In a notable development, a fifth of global crude supplies are no longer reliant on dollar-denominated trade deals, according to insights from JP Morgan Chase’s head of global commodities strategy, Natasha Kaneva. This revelation comes amidst the recent announcement by Iran and Russia, two significant oil exporters, finalizing an agreement to conduct their oil trade in their respective national currencies instead of the US dollar.
Kaneva highlighted that the US dollar is facing increasing competition in commodities markets, with the share of the world’s oil traded in currencies other than the dollar reaching nearly 20%. This shift is driven by several factors, including the pursuit of alternative currency arrangements by oil-exporting countries and the diversification of buyers, especially in China and India.
While the trend is more evident in the oil sector, certain commodity-selling majors, including Brazil, the UAE, and Saudi Arabia, are also taking steps to explore trade arrangements that sidestep the traditional use of the greenback.
JPMorgan’s data reveals a substantial increase in non-dollar-denominated commodity contracts, with twelve major deals executed in alternative currencies in 2023, compared to just seven the previous year and only two in the period from 2015 to 2021. It’s essential to note that this data pertains to physical commodity deals rather than futures trading in financial markets.
Countries like India and the UAE have already embraced local currency trading, with instances like India purchasing Emirati crude in rupees. Brazil and China have also ventured into local-currency commodity transactions, signaling a broader shift in global trade dynamics.
The recent local currency swap agreement between China and Saudi Arabia, worth $7 billion, further underscores the move away from the dollar-centric paradigm. While the US dollar maintains its dominance in foreign exchange markets, constituting around 88% of all trades, these developments suggest an evolving landscape in global trade and finance.
