History of Petrodollar, USA and Saudi Arabia.
Timeline:
- May 1931: U.S. recognition and oil concession grant
- May 29, 1933: Formal Standard Oil concession signed
- February 14, 1945: USS Quincy meeting
- June 8, 1974: U.S.-Saudi Joint Commission established
- 1975: All OPEC countries trading oil in dollars
Recognition for Oil (1931-1933)
In 1931, the newly unified Kingdom of Saudi Arabia received its first major recognition from the United States. The timing wasn’t accidental.
As the U.S. extended diplomatic recognition in May 1931, King Abdulaziz Ibn Saud granted oil exploration rights in the Eastern Province to Standard Oil of California. The formal deal came in 1933. American companies got a 60-year lease over 930,000 square kilometers. Ibn Saud got about $175,000 to $250,000 upfront.
Britain was out of the picture. The king didn’t trust them. British had backed his Hashemite enemies, the ones he’d driven from Mecca and Medina. Ibn Saud famously told American negotiators he didn’t see “many American warships” in regional waters. The message was clear. He preferred dealing with a distant power over an imperial neighbor.
The U.S. had advantages Britain couldn’t match. No colonial baggage in the Middle East. No territorial ambitions. Just oil companies with capital and technology. This 1931 deal signaled a geopolitical shift that would reshape the region for decades.
Notably, Saudi Arabia became one of the few modern nations named after a ruling family. Most countries take their names from geography or historical regions. But this kingdom bore the Saud family name, reflecting the personal nature of its founding.
History Repeats: Biden and MBS (2017-2022)
The British mistake happened again. Biden supported the wrong side. Mohammed bin Nayef was MBS’s cousin and rival for the throne. In 2017, MBS ousted him and took over as crown prince. Saad Aljabri, who worked for bin Nayef, fled to Canada. He became a nemesis of MBS.
Aljabri had deep U.S. intelligence connections. Former CIA officials credited him with saving thousands of American lives. A bipartisan group of senators called him “a valued partner.” Both Trump and Biden expressed concern when MBS arrested Aljabri’s two children as political hostages.
But Biden had already damaged the relationship. During his campaign, he called MBS a “pariah” over Khashoggi’s murder. He promised accountability. Then in July 2022, he flew to Saudi Arabia and did the fist bump with MBS anyway.
Saudi activists felt betrayed. The message was clear. Strategic interests trump values, always. Just like Ibn Saud never forgot Britain’s backing of the Hashemites, MBS won’t forget who stood where when it mattered. The U.S. repeated Britain’s error by supporting the rival who lost.
From USS Quincy to Petrodollar (1945-1974)
The relationship deepened on February 14, 1945. President Roosevelt met King Abdulaziz aboard the USS Quincy. They discussed military cooperation and oil access. This meeting laid the groundwork for a strategic partnership that would outlast both men.
By 1940, full diplomatic relations were established. Saudi Arabia became a UN founding member in 1945.
The “petrodollar system” came much later, perhaps not through any single agreement. The key date was June 8, 1974, when Secretary of State Henry Kissinger and Prince Fahd signed the U.S.-Saudi Joint Commission on Economic Cooperation.
After the 1973 oil crisis, the U.S. made its move. Oil-producing countries could charge what they wanted, but revenues had to stay in dollar-denominated assets. By 1975, all OPEC nations were trading oil in U.S. dollars. A secret 1974 arrangement involved Saudi investment in U.S. treasuries in exchange for military aid.
The 2024 Confusion
In June 2024, claims spread that a 50-year “petrodollar agreement” had expired. No government institution issued an official denial.
The 1974 Joint Bilateral Commission on Economic Cooperation focused on technical assistance and economic ties. A 1979 GAO report described this commission but said nothing about oil pricing requirements. In 2024, a GAO official told reporters the 1979 report contained no formal agreement on oil pricing. The official added that no other documents on dollar-oil trade exist in their records.
But here’s the problem. Treaties involving oil and geopolitics are often classified. The Bloomberg revelation in 2016 about a secret 1974 deal on Treasury investments proves this. That arrangement stayed hidden for 42 years.
We don’t know if a formal petrodollar agreement existed or not. Absence of public documentation doesn’t mean absence of agreement. It might mean the agreement was secret.
What we do know is this. Saudi Arabia priced oil in dollars for decades. Whether that happened through treaty, informal understanding, or pure economic practicality remains unclear. The Petrodollar system worked either way.
References
U.S. State Department and Official Sources
- https://www.state.gov/countries-areas/saudi-arabia/
- https://www.state.gov/u-s-relations-with-saudi-arabia/
Historical Background and Oil Concessions
- https://www.wilsoncenter.org/blog-post/discovery-oil-saudi-arabia
- https://arabcenterdc.org/resource/u-s-saudi-relations-eighty-years-as-strategic-partners/
- https://www.mei.edu/publications/us-saudi-relationship-where-do-we-go-here
Petrodollar System and Debunking 2024 Claims
- Bloomberg (2016) – Secret 1974 Treasury deal revealed: https://www.bloomberg.com/news/features/2016-05-30/the-untold-story-behind-saudi-arabia-s-41-year-u-s-debt-secret
- Radio Free Asia – Did a deal expire? (Government Accountability Office statement): https://www.rfa.org/english/news/afcl/afcl-us-saudi-oil-deal-07082024043619.html
- Carson Group – No petrodollar pact exists: https://www.carsongroup.com/insights/blog/no-saudi-arabia-is-not-ending-any-petrodollar-pact/
- Nasdaq – The truth about the petrodollar pact: https://www.nasdaq.com/articles/truth-about-petrodollar-pact
- Birches Group – Separating fact from fiction: https://birchesgroup.com/2024/08/29/petrodollar-panic-separating-fact-from-fiction/
Additional Historical Analysis