Saudi considering accepting Yuan for oil sales from China
3 Min Read
As tensions between Saudi Arabia and the US grow, cooperation with China is just around the corner.
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The oil refinery of Ras Tanura in Saudi Arabia
According to sources familiar with the situation, Saudi Arabia is in active negotiations with Beijing to price part of its oil supplies to China in Yuan, a move that would undermine the US dollar's domination of the global petroleum market and represent another turn by the world's top crude exporter toward Asia.
According to the sources, as the Kingdom grows more dissatisfied with the US security guarantees, negotiations with China have picked up, as they have been ongoing for roughly 6 years.
The Saudis are enraged by the US' lack of backing their war on Yemen, as well as engaging in Vienna Talks with Iran over its nuclear program. Saudi officials also said they were taken aback by the US withdrawal from Afghanistan.
China purchases more than a quarter of Saudi Arabia's oil exports. Those sales, if priced in yuan, would raise the value of China's currency. The Saudis are also considering including yuan-denominated futures contracts, known as the petro-yuan, in the pricing model of Saudi Arabian Oil Co., known as Aramco.
It would be a significant move for Saudi Arabia to price even a portion of its nearly 6.2 million barrels of petroleum exports in a currency other than dollars. The vast bulk of worldwide oil sales—roughly 80%—are conducted in dollars, and the Saudis have done so solely since 1974 when they struck a deal with the Nixon administration that provided security assurances for the country.
China launched yuan-priced oil contracts in 2018 as part of its efforts to make its currency tradeable globally, but they haven't eroded the dollar's dominance of the oil market. Using dollars has become a risk for China, as illustrated by US sanctions imposed on Iran over its nuclear program and on Russia in reaction to the Ukraine operation.
Meanwhile, officials in West Asia and the US have said that Saudi Arabia's Crown Prince Mohammad bin Salman and the Crown Prince of Abu Dhabi Mohammad bin Zayed have declined US requests to speak to the US President in recent weeks, according to The Wall Street Journal.
The US is currently one of the world's leading oil producers. According to the US Energy Information Administration, it formerly imported 2 million barrels of Saudi oil per day in the early 1990s, but that figure has dropped to less than 500,000 barrels per day in December 2021.
China's oil imports, on the other hand, have increased in tandem with the country's growing economy during the previous three decades. According to data from China's General Administration of Customs, Saudi Arabia was China's top crude supplier in 2021, selling 1.76 million barrels per day, followed by Russia at 1.6 million barrels per day.
A Saudi official familiar with the talks said, “The dynamics have dramatically changed. The U.S. relationship with the Saudis has changed, China is the world’s biggest crude importer and they are offering many lucrative incentives to the kingdom."
“China has been offering everything you could possibly imagine to the kingdom,” he added.
