Saudi Arabia Considers Accepting Yuan Instead of Dollars for Chinese Oil Sales
Talks between Riyadh and Beijing have accelerated as the Saudi unhappiness grows with Washington
Saudi Arabia is in active talks with Beijing to price its some of its oil sales to China in yuan, people familiar with the matter said, a move that would dent the U.S. dollar’s dominance of the global petroleum market and mark another shift by the world’s top crude exporter toward Asia.
The talks with China over yuan-priced oil contracts have been off and on for six years but have accelerated this year as the Saudis have grown increasingly unhappy with decades-old U.S. security commitments to defend the kingdom, the people said.
The Saudis are angry at the lack of US support for their intervention in Yemen’s civil war and the Biden administration’s attempt to strike a deal with Iran over its nuclear program. Saudi officials said they were shocked by the United States’ hasty withdrawal from Afghanistan last year.
China buys more than 25% of the oil exported by Saudi Arabia. If denominated in yuan, these sales would strengthen the position of the Chinese currency. The Saudis are also considering including yuan-denominated futures, known as petroyuan, in Saudi Arabian Oil Co’s pricing model known as Aramco.
It would be a sea change for Saudi Arabia to price even some of its roughly 6.2 million barrels of crude exports a day in anything other than dollars. The majority of global oil sales – around 80% – are in dollars, and the Saudis have been trading oil exclusively in dollars since 1974, under a deal with the Nixon administration that included security guarantees for the kingdom.
China introduced yuan-priced oil contracts in 2018 as part of its effort to make its currency tradable around the world, but they have not shaken the dollar’s dominance in the oil market. For China, the use of dollars has become a danger highlighted by US sanctions against Iran for its nuclear program and against Russia in response to the invasion of Ukraine.