Exclusive: Saudi Arabia threatens to abandon dollar deals to stop "NOPEC" – sources

LONDON / DUBAI (Reuters) – Saudi Arabia threatens to sell its oil in currencies other than the dollar if Washington promulgates an invoice exposing OPEC members to US antitrust lawsuits, according to three sources close to the US. Saudi energy policy.

They said this option had been discussed internally by senior Saudi energy officials in recent months. Two of the sources said the plan had been discussed with OPEC members and an informed source on Saudi oil policy, said Riyadh had also communicated the threat to senior US energy officials .

The chances of entry into force of the US bill known as NOPEC are slim and Saudi Arabia is unlikely to comply, but the fact that Riyadh is considering such a drastic measure is a sign of the opposition to kingdom against possible US legal challenges to OPEC.

In the unlikely event that Riyadh abandons the dollar, it would weaken its status as the world's leading reserve currency, reduce the weight of Washington's global trade and weaken its ability to impose sanctions on nation states.

"The Saudis know that they have the dollar as a nuclear option," said one of the sources close to the case.

"The Saudis say let the Americans adopt NOPEC and it would be the US economy that would fall apart," said another source.

The Saudi Ministry of Energy did not respond to a request for comment.

A US State Department official said: "In general, we do not comment on pending legislation."

The US Department of Energy did not respond to a request for comment. Secretary of Energy Rick Perry said NOPEC could have unintended consequences.

Dollar hegemony

The NOPEC Act, the Non-Production and Petroleum Export Cartels Act, was first enacted in 2000 to lift sovereign immunity from US competition law.

Although the bill has never been passed, despite many attempts, it has gained momentum since US President Donald Trump took office. Trump said he had supported NOPEC in a book published in 2011 before his election, although he did not express support for NOPEC as president.

Trump instead emphasized the importance of US-Saudi relations, including the sale of US military equipment, even after the murder of journalist Jamal Khashoggi last year.

A decision by Saudi Arabia to abandon the dollar would have good resonances for major non-OPEC oil producers such as Russia, as well as for major consumers, China and the United States. European Union, who called for a diversification of global trade against the dollar in order to dilute the influence of the dollars on the global economy.

Russia, which is subject to US sanctions, has tried to sell oil in euros and the Chinese yuan, but the proportion of its sales in these currencies is not significant.

Venezuela and Iran, which are also subject to US sanctions, sell most of their oil in other currencies, but have done little to challenge the hegemony of the dollar in the oil market.

However, if a long-time American ally, such as Saudi Arabia, joined the club of non-dollar oil sellers, it would be a much bigger step to gain ground in this sector.

AND WHAT IS THOUGHT IF?

Saudi Arabia controls one-tenth of the world's oil production, roughly at the same level as its major competitors, the United States and Russia. Saudi Aramco, its oil company, holds the crown of the world's largest oil exporter with sales of $ 356 billion last year.

According to the prices, the oil would represent between 2 and 3% of the world gross domestic product. At the current price of $ 70 per barrel, the annual value of world oil production is $ 2.5 trillion.

Not all of these oil volumes are traded in US dollars, but at least 60% of them are traded via international tankers and pipelines, the majority of which is in dollars.

Trading in derivatives such as futures and oil options is mainly denominated in dollars. The two major global energy exchanges, ICE and CME, have traded one billion batches of oil derivatives in 2018 with a face value of around $ 5 trillion.

NOPEC's perspective has already had consequences for the Organization of Petroleum Exporting Countries. Qatar, a major member of OPEC Gulf, left the group in December because of the risk that NOPEC could harm its expansion plans in the United States.

Two sources said that despite the increased threat of the dollar, Saudi Arabia did not think it would have to follow.

"I do not think the NOPEC bill will pass, but the Saudis have" what if "scenarios, said one of the sources.

SALES OF ASSETS

In the event of such a Saudi measure, the impact would take some time, given the industry's decades-long practices built around the US dollar – loans for clearing trades.

Saudi talks over retaliation against NOPEC have also threatened to liquidate the kingdom's assets in the United States, the sources said.

The kingdom invests nearly $ 1 trillion in the United States and holds about $ 160 billion in US Treasuries.

If it exerts its threat, Riyadh should also abandon the anchor of the Saudi Riyal on the dollar, which has been traded at a fixed rate since 1986, sources said.

The United States, the world's largest oil consumer, has for decades relied heavily on supplies from Saudi Arabia and OPEC, while militarily supporting Riyadh against its great Iranian enemy.

However, strong shale oil production in the country has made Washington less dependent on OPEC, allowing it to be more forceful in its relations with Saudi Arabia and other Middle Eastern countries.

Over the past year, Trump has regularly asked OPEC to pump more oil in order to lower world oil prices, and has linked its claims to political support in Riyadh – something that previous US administrations have done. 'refrain from doing, at least publicly.