Goodbye, Petrodollar? Riyadh Reportedly Weighs Accepting Chinese Yuan for Oil Purchases

Russian Foreign Minister Sergey Lavrov on Tuesday said that talks in Vienna to revive the Joint Comprehensive Plan of Action (JCPOA), which limits Iran’s uranium production in exchange for lowering US economic sanctions, “have entered the homestretch.” Saudi Arabia strongly opposes the deal.
In part of a continuing trend of spurning Washington, Riyadh is reportedly considering pricing some of its oil sales in Chinese yuan instead of US dollars, the Wall Street Journal reported on Tuesday.
According to the paper, talks have been ongoing for six years, but have accelerated in recent weeks due to increasing frustration in Riyadh with Washington, including over the Biden administration’s hostility toward the Saudi-led coalition’s war in Yemen and its intent to revive the 2015 Iran nuclear deal.
“The dynamics have dramatically changed. The US relationship with the Saudis has changed, China is the world’s biggest crude importer and they are offering many lucrative incentives to the kingdom,” a Saudi official familiar with the talks told the WSJ. “China has been offering everything you could possibly imagine to the kingdom.”
After news of the potential deal broke on Tuesday, the value of offshore yuan surged relative to the US dollar during Asian trading, Bloomberg reported. However, it remained down relative to its value just a few days ago.
When asked by a reporter about the rumored deal on Tuesday, a US State Department spokesperson said that the US was not asking its allies to choose between them and China. A decline in oil purchases made in US dollars means fewer international buyers will have surplus US currency that needs to be recycled, which is typically done by trade or investment. In contrast, a petroyuan would increase those same dynamics for China, potentially leading to increased trade and investment.
Those petroyuans could then be recycled to pay, for example, for Belt and Road Initiative infrastructure projects underwritten by Beijing.
China already buys one-quarter of Saudi Arabia’s massive oil export, which are the world’s largest, and, since 2018, Beijing has offered renminbi-priced oil contracts. Last week, Saudi Aramco, the kingdom’s state-owned oil corporation, announced it would help build a massive new oil and petrochemical refinery in northeastern China. The facility will be able to produce 300,000 barrels of oil per day and will have a 1.5 million metric ton-per-year ethylene cracker and a 1.3 million metric ton-per-year paraxylene unit.

The news comes after the rulers of Saudi Arabia and the United Arab Emirates both refused to answer phone calls from the White House. The US has long enjoyed a close strategic relationship with the two oil-exporting Arab nations, and US President Joe Biden was looking for them to increase oil production to offset the loss of Russian oil due to the US boycott. A similar deal in the early 1980s helped create a glut in the oil market that collapsed its value, driving the Soviet Union into its first recession and spelling the ultimate end of the socialist state in 1991.

While the US has long been hands-off about Saudi politics, Biden has been far more critical than his predecessors, and it’s reportedly left a dent in US-Saudi relations.
Last year, the Biden administration claimed it was ending offensive support for Saudi Arabia’s war against the Yemeni Houthi movement, which ousted Yemeni President Abdrabbuh Mansour Hadi in 2015. Roughly 400,000 Yemenis have died since the war began in 2015, more than half of them due to the total collapse of infrastructure and the Saudi blockade of the country, according to the United Nations.
Despite the claims, US-made bombs are reportedly still falling on Yemeni cities.

Also in 2021, declassified files from the Office of the US Director of National Intelligence were shown to claim that Saudi Crown Prince Mohammed bin Salman is directly connected to the 2018 murder of Saudi dissident journalist Jamal Khashoggi in the Saudi consulate in Istanbul, Turkey. The crown prince has denied his involvement. In 2019, Biden said he would “make them pay the price, and make them in fact the pariah that they are.”

In an interview with The Atlantic earlier this month, the Saudi crown prince told the magazine “Simply, I do not care” whether Biden understands him or not. “It’s up to him to think about the interests of America. Go for it.”