After bitcoin climbed above $93,000 today — another all-time high — some traders are speculating that Gulf oil money could be behind the currency’s record-breaking rally.

This week, a rumor began circulating that Middle Eastern petrostates Saudi Arabia, United Arab Emirates (UAE), or Qatar might be buying bitcoin at a sovereign level. Some speculators believe they will announce their purchases in a few weeks at a major conference in Abu Dhabi.

Bitcoin conference organizer BTC Inc., which hosted Bitcoin 2024 in Nashville, is set to welcome attendees to a satellite conference in Abu Dhabi, UAE on December 9-10.

David Bailey got Trump. Can he get MBS?

David Bailey, the conference host and CEO of Bitcoin Magazine who personally arranged for President-elect Donald Trump to speak at Bitcoin 2024, cryptically tweeted today that “the United States is being front run on its bitcoin strategy and must stand up the SBR [Strategic Bitcoin Reserve] as quickly as possible.”

Read more: Trump win sends Bitcoin price to all-time high — and boosts 8 key metrics

Fans of his political maneuvering are hopeful that he might be able to get Mohammed bin Salman, Sheikh Mohamed bin Zayed Al Nahyan of the UAE, or the Emir of Qatar Tamim bin Hamad Al Thani.

Many investors are discussing the possibility that Saudi money is flowing into bitcoin. Saudi Arabia isn’t only the largest petrostate in the Gulf but is of particular interest today after the market capitalization of bitcoin flippened Saudi Aramco, the world’s largest oil company.

UAE is another guess, not only because of its vast oil wealth but also because of the location of December’s Bitcoin conference: Abu Dhabi.

A third Gulf petrostate, Qatar, is a perennial guess for sovereign investment in bitcoin, with recirculating chatter the past few weeks.

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The post Bitcoin breaks $93,000 amid rumors that Saudi, UAE, or Qatar is buying appeared first on Protos.

There is a legend that in 1973, US president Richard Nixon and secretary of state Henry Kissinger made a secret deal with Saudi Arabia to price oil exclusively in dollars, thus pegging the currency to oil and birthing the petrodollar.

According to the myth, the US provides military protection for Saudi Arabia’s oil fields in exchange for the kingdom’s role in enforcing US dollar hegemony over the world’s most valuable commodity market. Supposedly, the country’s sovereigns signed a 50-year petrodollar pact on June 6, 1974, which expired on or around June 9, 2024.

If that were true, this week would be one of the most historic weeks in the history of the US dollar. It should be primed for an immediate crash, according to the theory, to the immediate benefit of emerging currencies.

Some articles go so far as to claim, “Crown Prince Mohammed bin Salman has informed the Saudi government that the country will no longer accept US dollars for oil transactions.” Yes, there are people who actually believe that, with many posting that Saudi Arabia was somehow dedollarizing as we speak.

Moreover, believers in this ostensible expiry even claim that it would benefit Ripple’s technology or Central Bank Digital Currencies (CBDCs). Indeed, members of the XRP Army posted vague claims that the event would catalyze an agreement by the Saudi central bank to use Ripple for oil payments or a transnational BRICS stablecoin.

Read more: Crypto Twitter misinterpreted everything in SEC v. Ripple

Crypto believed in Saudi Arabia’s oil-for-dollars pact

Of course, the reality is that almost all oil trade has been and will be priced in US dollars (or dollar-settled US treasury equivalents) for many years to come. This is not because the kingdom signed an ancient document but simply because the US dollar is the world’s most liquid currency.

There is a reason that a dominant 58% of disclosed foreign reserves in 2022 were US dollars — dwarfing the euro’s 21%, Japanese yen’s 6%, or China’s 3%. According to the world’s largest bank wire system, SWIFT, 47.3% of global payments currency used US dollars as of April 2024 — dwarfing the euro’s 22.5%, UK pound’s 6.8%, and China’s 4.5%.

Lest there be any doubt, 84% of global trade finance market transactions — measured by SWIFT as ‘Advice of Payment’ (MT 400) or ‘Issue of a Documentary Credit’ (MT 700) deliveries in April 2024 — denominated in USD.

Likewise, Saudi Arabia has been selling some oil for non-dollar assets for many years. It has sold a small amount of its oil for Chinese yuan, Russian rubles, gold, and a variety of other assets. 

Likewise, US military protection is available, provided it benefits US foreign policy interests. The US military serves at the pleasure of the US commander-in-chief. As evidenced by the US military’s disastrous occupation and withdrawal from Afghani oil fields — an “unmitigated disaster of epic proportions” according to the US House Foreign Affairs Committee — US diplomacy over foreign oil fields shifts quickly.

Indeed, the public has never seen a signed 50-year petrodollar pact. The countries probably never signed one.

Saudi Arabia acted in its best interest

Instead of a signed agreement, Saudi Arabia sold its oil mostly for dollars over the years simply because most of the world wants dollars. Benefiting from a persistent bid for US dollars for decades, it was maximally profitable for the kingdom to consistently sell oil to dollar-denominating bidders.

Similarly, the US military has protected Saudi oil fields over the years, not because it reluctantly adhered to terms of an ancient pact, but because the US has an interest in protecting its oil interests and encouraging purchases of US treasuries. US treasuries fund the US government and military.

Saudi Arabia produces approximately 9 million barrels of oil per day. The country’s GDP-to-debt is less than 30% — far healthier than the 100% ratio it held 34 years ago when it took loans to survive a late-1980s crash in oil prices. It has flexibility to sell its oil to bidders in various currencies and will continue to evaluate the profitability and diplomatic implications of accepting non-USD payment.

For the past decade, the kingdom has run a small fiscal deficit every year and expects to continue deficit spending for another five years. It spends lavishly on real estate, including planned megalopolises like Neom, a linear city that initially boasted a price tag exceeding $1 trillion.

The kingdom’s deficit this year will be approximately 2.8% of its GDP. (For context, the US ran a 6.3% deficit to its much larger GDP last year.) In short, it has plenty of fiscal flexibility to make decisions about its oil counterparties.

The Mandela-effected ‘pact’

Of course, even though June 9, 2024 has passed, the Kingdom of Saudi Arabia will obviously continue to sell most of its oil for dollars. Likewise, the US military will probably continue to protect Saudi oil fields. No, a 50-year petrodollar pact didn’t renew to cause this mutually beneficial cooperation. Instead, the countries will continue to cooperate as long as both sovereigns believe it makes sense to cooperate.

People have speculated about oil-producing countries breaking ties with the dollar since the 1970s. People want to believe the end of dollar hegemony is nigh. It’s not.

Similarly, there is no reason for Saudi Arabia to suddenly adopt Ripple’s technology or any CBDC because of the expiration of a non-existent 50-year pact.

Several members of the crypto community believe it exists because of the Mandela Effect, a well-known cognitive phenomenon wherein large segments of the public believe that a major event occurred that never did. (Nelson Mandela did not die in prison, even though millions of people misremember him doing so.) That Saudi Arabia and the US have had a 50-year petrodollar pact also plays into confirmation bias, another cognitive fallacy that confirms pre-existing anti-statist and anti-dollar biases.

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