as it once was in 2023, and the US may need to reaffirm its position in light of recent changes. It can be argued that there have been a number of noteworthy signs pointing to a potential shift away from the dollar and toward other currencies, especially in light of the apparent policy changes. On the other hand, if the petrodollar’s value were to fall, this might indicate a shift away from a monopolar financial system and toward a more multipolar one. However, a number of countries have agreed to trade oil instead of using the dollar in exchange for other currencies. The dollar’s value actually fell significantly as a result of a change in the way that it was used in international oil trade.

The sudden change in currency that would occur for the trade of oil commodities would not take place all at once. Because states are used to doing business in dollars, it is possible that they would not be eager to alter whole economic strategy in order to account for a new currency. This new currency may be a supplement or entirely replace their current trade systems. Despite the ongoing problems, it is possible that countries in the Middle East, and Saudi Arabia in particular, may not be interested in this currency change because it will not be beneficial to their economies. However, the possibility of using a different currency is undeniably there, and much will depend on the manner in which China intends to integrate Yuan into the international economy. It is conceivable that Saudi Arabia could play a significant role in the petrodollar system as well. A domino effect with the rest of OPEC may occur if Saudi Arabia starts trading oil for Yuan. So, this internal struggle is further helping China in the long run by enabling it to increase its influence in oil markets and perhaps establishing the yuan as a significant oil trading currency. Even if this pattern continues, there is no way that there will be less demand for the dollar. As long as there is a surplus of debt denominated in dollars in the world economy, there will be a need for dollars. At the very least, this will ensure that the demand for dollars will remain constant. In addition, the dollar continues to be one of the most secure currencies to have on hand, particularly in the central banks of China, Japan, the European Union, and the United Kingdom.

In conclusion it can be added that the weakening of the petrodollar may have important strategic repercussions, especially in regard to the overall distribution of power throughout the globe. The United States dollar’s status as the world’s reserve currency has given it a preeminent position within the global monetary system, which in turn has provided the United States with tremendous geopolitical power. In the longer run, oil production may not render the petrodollar system obsolete as a result of this sudden shift. It is possible that this will catalyze a move away from the dollar toward a global monetary system that is more decentralized.

Courtesy: Modern Diplomacy

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Inquiry on General Babangida’s Involvement in Conventional Banking despite Introduction of Islamic Finance in Nigeria




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Dear Editor,

I hope this letter finds you well. I am writing to express my curiosity and seek clarification on a matter that has caught my attention, specifically pertaining to General Babangida’s involvement in the conventional banking industry despite his role in introducing Islamic finance during the financial reforms of his military government in Nigeria. Vide your special article commemorating his 81st Birthday published in your esteemed news website:

It is indeed noteworthy that General Ibrahim Babangida played a pivotal role in shaping the economic landscape of Nigeria by introducing Islamic finance principles. It is fascinating to witness the implementation of Islamic finance in Nigeria, as it promotes principles that align with religious and ethical values. General Babangida’s efforts to introduce this form of finance were undoubtedly commendable, reflecting his commitment to establishing an alternative financial system that adheres to Islamic principles.

However, recent observations suggest his active participation in the conventional banking sector in Nigeria. Certainly, it is intriguing to see General Babangida’s continued involvement in the conventional banking industry, which operates under different principles. While some may argue that his involvement in both sectors is simply a matter of personal choice, it raises questions about the compatibility of his actions with the ideals and principles of Islamic finance. While the former is interest driven, the latter prohibits interest related transactions completely.

I wonder if General Babangida has ever publicly addressed this matter or explained his reasoning behind being active in both sectors. It would be enlightening to hear his perspective on how he reconciles his involvement in conventional banking with his efforts towards promoting Islamic finance. This has raised questions in my mind and perhaps in the minds of others as well.

I am keen to understand the rationale behind General Babangida’s dual engagement in both Islamic finance and conventional banking. Does this reflect a strategic approach to diversify Nigeria’s financial sector, or are there specific reasons behind his involvement in conventional banking despite advocating for Islamic finance principles?

Additionally, it would be interesting to explore the potential impact of his dual involvement on the perception and growth of Islamic finance in Nigeria. Does his presence in the conventional banking industry hinder the progress of Islamic finance, or does it have the potential to bridge the gap between the two sectors?

I believe that delving into these questions could provide valuable insights and generate constructive discussions within the Islamic finance community in Nigeria. By shedding light on General Babangida’s dual involvement and the potential implications, we can further enhance our understanding of the challenges and opportunities faced by the Islamic economy in our country.

Thank you for considering my questions, and I look forward to reading more about this topic in your esteemed Focus on Islamic Economy.



Abba Musa Mamman Lagos


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10 Megatrends Shaping the World in 2024




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The report, “Navigating Megatrends Shaping Our Future in 2024”, was launched during the first day of the World Governments Summit (WGS) 2024, being held under the theme “Shaping Future Governments” from 12th-14th February in Dubai. The report examines the indicators that shape these megatrends, supported by evidence from today as well as future expectations. These trends inform decision-makers and foresight experts about various sectors and the potential opportunities in each.

Khalfan Belhoul, CEO of Dubai Future Foundation, said, “This report has been launched in line with DFF’s efforts to identify and communicate those trends with the most potential to shape opportunities and strengthen local and international partnerships to overcome current and future challenges.”

“The challenges that face us on our journey to the future require that we are agile enough to be able to adapt to rapid change. It is vital we pay attention to the signals we detect – only then can we be prepared to overcome challenges and seize opportunities. The World Governments Summit provides a platform for discussing these challenges and exploring the opportunities.”

Materials revolution

New types of materials will create a shift in the industry, with solutions based on artificial intelligence (AI) such as biopolymers, biorefineries, and chemical recycling paving the way. These solutions will facilitate the development of new biological and novel materials that could rival plastics.

Boundless Multidimensional Data

Enabled by developments such as 5G and 6G in addition to advanced connectivity, the availability of raw data will vastly increase. The Internet of Things (IoT) will continue being deployed in healthcare, agriculture, and smart cities, especially in the Middle East.

Technological Vulnerabilities

The cybersecurity sector will boom amid a sharp rise in smart home devices and wearable tech. According to a report by Allianz, the annual cost of ransomware is projected to reach around $265 billion by 2031. Meanwhile, the debate on the future of decentralised finance will continue.

Energy Boundaries

Advances in tech and the growing demand for energy will drive the pursuit of alternative sources of energy. Novel materials and machine intelligence will enhance current sources of energy, including their distribution around the world – and in space.

Saving Ecosystems

Approaches to conservation will be more interdisciplinary and future-focused, taking into account both societal and environmental factors. Driven by resource scarcity, climate change, and shifts in social values, environmental impact management will become increasingly holistic.

Borderless World – Fluid Economies

The world is witnessing a rise in unmediated transactions in finance, health, education, trade, services, and even space, which are blurring boundaries and creating more cross-border communities. Advances in communications, computing, and advanced machine intelligence will accelerate the creation of a borderless world that will change the way we work, live, and connect.

Digital Realities

The spread of 5G and 6G networks will enhance the applications of autonomous technologies and IoT. As quantum technologies become scalable and reliable, immersive experiences will become even more realistic.

Living with Autonomous Robots and Automation

Robotics and automation will increasingly be deployed across industries beyond automotive, manufacturing and supply chain logistics. This will provide opportunities for efficiency and innovation, although there will also be ethical challenges to address.

Future Humanity

New workplace norms will emerge, with people needing to adapt to non-traditional skill sets in areas such as digital literacy, communications, culture and sustainability.

Advanced Health and Nutrition

Accelerated progress in advanced machine intelligence, nano- and biotechnology, additive manufacturing, and IoT will transform health and nutrition, improving health and wellbeing for people of all ages. Technology will reduce, if not eradicate, some communicable and non-communicable diseases and enhance the sustainable use of and access to water and food.

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Africa’s New Online Foreign Exchange System will Enable Cross-border Payments in Local Currencies – what you need to know




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The high cost of making cross border payments on the African continent has driven governments on the continent to seek options of settling trade and other transactions in local currencies. This has given birth to the Pan-African Payment and Settlement System which was formally launched in Accra, Ghana, in January 2022.  Development economist Christopher Adam, who has studied the exchange rate policies of African countries, answers some key questions.

Why are African countries exposed in the international currency market?

Three main reasons. First, African economies are small and as such are highly dependent on trade with the rest of the world. Their exports are dominated by primary commodities including oil and gas, minerals and cash crop agriculture. On the import side, they purchase a whole range of goods – from essential commodities not produced at home such as fooddrugs and medicines, to capital goods and energy. A large proportion of these are sourced from China and other major economies of the global north. But because African countries are small relative to their trading partners they rarely have the power to determine the prices of imports and exports. They are “price takers” in world markets. And with world prices being set in the major reserve currencies of the world (the US dollar, euro, yen and renminbi), African countries are exposed to movements in these world prices. Second, “intra-African” trade is still a relatively small proportion of the total trade of African countries.

Finally, since African countries’ currencies mostly can’t be directly exchanged in international transactions, the dollar remains the most widely used currency in trade, even between African countries.

What’s required for the system to get off the ground?

The basic idea of the system is to be able to settle trade between African countries without having to use the US dollar.  There are two major challenges with that. First, intra-African trade accounts for less than 15% of Africa’s exports at present (although supporters of the African Continental Free Trade Area expect this to grow significantly over the coming decades). The African payment system therefore does not eliminate the role of the dollar (or other foreign currencies) in trade settlement entirely.

The second issue is that trade is not balanced between African countries. For example, Kenya exports goods of higher total value to Ethiopia than it imports from Ethiopia. If Ethiopia paid in its own currency, Kenya would end up with Ethiopian currency that it didn’t need. Some form of settlement currency that is acceptable to all is required – most likely the US dollar.

What are the challenges and potential risks?

Since trade rarely occurs instantaneously, some institution in the trade financing chain carries the exchange rate risk. Because of the gap between placing an order for imports and receiving them to sell in the local economy, there is a risk that the value of local currency will change relative to the currency in which the import is denominated.

In the “old” system, this risk is borne by the trader because everything is priced in dollars. The local currency value of the income from exports or the local currency cost of imports will change with movements between the local currency and the dollar, but the banks and those counterparts pricing in the dollar are protected.

Under the new system the same allocation of risk will remain in “external trade”. This currency risk is also present for intra-African trade.

An important question for the new African payment system is: who bears the exchange risk if one African currency depreciates relative to another? Should the importer carry the risk, or the exporter? Can and should the African payment system bear this risk of exchange rate movements itself? Where both currencies are volatile, traders might still prefer the relative stability of settlement through the US dollar.

The success of this system also depends on scale. The more trade settlement is routed through it, the easier it will be to settle in local currencies. Large currency imbalances will be less common. But until the system achieves this scale, the African payment system will need a strong balance sheet so that traders and participants can have confidence that settlement will be swift and risk free. It is unclear at the moment how this is to be achieved.

What is the best case scenario?

If the system can address the trade imbalance problem, provide clarity on risk management and reach scale, it could be very successful. But this is all going to be driven by underlying economic performance. Improved settlement will help but what is really driving this is the structure of trade. The more the economies of Africa can develop intra-African trade and the less dependent they are on extra-African trade, the less will be dollar dependence in trade. This growth in trade depends to some degree on trade settlement and trade financing but much more on production, consumption, trade policy and fiscal policy.

Christopher Adam is a Professor of Development Economics, University of Oxford

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