Saudi Arabia is in active negotiations with Beijing to price part of its oil shipments in yuan, a move that would erode the dollar’s dominance of the global petroleum market and represent yet another turn by the world’s top crude producer toward Asia.
Sources say negotiations with China regarding yuan-priced oil contracts have been on and off for six years but have gained momentum this year as Saudis grow increasingly disgruntled with decades-old US security duties to protect the country.
The Saudis are enraged by the US’s lack of backing for their engagement in Yemen’s civil war, as well as the Biden administration’s attempt to reach a nuclear agreement with Iran. Saudi authorities also expressed surprise at the United States’ abrupt exit from Afghanistan last year.
China buys more than a quarter of Saudi Arabia’s oil exports. The sales, if priced in yuan, would raise the value of China’s currency.
For Saudi Arabia to price even any of its nearly 6.2 million barrels per day of petroleum exports in anything other than dollars would be a significant move. Around 80% of worldwide oil transactions are in dollars, and the Saudis have only sold oil in dollars since 1974 when they struck a deal with the Nixon administration that provided security assurances for the country.
China launched yuan-priced oil contracts in 2018 as part of its efforts to make its currency more globally transferable, but they haven’t slowed the dollar’s dominance of the oil market.
Using dollars has become a risk for China, as seen by US sanctions on Iran over its nuclear program and on Russia in reaction to the invasion of Ukraine.
China has intensified its courtship of Saudi Arabia. China has recently aided Saudi Arabia’s development of its ballistic missiles, provided nuclear program advice, and began investing in Crown Prince Mohammed bin Salman’s favourite projects, such as Neom, a futuristic new metropolis.
Meanwhile, the US-Saudi relationship has deteriorated under President Biden, who declared the country a “pariah” in the 2020 campaign after the assassination of Saudi writer Jamal Khashoggi in 2018.
Mr Khashoggi’s assassination was allegedly ordered by Prince Mohammed, who declined to sit in on a call between Vice President Joe Biden and Saudi King Salman last month.
It also comes at a time when the United States’ economic relationship with Saudi Arabia is deteriorating. The United States is currently one of the world’s leading oil producers.