Top oil producer distances itself from petrodollar hegemony
Saudi Arabia is considering selling some of its oil to China in yuan rather than dollars, people familiar with the matter told the Wall Street Journal on Tuesday, citing “active talks” between Riyadh and Beijing. Such a move could further marginalize the petrodollar paradigm that has controlled the global financial system for over half a century, placing the dollar’s status as the international reserve currency at risk.
China buys over a quarter of the oil exported by Saudi Arabia, meaning that denominating those deals in yuan would significantly boost the international profile of the Chinese currency. Currently, 80% of global oil sales are transacted in dollars, with the Saudis trading exclusively in the US currency since 1974 – when Washington offered Riyadh security guarantees in exchange for its loyalty to the petrodollar system.
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While China and Saudi Arabia have been discussing pricing oil deals in yuan for six years, those talks have recently increased in urgency due to Saudi dissatisfaction with the policies of the US government. From Washington’s growing efforts to distance itself from the Saudi-led war in Yemen, which has plunged what was already the poorest nation in the Middle East into a drastic humanitarian catastrophe, to its condemnation of Crown Prince Mohammed bin Salman (MBS) over the grisly murder of journalist Jamal Khashoggi, Riyadh is upset over what it feels is the duty of the US to live up to its security commitments to the Kingdom, WSJ reported.
US President Joe Biden didn’t help matters by declaring during his 2020 campaign that MBS should be considered a “pariah” for his alleged role in Khashoggi’s killing, an accusation the Crown Prince has said not only violated his human rights but hurt his feelings.
The hurt feelings of a Saudi prince are nothing to snicker at, as MBS reportedly refused to take Biden’s calls earlier this month as the American leader hunted around for a cheaper source of oil and gas as prices at the pump soared to near-record highs stateside amid the conflict in Ukraine.
Indeed, the US’ history of grandstanding animosity toward many of the top oil-producing states – from Venezuela to Iran to Russia – has left it with little space to maneuver as commodity prices and inflation continue climbing with no end in sight. Biden is reportedly planning a trip to Saudi Arabia later this spring in an effort to mend relations, though some at home might question Washington’s criticism of Russia’s human rights record while Riyadh beheaded a record-setting 81 prisoners in a single day over the weekend.
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The western economy’s moves to shut Russia out of the global financial system have countries like China, already on several sanctions blacklists, hunting around to ensure what happened to Russia cannot happen to them. Should the Saudis begin successfully selling their oil to China in dollars, the move could be emulated by China’s other major fuel suppliers – Angola and Iraq, as well as Russia.
Attempting to sell oil in non-dollar currencies used to be a bad omen for a nation – Iraq, Libya, Syria, and Iran have all made moves away from the dollar, only to be strictly punished for their independence by the US military. But with Washington’s military failure in Afghanistan, as well as its current domestic troubles, other nations may have concluded that it is no longer the kind of power it once seemed to be.
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