Saudi Arabia is considering dumping RMB dollars for China’s oil sales


Saudi Arabia is considering plans to accept RMB instead of US dollars to settle crude oil sales to Beijing, The Wall Street Journal report..

The kingdom is reportedly in active talks with China, pricing at least part of its oil sales to the world’s second-largest economy in RMB.

In addition, authorities are considering including a RMB-denominated futures contract (Petroyuan) in the pricing model of the Saudi Arabian oil company, also known as Aramco.

Major proposals have been considered for several years, but negotiations have expanded as Saudi Arabia’s dissatisfaction with Washington’s nuclear negotiations with Iran and the White House’s refusal to support military operations in Yemen. The source told the newspaper. They also added that Saudi leaders were surprised at the US withdrawal from Afghanistan last year.

“Dynamics have changed dramatically. Relations between the United States and Saudi Arabia have changed. China is the world’s largest oil importer and offers many favorable incentives,” he said. “China has provided the kingdom with everything you can imagine.”

Saudi Arabia oil facility
On November 24, 2020, a man wearing a mask from a COVID-19 pandemic passed through a damaged silo at the Saudi Aramco Oil Facility in Jeddah, the Red Sea city of Saudi Arabia. (Fayez Nureldine / AFP via Getty Images)

If approved, it will affect the greenback hegemony of the international energy market and put the spotlight on Riyadh’s transition to the Asian market. But it will also rattle the Saudi economy and affect the riyal, which is fixed at the US dollar. Experts further argue that it will threaten the income of Middle Eastern countries related to US Treasuries.

Today, nearly 80% of the world’s crude oil trade is priced in dollars. Since the 1970s, Saudi Arabia has used its funds primarily for oil trading in exchange for US security. President Joe Biden and his administration have urged Saudi Arabia to pump more oil to curb soaring energy prices.

West Texas Intermediate (WTI) and Brent crude oil futures have fallen to around $ 100 a barrel over the past week, based on speculation that Saudi Arabia will buy and replace Russian supplies.

At the same time, this move will increase yuan penetration in the global oil market as it buys about a quarter of oil from Riyadh.

In recent years, China has pursued a more important relationship with Saudi Arabia by cooperating in the construction of ballistic missiles and investing in various infrastructure projects of Crown Prince Mohammed bin Salman.

Chinese leader Xi Jinping plans to visit Saudi Arabia later this year.

Beijing sought to strengthen the renminbi’s influence in global commerce through the Belt and Road Initiative (BRI) and the digitization of the renminbi. In the third quarter of last year, the yuan boosted its presence in international foreign exchange reserves by 29% year-on-year to a total of approximately $ 319 billion. data From the International Monetary Fund (IMF). Still, it is below the $ 7.081 trillion and the euro at $ 2.452 trillion.

Although the Communist Party of China (CCP) has sought to raise the yuan’s position as the highest international reserve currency, investors are still concerned about the strict capital and currency controls and restrictions of the government and central banks.

Anti-dollar axis

In any case, this may be another example of a broader de-dollarization campaign taking place in several countries around the world.

Since the annexation of Crimea, Russian President Vladimir Putin has reduced the country’s holdings in dollars and bought more gold and other foreign currencies. Moscow has also signed a bilateral swap agreement, mandating the ruble as the primary payment method at domestic ports and establishing an alternative to SWIFT, known as the financial message transfer system ().SPFS).

Putin has found a partner in China to expand his efforts to abandon the greenback. The two countries have effectively established a non-dollarization agreement in 2018 to improve economic cooperation.

Despite Moscow’s launch of the campaign, Beijing emulated the strategy when it evaluated its challenges when faced with US fines. Beijing has also created a Chinese-made cross-Border Interbankment System (CIPS) to replace SWIFT, which is growing steadily in the region. 30 Japanese financial institutions, 31 African banks and 20 Russian companies are participating.Last year, the use of CIPS 75 percent increase From 2020.

However, analysts agree that the world is not vibrant for this push, as the yuan accounts for less than 3%. International payment.. The ruble is only 0.27 percent of global transactions.

Russia and China were able to find another dollar partner, India, in the war.

Indian leadership has refrained from adopting a complete non-dollarization strategy, but the government and the Reserve Bank of India (RBI) have adopted various means to deal with countries subject to severe western sanctions. did.

Moscow and New Delhi have already signed a rupee-ruble exchange agreement for the sale of Russian weapons to India. The aim was to avoid sanctions imposed by American adversaries who countered through the Sanctions Act (CAATSA).

Epoch Times Photo
Russian President Vladivostok is shaking hands with Indian Prime Minister Narendra Modi at a joint press conference prior to the Eastern Economic Forum in Vladivostok on September 4, 2019. (Via Mikhail Metsel / AFP, Getty Images)

India is also considering buying Russian crude oil, fertilizers and other commodities at significant discounts through the rupee ruble transaction. India is currently the world’s third largest oil consumer and importer.

Prime Minister Narendra Modi has not condemned Russia’s invasion of Ukraine, and India has opted not to participate in Western sanctions.

“Russia offers oil and other commodities at significant discounts. We are happy to accept. There are some issues to be solved, such as tanker insurance coverage and oil blends. Once that is done, discounts I will accept the offer, “a senior government official told Reuters.

Weapon of financial destruction?

Many market experts and economists have warned of the dollar’s harmful fallout as the United States and other Western nations employ so-called financially destructive weapons.

Last month, Goldman Sachs argued that using the dollar for foreign policy purposes could force other countries to abandon the best international reserve currencies.

“”[O]Abuse of these powers could force other parties to try to replace the dollar transaction, as Russia has already done to some extent following previous sanctions, “financial institutions wrote.

JPMorgan Chase CEO Jamie Dimon reiterated these feelings when he said in an interview with Bloomberg TV that he needed to be aware of “unintended consequences.”

Andrew Moran

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Andrew Moran covers business, economics, and finance. He has been a writer and reporter in Toronto for over 10 years and has signed Liberty Nation, Digital Journal and Career Addict. He is also the author of “Cash War”.