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Saudi Arabia is actively considering switching from the US dollar to the Chinese yuan in all future oil sales to China, a move which would threaten the global hegemony of the greenback.
Riyadh is in active talks with Beijing over this potential transition, according to a report by the Wall Street Journal on 15 March.
Despite these talks floating around for years, they have now begun to take a serious turn ever since the relationship between Saudi Arabia and the US began to deteriorate with the arrival of Joe Biden at the White House.
Saudi Arabia is dissatisfied with what it perceives as insufficient US support for its brutal war against Yemen, such as the removal of the advanced Patriot and THAAD missile defense systems from the kingdom in 2021, as well as Washington’s ongoing condemnation of the murder of Saudi journalist Jamal Khashoggi.
In response, Saudi Crown Prince Mohammed bin Salman (MbS) suggested in an interview from 3 March that the Gulf kingdom may reduce its investments in the US.
“We have the possibility of boosting our interests, and the possibility of reducing them,” MbS declared.
Currently, China buys 25 percent of Saudi oil exports. The global standing of the Chinese yuan would strengthen in the event oil is traded in Chinese currency, instead of US dollars.
Futures contracts within the Saudi petroleum and natural gas company, Aramco, may also be denominated in yuans, which would be dubbed the ‘petroyuan.’
This would be a major shift in the oil market, as approximately 80 percent of oil sales are transacted in US dollars.
Saudi oil trade has been transacted exclusively in dollars since the deal made by US president Richard Nixon with the kingdom in 1974, and which included various security and military guarantees in exchange for pricing oil exclusively in US dollars.
Such a lucrative relationship has led NGOs to accuse the US of turning a blind eye to the gulf kingdom’s flagrant human rights abuses, including a recent mass execution that took place on 12 March.
China began creating oil contracts that involve the yuan instead of the dollar in 2018. These have been particularly useful for trading with countries under US sanctions, such as Iran.
Trading oil with Saudi Arabia in the yuan would also step up this yuan-based oil contract project. In 2021, Saudi Arabia was the top supplier of crude oil to China, with Russia in second place.
An analysis from The Cradle published on 15 March explored the future of the petroyuan and how it would work with Russia to create an alternative financial system to cut out the US dollar, rendering many sanctions against Russia, China, and Iran obsolete.