Saudi Arabia is considering selling oil to China — which buys more than 25% of Saudi oil exports — in exchange for yuan (China’s currency), according to a recent report by the Wall Street Journal. The move would be unprecedented. Saudi Arabia, ever since its 1974 agreement with US President Richard Nixon, has been selling oil in exchange for US dollars.
The change, if realized, would be significant. The status of the US dollar, including as the world’s reserve currency, depends on its dominance of global markets, especially the oil market, where 80% of sales are done in US dollars. If Saudi Arabia were to break the tradition of pricing its oil in dollars, as it is contemplating doing, others could well start to price oil in yuan or other currencies — negatively affecting the US dollar’s status and potentially the entire US economy.
Shortly after the news broke about the Chinese-Saudi talks on selling oil in yuan, according to Bloomberg, China’s currency “surged”. If Saudi Arabia were to sell its oil to China in yuan, it would be a victory for China, which is anyhow actively seeking to undermine the US dollar’s global dominance.
“China must brace for a full-blown escalation of the struggle with the United States and prepare to gradually decouple the Chinese yuan from the US dollar,” Zhou Li, a former deputy director of the Communist Party’s International Liaison Department wrote in July 2020.
That Saudi Arabia now seems to be seriously considering selling its oil in yuan signifies the extent to which the Biden administration’s Middle East policies have left countries such as Saudi Arabia hedging their bets on China as the ascendant power in the Middle East. China, on the other hand, is simply taking advantage of the current US administration’s deprioritization of the region and its alienation of strategic US allies such as Saudi Arabia. That alienation has mainly come, according to reports, because of Saudi “security concerns” — a diplomatic euphemism, presumably, for America’s enabling Iran to acquire nuclear weapons.
This game-changer is doubtless seen by Saudi Arabia and other oil-rich Sunni Gulf states as a mortal danger. It was signaled through America’s negotiations to reactivate what is reported to be a worse version of the 2015 JCPOA “nuclear deal,” which the Trump administration pulled out of after evidence kept emerging of massive Iranian cheating. In addition, last year, the US officially took Yemen’s Iranian-sponsored Houthi terrorist group off the list of Foreign Terrorist Organizations – and refused to put it back even after the Houthis resumed missile and drone attacks on their neighbors in the Gulf.
The vacuum that the US left behind — the second one after Afghanistan — is rapidly being filled by China. Not only is Saudi Arabia one of China’s most important energy suppliers, but the kingdom is an important link in China’s Belt and Road Initiative (BRI). The BRI is a gigantic global development project that Chinese President Xi Jinping launched in 2013 to build an economic and infrastructure network connecting Asia with Europe, Africa and beyond. The BRI seeks dramatically to enhance China’s global influence from East Asia to Europe by making countries worldwide increasingly dependent on China. China has signed cooperation agreements with 19 Arab countries for construction projects under the BRI.
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