Saudi Arabia, the world’s largest oil exporter, can likely envision selling its oil in the Chinese currency, the yuan. Talks with China have been going on for six years, with plenty of interruptions in between. Now the talks are said to be further advanced than ever, in part because the Saudis are increasingly dissatisfied with the U.S. role in the Arab region. The withdrawal of U.S. troops from Afghanistan is just one example that has increased Saudis’ dissatisfaction. If the Saudis sell some of their oil in yuan, the long history of the petrodollar could slowly come to an end.
According to analysts, Saudi Arabia is accelerating its talks with China, and if Saudi Arabia sells its oil to China in yuan, it would undermine the influence of the U.S. dollar in global oil markets and represent Saudi Arabia’s vanguard in Asia.
Negotiations to fix the price of oil in yuan currency have not been smooth over the past six years. But there has been rapid progress as Saudi Arabia’s dissatisfaction with the United States over its disapproval of Saudi intervention in the Yemen war and ongoing U.S. efforts to restore a nuclear agreement with Iran, including the withdrawal of troops from Afghanistan, has increased.
China buys more than 25% of Saudi Arabia’s total oil exports. This means that when the price is set in yuan, it increases the status of the Chinese currency and also sends a signal to the world that more and more countries are looking for ways to avoid the US dollar.
About 80% of oil sales are in dollars, and under an agreement signed in 1974 under former President Richard Nixon, the Saudis have sold their oil on the world market solely in U.S. dollars. In return, the U.S. stands ready to protect the Kingdom of Saudi Arabia.