Discussion on payment in RMB for crude oil exported to China
A quarter of Saudi oil exports go to China
China actively supports Saudi missile and development projects
The US dollars position in the oil market is expected to decline.
“Saudi Arabia weighs against yuan instability, etc.”
A view of Riyadh, the capital of Saudi Arabia, an oil-rich country in the Middle East. /Reuters Yonhap News
The Wall Street Journal reported on the 15th that Saudi Arabia is actively considering a plan to settle some of its crude oil exports to China in Chinese yuan. The goal is to strengthen cooperation with China at a time when the Joe Biden administration drastically cut back on Middle East diplomacy and estranged relations with Saudi Arabia. In the future, it is predicted that the US dollar will have a significant impact on the situation in the Middle East as well as a decline in the status of the US dollar in the international oil market.
Multiple sources familiar with the issue told the WSJ that the two countries yuan settlement had not made much progress in the past six years, but the discussion has accelerated this year as complaints about the US neglecting its security promises to Saudi Arabia have grown. This is because, following the Joe Biden administrations declaration of cessation of aid to the Yemeni civil war in which Saudi Arabia participated, recently, it has also attempted to restore a nuclear deal with Saudi Arabias “anti-semitic” Iran.
Saudi Arabias Crown Prince Mohammed bin Salman, who visited the United States in March 2018, talks with US President Donald Trump about Saudi Arabias purchase of US arms at the White House.
U.S.-Saudi, who used to be best friends, deteriorated relations after Biden took office
The United States has maintained close ties with Saudi Arabia, its largest ally in the Middle East, since the administration of Donald Trump. When Saudi Arabia entered the Yemeni civil war in 2014, the United States actively supported Saudi-led military operations. Saudi Arabia, the dominant Sunni Muslim country, intervened in the civil war, claiming that Iran, the then dominant Shiite group, was supporting the Houthi rebels from behind. The two countries are rivals that have been in conflict for decades over sectarian and oil issues. For this reason, the international community sees the civil war in Yemen as a de facto “proxy war” between Saudi Arabia and Iran.
Relations between the United States and Saudi Arabia began to falter in 2019. At the time, Iran launched a missile attack on Saudi oil facilities, but the Trump administration did not respond. In particular, relations between the two countries worsened when President Joe Biden took office last year, who has criticized Saudi Crown Prince Mohammed bin Salmans “assassination scheme.” Crown Prince bin Salman has been blamed for ordering the 2018 assassination of journalist Jamal Khashoggi, who criticized the Saudi royal family.
Meanwhile, President Biden announced on the 4th of last month that he would end support for Yemens civil war. He said, “We will prove the return of the United States in the field of diplomacy with a focus on foreign policy. As the influence of China and Russia grows in the international situation and the restoration of the nuclear agreement with Iran is near, it means that the relationship with Saudi Arabia will be reestablished. Bin Salman also recently declined a phone call with President Biden, the WSJ reported.
US President Joe Biden explains the US response to the expansion of the Russia-Ukraine border in the East Room of the White House in Washington, DC, on the 22nd. /EPA Yonhap News
China surpassed the US to become the largest customer…. Saudi Arabia is also scaled
China is the big hand, accounting for 25% of Saudi oil exports. Of the 6.2 million barrels of Saudi exports per day, 1.76 million barrels are destined for China. Exports to the US are only 500,000 barrels per day. Currently, about 80% of global oil sales are made in dollars. If some of the transactions with China, the largest oil exporter, are made in RMB, significant changes are inevitable, such as raising the status of the RMB in the international oil market at once.
Saudi Arabia is also considering allowing Aramco to trade crude oil futures in yuan denominated in the so-called “petroyuan”. A high-ranking Saudi official who participated in the discussion said, “The relationship between the United States and Saudi Arabia has changed. China is the largest oil importer and provides us with high profitability.” In fact, China supported Saudi Arabias development of its own ballistic missile and nuclear program, and made a large investment in the new city development project, which is a concern of Crown Prince bin Salman.
The fact that the United States, which was once the largest customer of Saudi crude oil, has now emerged as an oil producing country is also the background that accelerated discussions with China. The U.S. imported 2 million barrels of crude oil a day from Saudi Arabia in the early 1990s, but as of December last year, imports fell to 500,000 barrels a day. For Saudi Arabia, it was also taken into consideration that it could diversify its sources of income and attract large-scale investment from China in the era of high oil prices.
However, there are mixed views as to whether Saudi Arabia will allow renminbi payments. This is because the yuan is less stable than the dollar. China has a low preference in the international investment market due to strict government-level controls. Therefore, selling crude oil in a lower currency could have a negative impact on the Saudi governments finances. In addition, there is a high risk of economic damage due to the shaking of the existing exchange rate system that links the local currency, the rial to the dollar.
Chinese President Xi Jinping applauds during the closing ceremony of the National Peoples Congress at the Great Hall of the People in Beijing, China on the morning of the 11th. /yunhap news
Meanwhile, Saudi Arabia is pushing ahead with a schedule to invite Chinese President Xi Jinping to Riyadh after Ramadan next month. An unnamed Saudi official told the WSJ that “Prince bin Salman and President Xi have a close relationship, and both sides understand the potential and a stronger relationship.” However, the Saudi foreign ministry and the Chinese embassy in Saudi Arabia did not respond to requests for comment, the WSJ reported.
