Saudi Arabia Leads Mecca Agreement, Oil Dollar System Faces New Trust Test

On August 26, Saudi Arabia, along with Turkey and Pakistan, has been promoting the "Mecca Agreement" and is considering inviting Iran to join, sparking discussions in the market about the security landscape in the Middle East and the future of the "petrodollar" system. Analysts believe that the more significant implication of this arrangement may not simply be to strengthen regional military cooperation, but rather to reflect that some Middle Eastern countries are seeking to reduce their singular reliance on U.S. security guarantees.

The "Mecca Agreement" envisions establishing a collective security mechanism among member states, whereby any armed attack on one member is considered an attack on all members. If Iran ultimately joins, this mechanism would include Saudi Arabia, Turkey, Pakistan, and Iran within the same security framework, forming a regional cooperation network that spans Sunni and Shia nations.

This change also touches on the core logic of the petrodollar system. For a long time, the U.S. has maintained a mutually binding relationship between military security guarantees provided to Gulf oil-producing countries like Saudi Arabia and the pricing of oil in dollars and the allocation of dollar assets. Middle Eastern countries sell oil to obtain dollars, some of which are then allocated to U.S. Treasury bonds and other dollar-denominated assets, while the U.S. maintains this cycle through security commitments.

Now, with the security situation in the Middle East deteriorating and the ongoing confrontation between the U.S. and Iran, some countries are beginning to reassess the U.S.'s ability to provide regional security guarantees. If Gulf countries gradually establish a more diversified security and financial cooperation system in the future, their willingness to continue settling oil transactions in dollars and allocating a significant portion of oil revenues to dollar assets may be affected.

In the short term, the dominance of the dollar is still difficult to replace, and the U.S. Treasury market will not undergo a structural reversal immediately due to a single regional agreement. However, from a long-term perspective, if the U.S. cannot continue to provide security guarantees that match the international status of the dollar, the trust of Middle Eastern oil-producing countries in the dollar system may gradually decline, which could become a potential risk that needs to be monitored regarding the dollar, U.S. debt, and the global reserve currency landscape.

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