Nixon secretly ended the gold standard in 1971 and replaced it with a hidden petrodollar deal with Saudi Arabia

On August 15, 1971, President Richard Nixon walked into the Oval Office and made a decision that would reshape the global financial system. He ended the Bretton Woods agreement unilaterally, severing the direct convertibility of U.S. dollars to gold—a linchpin of post-World War II economic order. What Nixon announced as a "temporary" measure to stabilize currency markets would never be reversed.

For decades, skeptics asked a logical question: if the dollar was no longer backed by gold, what actually backed it? The official answer from economists and policymakers was vague—the dollar maintained value through the strength of the American economy and faith in U.S. institutions. But a parallel claim circulated in financial circles and among Middle East observers: the dollar had simply been exchanged for something more practical: oil.

The theory went that within years of Nixon's shock, the U.S. Treasury had negotiated a secret arrangement with Saudi Arabia's royal family. According to this account, the Saudis agreed to denominate all OPEC oil sales in dollars and recycle their petrodollar surpluses back into American Treasury bonds. In return, the U.S. would provide military protection and political support to the kingdom. The dollar, in other words, went from being backed by a precious metal buried in Fort Knox to being backed by a commodity extracted from Saudi deserts—and by the implicit threat of American military force.

When this claim emerged in interviews and memoirs, official Washington dismissed it as conspiracy thinking. Policymakers insisted that the petrodollar arrangement was simply a natural economic evolution, not a backroom deal. The idea of a secret negotiation seemed implausible to mainstream observers.

The historical record, however, tells a different story. Federal Reserve archives and historical documentation confirm that in 1974, Treasury Secretary William Simon traveled to Saudi Arabia—a trip publicly described as a routine goodwill tour. What actually occurred in Jeddah was far more significant: a four-day negotiation that formalized exactly what the theory described. King Faisal agreed to price all Saudi oil in dollars and invest the kingdom's petrodollar surpluses in U.S. Treasury securities.