'Nuclear Option'? Saudis In Talks With China To Pivot From U.S. Dollar

'Nuclear option': Saudis in talks with China to pivot from U.S. dollar

 Art Moore 

The United States dollar's position as the chief currency of trade for the global oil industry has been a foundation of the American economy for decades, keeping inflation at bay amid the Fed's unprecedented printing of money.

But now Saudi Arabia and China are in talks to price some of the monarchy's oil sales in the Chinese yuan, rather than dollars, the Wall Street Journal reported Tuesday.

Citing people familiar with the matter, the paper said that after six years of off-and-on discussions, talks stepped up this year amid Riyadh's strong opposition to Washington's nuclear negotiations with Iran and other issues.

The Saudis, whose oil industry was developed by the U.S., have exclusively used the dollar for trading oil since the mid-1970s as part of a bilateral security agreement. Nearly 80% of global oil sales are priced in dollars. And Saudi Arabia possesses about 17% of the world's proven petroleum reserves.

But tensions have grown between the U.S. and Crown Prince Mohammed bin Salman since the 2018 assassination of dissident journalist Jamal Khashoggi. The relationship has only worsened since President Biden said the assassination should make Saudi Arabia a global "pariah" and his administration renewed talks with Tehran.

The Wall Street Journal pointed out that a Saudi pivot to Beijing could prompt other oil suppliers to China – Russia, Angola and Iraq – to do the same.

In 2019, Saudi Arabia threatened to sell its oil in other currencies if Washington passed a bill exposing OPEC members to U.S. antitrust lawsuits, Reuters reported at the time.

The bill, known as NOPEC, could have provoked what was described by a Reuters source as the "nuclear option." The ditching of the dollar, the wire service reported, would undermine the currency's "status as the world’s main reserve currency, reduce Washington’s clout in global trade and weaken its ability to enforce sanctions on nation states."

Reuters noted in 2019: "A move by Saudi Arabia to ditch the dollar would resonate well with big non-OPEC oil producers such as Russia as well as major consumers China and the European Union, which have been calling for moves to diversify global trade away from the dollar to dilute U.S. influence over the world economy."

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