October 2, 2022

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Saudi Arabia considers accepting yuan instead of dollars for Chinese oil sales

Saudi Arabia considers accepting yuan instead of dollars for Chinese oil sales

Kingdom Saudi Arabia Active talks are underway with Beijing to price some of them oil sales for China denominated in yuan, people familiar with the matter said, a move that would reduce the US dollar’s dominance of the global oil market and mark another shift by the world’s largest crude exporter towards Asia.

Talks with China over yuan-denominated oil contracts have stalled for six years but accelerated this year as the Saudis became increasingly unhappy with decades-old US security commitments to defend the kingdom, people said.

File: A general view of the city of Riyadh on February 20, 2022. (Reuters/Mohammed bin Mansour/file photo)

The Saudis are angry at the United States’ lack of support for their intervention in the Yemeni civil war, and at the Biden administration’s attempt to strike a deal with Iran over its nuclear program. Saudi officials said they were shocked by the rapid US withdrawal from Afghanistan last year.

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China buys more than 25% of the oil that Saudi Arabia exports. If priced in yuan, these sales will boost the Chinese currency’s prestige. The Saudis are also considering including yuan-denominated futures, known as Petroyuan, in the Saudi Arabian Oil Company’s pricing model, known as Aramco.

China's yuan

FILE: Chinese yuan coins and banknotes are shown in this illustration taken on February 24, 2022. (Reuters/Florence Law)

It would be a profound shift for Saudi Arabia in pricing even some of its crude oil exports of about 6.2 million barrels per day with anything other than dollars. The majority of global oil sales – about 80% – are done in dollars, and the Saudis have traded oil exclusively in dollars since 1974, in a deal with the Nixon administration that included security guarantees for the kingdom.

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China introduced oil contracts priced in yuan in 2018 as part of its effort to make its currency tradable worldwide, but it did not affect the dollar’s dominance of the oil market. For China, the use of the dollar has become a risk highlighted by US sanctions on Iran over its nuclear program and on Russia in response to the Ukrainian invasion.

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