The Wall Street Journal is reporting that “Saudi Arabia is in active talks with Beijing to price some of its oil sales to China in yuan.” The Journal throws together a pile of half-reasons for this: Saudi Arabia thinks it hasn’t gotten enough support from the United States on its war on Yemen; it doesn’t like the JCPOA; it was shocked by NATO’s withdrawal from Afghanistan. Not included is the real reason: The use of the dollar to steal national financial reserves and attack the Russian economy is a boomerang, driving nations to cut down their own dollar reserves and try to use other currencies for trade.
Saudi Arabia sells roughly 2 million barrels of oil a day to China. Were that all settled in yuan, Saudi Arabia would (assuming roughly the current oil price) build up 6 billion yuan every week, 300 billion yuan a year in reserves. It would have incentives to invest those yuan reserves in Eurasia, particularly in Belt and Road Initiative and related projects and in the Chinese economy. Were Russia to resume wheat exports, the Saudis could pay for them this way and add to Russian yuan reserves; etc. China has worked on oil-for-yuan proposals since 2018, according to the Journal; the Saudis are now coming to them.
More broadly on oil, this is a contest with the U.K. and United States. President Joe Biden’s demands to OPEC for more production are theater. The old guy in the White House and BoJo the Clown are really appealing only to the Saudis. Except for Saudi Arabia and the U.A.E., no other major OPEC producer is able to meet its current production quota, let alone go above it. Nigeria, for example, has an OPEC quota of 2 million bpd, and is currently producing 1.25 million bpd, having been at 1.4 million bpd for some time prior. The reason is lack of investment in Nigeria’s oil industry; CGTN broadcast a feature news story on this March 13. In other words, the reason is the Green Deal or “Great Reset,” and it has hit oil investment and consequent production worldwide. Those producers which have not been allowed to sell at all – Iran and Venezuela – are happy to sell to China and will be paid in yuan as well.
