The U.S. dollar may be on its way out as the global reserve currency.
Saudi Arabia is actively engaging in negotiations with Chinese officials to price oil sales to China in yuan instead of the U.S. dollar, the Wall Street Journal reported.
If the two countries decide to conduct business using the Chinese yuan instead of the U.S. dollar, this could mean trouble for America’s dominance as the global economic hegemon.
Reportedly, the Saudi talks with China have been off and on for six years but have recently begun to accelerate as Saudi leadership grows increasingly discontented with American security commitments to defend the country.
The Saudis are unhappy with the lack of American support for their intervention in the ongoing Yemen civil war and over the Biden administration’s renewed attempts to strike a deal with Iran over its nuclear program.
Saudi officials are also reportedly uncomfortable with the Biden administration’s ham-fisted withdrawal from Afghanistan last year.
China currently buys more than 25% of the oil exported from Saudi Arabia. Should these transactions be conducted in yuan instead of dollars, those sales would boost the standing of China’s currency and diminish the standing of the dollar.
Around 80% of global oil sales are transacted in dollars. Saudi Arabia exports roughly 6.2 million barrels of crude oil a day. If the Saudis price even a fraction of this in something other than the dollar, it would mark a profound shift in the global economy’s pecking order.
Since 1974, the Saudis have traded oil exclusively in dollars after making a deal with the Nixon administration that promised security guarantees for the kingdom.
In 2018, the Chinese government introduced oil contracts priced in yuan as it worked to make its currency more tradeable across the globe. To China’s chagrin, this did not increase its leverage in the oil market. And as the Chinese government seeks to reduce its — and by extension the globe’s — dependence on the dollar, it has worked overtime to court Saudi leadership.
In recent years, China has helped the Saudi kingdom domestically manufacture ballistic missiles, provided guidance on the Saudi nuclear initiative, and poured money into Saudi Crown Prince Mohammed bin Salman’s pet projects.
Whereas China’s relationship with Saudi Arabia appears to be improving, America’s relationship with the Saudi government is rapidly deteriorating. Prince Mohammed refused to sit in on a call between President Biden and Saudi ruler King Salman in February after U.S. intelligence officials suggested that the prince ordered the killing of a journalist.
A Saudi official 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.”
He added, “China has been offering everything you could possibly imagine to the kingdom.”