Saudi Arabia is exploring using the Chinese Yuan to price some of its oil deals rather than the widely used US dollar.
According to the Wall Street Journal, almost 80% of worldwide oil transactions are performed in US dollars, but that level of dominance may not remain with talks of a currency swap between Gulf states and their counterparts in China, which buys more than 25% of Saudi Arabia’s oil. That would be a huge shift for the Saudis, who have solely traded oil in US dollars for decades.
Sources informed the publication that talks between the two nations over yuan-priced oil contracts have been on and off for the previous six years, but have been more regular as Saudi Arabia’s relationship with the US gets increasingly tense.
In February 2021, the Biden administration issued a report accusing Saudi Crown Prince Mohammed bin Salman of “approving” the 2018 operation that ended in the killing of Jamal Khashoggi, a Washington Post journalist. Prior to this, President Joe Biden withdrew US assistance for “offensive activities” in Yemen, signifying a breach with Saudi Arabia and a clear departure from the Trump administration’s Middle East strategy.
Furthermore, the United Arab Emirates and Saudi Arabia have expressed worry about the United States participating in discussions aimed at restoring the Iran nuclear deal.
“The dynamics have altered substantially,” a Saudi official told the Wall Street Journal. “The relationship between the United States and the world has shifted. China is the world’s largest crude importer, and it is providing the monarchy with other attractive incentives.”
According to the story, a senior US source dismissed the idea of Saudis selling oil to China in yuan as “very unpredictable and aggressive,” and “not very realistic.”
According to Reuters, Saudi Arabia threatened to sell oil in currencies other than the US dollar in response to a measure introduced in 2019 that would have allowed OPEC members to face antitrust lawsuits. The suggested law has been offered several times but has never been passed.
Biden said on March 8 that the United States will prohibit Russian oil and natural gas imports in order to increase economic pressure on Russian President Vladimir Putin to end his conflict in Ukraine.
As Biden explored ways to increase output, leaders from Saudi Arabia and the United Arab Emirates rebuffed White House invitations to meet with the president, according to the Wall Street Journal. The White House denied that any calls were “rebuffed.”
China is now Saudi Arabia’s top trading partner and Aramco’s main customer, not the United States. Last year, Saudi Arabia’s oil shipments to China surpassed even Russia’s. While the United States continues to supply the majority of Saudi Arabia’s military weapons, China has offered ballistic missiles as well as the ability to produce them locally.
The dollar’s status as a worldwide reserve currency permits Washington to run persistent budget deficits while remaining confident in its ability to borrow readily. For decades, Saudi Arabia and its Persian Gulf partners’ willingness to price oil exports in dollars has bolstered the dollar’s favored position. If the world’s greatest oil exporter and consumer chose to conduct their commerce in a different way, it might threaten America’s domination of global financial markets.
The NYCFPA believes that if Saudi Arabia tries to sell oil to China in Chinese Yuan, the US should apply sanctions. A shift away from dollar in oil transactions would also help China persuade additional governments and foreign investors to use its currency. Aside from allowing the US to issue treasury bills and sell its debt abroad, the dollar’s dominance is a key reason why the US is able to impose harsh sanctions on countries like Russia and Iran, effectively shutting them out of international financial transactions.
Efforts to replace the dollar are gaining pace, particularly among the US’s adversaries, in the aftermath of extraordinary sanctions placed on Russia by Washington and its allies for its invasion of Ukraine. As part of such measures, Russia has been prohibited from selling foreign currency held in its reserves stockpile.