Setback for Petrodollar: Saudi Arabia Considers Accepting Chinese Yuan in Oil Trade, Says Report

Saudi Arabia is on the cusp of a huge policy shift that will undercut the US dominance of the oil market forever, according to reports.

It has been reported that Saudi Arabia is exploring the chances of pricing some of its oil sales to China in yuan, sidestepping the US dollar, the Wall Street Journal reported.

'Dynamics have Changed'

"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 ... China has been offering everything you could possibly imagine to the kingdom," a Saudi official reportedly told the WSJ.

Illustration photo of U.S. Dollar and China Yuan notes
Illustration photo of U.S. Dollar and China Yuan notes. REUTERS/Thomas White/Illustration

Data shows that China buys nearly a fourth of Saudi Arabia's massive oil export. Strengthening the cooperation between the countries, Saudi Aramco, a Saudi Arabian state-owned oil behemoth, said last week it was building a massive oil and petrochemical refinery in China.

It would be a strategic as well as a financial setback for the US if Saudi Arabia and China go ahead with the deal. The development has come at a time when the US has been asking petro giants like Saudi Arabia and the United Arab Emirates to increase oil output to address the supply crunch due to the Russia sanctions in the wake of the Ukraine war.

crude oil storage tanks
crude oil storage tanks reuters

Interestingly, the move also coincides with the increased American push to arrive at a nuclear deal with Iran, which would lead to an easing of sanctions on Tehran, the arch-enemy of Riyadh. While the US would stand to gain from the deal as it would free up more crude for the world market reeling from the impact of the sanctions on Russia, it would not be in the interests of Saudi Arabia.

The vast majority of global crude oil has been transacted in US dollar. For Saudi Arabia to have at least a portion of it moved to yuan will be a major change as the US ally has traded oil exclusively in US dollars for close to half a century.