China is rolling-out plans to acquire oil and gas products in exchange for yuan, instead of US dollars, from top producers in the Arabian Gulf.
These plans were unveiled by China’s President Xi Jinping at a summit held in Riyadh, Saudi Arabia last Friday.
Hosting the talks was Saudi Crown Prince Mohammad bin Salman who described them as being a “historic new phase of relations with China.”
A number of economic agreements were signed by China and Saudi Arabia at the meeting, and Xi Jinping also signalled his intentions to continue importing large amounts of gas and oil products from the nation.
Facilitating the potential exchange of these energy commodities for yuan will be China’s Shanghai Petroleum and National Gas Exchange platform, Xi Jinping said.
When the exchange was launched in 2015 one of its goals was to become a market maker for gas and petroleum products traded in the Asia-Pacific region.
Unravelling US dollar dominance in energy
With prices quoted in yuan as opposed to the US dollar, this would help de-peg the US dollar from being used in China’s regional energy markets.
With sufficient volume, exchanges like it and others around the country could challenge the US dollar on two fronts: namely its ubiquity as the petrodollar as well as its value as the global reserve currency.
China operates additional gas and oil exchanges in the cities of Shenzhen and Chongqing. The Chinese Communist Party (CCP) contributed large amounts of capital in establishing these exchanges through investments made through its various state-owned enterprises such as Sinopec and PetroChina.
Chinese investment also extends far beyond its borders, notably with its inclusion of Saudi Arabia into its Belt and Road Initiative (BRI), which has been criticised by some US policymakers as being an apparatus for enabling Chinese state imperialism.
BRI energy and investment partnership
A joint statement was made by China and Saudi Arabia during the summit that reaffirmed and deepened their individual commitments to the BRI.
Leading the partnership forward is the BRI energy and investment partnership, which the gulf nation has been invited to join, as well as tying the goals of the BRI and Saudi Arabia’s Vision 2030 framework closer together.
There have been no official announcements yet from the Saudi royal family as to whether it will accept yuan for its oil exports, but an insider that spoke with Reuters said that “it is not yet the right time” for such an arrangement to be considered.
If Saudi Arabia did shift away from the US dollar in oil trade, it could worsen relations with the US, which are already strained.