Is Saudi Arabia and China looking to ditch the dollar in a new oil deal?

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Martin Everson

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china-are-looking-to-ditch-the-dollar-in-a-new-oil-deal-and-where-beijing-could-target-next-as-it-spreads-yuan-adoption" data-toc="1" >An economist explains why Saudi Arabia and China are looking to ditch the dollar in a new oil deal — and where Beijing could target next as it spreads yuan adoption


A potential yuan-based oil deal between Saudi Arabia and China could signal more unease with reliance on the US dollar, while also serving as a preview of how Beijing could advance its currency in other parts of the world.

The Wall Street Journal reported recently that Saudi Arabia is in talks to sell oil to China and be paid in yuan, after trading crude exclusively in dollars for nearly 50 years. Both countries could benefit from a demotion of the dollar's status on the world stage, according to Aleksandar Tomic, an economist, professor and associate dean at Boston College.

"While any deal would be symbolic, the Chinese are not alone in the search for a non-dollar reserve currency," Tomic told Insider. "Other countries' need for dollars exposes them to the US financial sector, and consequently gives the US political leverage."

Some analysts have downplayed the chances of a yuan deal, pointing out that the Saudi riyal is pegged to the dollar, helping shield its economy from volatility.

But the effectiveness of the West's sanctions against Russia has been a wake-up call for countries seeking to reduce their reliance on the US, while other regimes worry that they could be next if they cross Washington, Tomic said.

"A potential deal in yuan is a sign that the world is looking for some counterweight to the US dollar," he said.

One reason Saudi Arabia is considering an oil deal in yuan is because it would create exposure to a currency other than the dollar, and affords the country a yuan-based hedge. Another factor could be the Saudis don't anticipate the dollar to be as stable moving forward, especially if the US increases its money supply in response to economic challenges, Tomic said.

Meanwhile, China has long pushed for the yuan to supplant the dollar, and the collapse of major financial institutions in Russia means chances are higher now than ever for a sea change, he said. Plus, the international response to Russia's invasion of Ukraine also looms.

"An extreme view would be that it reduces China's vulnerability to sanctions that the West may impose should China do something that the US and its allies oppose," Tomic added.

But two things that must happen for China's yuan to establish itself as a reserve currency. First, global faith in the dollar would have to wane. This could happen if the Federal Reserve fails to get inflation under control, or if it veers from its usual predictability, Tomic said.

Second, China would have to prove the long-term stability of the yuan to win the trust of other nations. But China devalues its currency occasionally to boost exports, and countries won't want to hold a currency like that, he noted. So Beijing would have to commit to more responsible policy.

Still, China maintains global ambitions for the yuan, and Africa is the most likely place where it could displace the dollar, Tomic said. China plays an outsized role in African economies as the continent's largest bilateral creditor and source of foreign investment.

And China already has considerable infrastructure in place in Africa, which isn't as contested a market as Europe is, he explained.

But for China to supplant the dollar as a global reserve currency, its economic standing would have to rise while the US's fell.

"If the US doesn't do anything unpredictable, then other countries will continue to trust its currency," Tomic said. "Challenges to the dollar have come before, but none have taken hold because when things turn volatile, the US tends to be stable. So the dollar persists."

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khinkali

Silver Member
India and Russia are trying to establish rupee-ruble trade settlement (some reports indicate using the Yuan rates):

Even NATO member Turkey:

And now KSA.

This has been brewing for a while and is accelerated by Western sanctions. Other countries that like grain, cooking oil or energy will join and the eighty year dollar hegemony will end.
 

Martin Everson

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We may look back in 20 years at this time and recognise it as a major turning point for the dollars hegemony.
 

khinkali

Silver Member
More chance of the USA invading Saudia Arabia if they price the oil outside the dollar rather than fighting Russia.
USA had more international leverage when it came to Iraq, Libya, etc. in the past. I think it's different this time.

Washington is speeding up adoption of Mir, SPFS, CIPS and UnionPay for some reason and it is creating strange effects, such as the UAE's Ministry of Presidential Affairs publishing photos of the Ruler of Dubai and Crown Prince of Abu Dhabi shaking hands with Iran's best buddy Assad. They haven't met in over a decade, now they discuss "the framework of the brotherly relations" between the two countries.
UAE leaders receive Syrian President Bashar Al Assad
1647759056598.png


USA are courting Venezuela while EU try to make friends with Iran. They might have enough work to do, just to keep Brazil and Turkey on their side.
 

Martin Everson

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The Arab world knows the writing is on the wall for US as an influential power after Afghanistan humiliation and they are all moving away from US. Their love affair with US is coming to an abrupt end. Even Saudi is attempting to normalize relationships with arch enemy Iran after granting Iranian diplomats Visas. They too are moving into China/Russia sphere of influence away from US. UAE normalizing relationships with Syria is basically a snub to US.

Also the Saudi's are pissed at US and refused to update their refineries in US and instead signed a deal with China to build new ones in China. The Saudi's even refused to take Joe Biden phone call...lol. They also signed a deal with China to build ballistic missiles in Saudi and more deals are coming as they organize an official Chinese President state visit to Saudi Arabia in next months.



Funny story is UAE cancelled order for F35 jets from US but has gone and ordered L-15 jets from China. The reason for cancelling the F35 order is that US told UAE they cannot let Huawei build their telecom's infrastructure. So they told US to go to hell with the F35's order and its politicizing the sale of the F35's...lol. Maybe the order will be back on at some point but the Arab well is pretty much hedging there bets against a US decline as are a lot of developing countries.


Desperate times for US means desperate means as inflation bites smi(&%. Don't worry they will be buying Russian oil like they did last year buy Iran oil despite sanctions ;).

 

Martin Everson

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Ahh yeah forgot about UAE grey listing. They can't be happy about that as a close ally or at least they thought they were with the US of A...lol.
 

Silvio

Entrepreneur
The RMB is not a safe heaven as it's a non convertible currency:
The moment that RMB is freely convertible it will immediately free fall as normal Chinese will immediately flee to safety of other currencies. The wealthy Chinese are already trying desperately to get money outside of China in any way possible, and into normal, freely convertible currencies.

Chinese equities\funds\bonds are also not a safe heaven:
If you think China will treat you fairly just ask Jack Ma, Fan Bingbing and the owners of Tencent\Alibaba how the CCP treats them:

The biggest, most powerful and well-connected Chinese tycoons are being blackmailed, jailed and terrorized like dogs. And not to mention the other risks like VIE risks or just companies that being demolished for no reason just because they got too big, or just because they happen to fire a well-connected employee whose dad is highly-ranked in the CCP (Google "GSK scandal China").

Only one person rules China and can take anything in it, and it is Xi Jinping. If you're trusting him with your money you're in for a very rude awakening.

Lots of people here like talking **** about the EU, US and I'm no fan of either, but looking at history there have been multiple times in which the Chinese government took its investors to the cleaners with an immediate -100% loss.
 

Martin Everson

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The RMB is not a safe heaven as it's a non convertible currency:

I don't think anyone mentioned anything about RMB safe haven. And that is also not why developing countries are adopting it's use in trade.

The moment that RMB is freely convertible it will immediately free fall as normal Chinese will immediately flee to safety of other currencies. The wealthy Chinese are already trying desperately to get money outside of China in any way possible, and into normal, freely convertible currencies.

This won't happen for obvious reasons. A lot of developing countries don't have freely convertible or liberated currencies either so they understand the landscape.

Chinese equities\funds\bonds are also not a safe heaven:
If you think China will treat you fairly just ask Jack Ma, Fan Bingbing and the owners of Tencent\Alibaba how the CCP treats them:

No one said they were. I also never knew equities in general are considered a safe haven. They are the highest form of risk in risk pyramid. China is considered an emerging market and has emerging market risks that are clearly understood. Jack Ma knows how he got to were he is and cant bite the hand that feeds him.

The biggest, most powerful and well-connected Chinese tycoons are being blackmailed, jailed and terrorized like dogs. And not to mention the other risks like VIE risks or just companies that being demolished for no reason just because they got too big, or just because they happen to fire a well-connected employee whose dad is highly-ranked in the CCP (Google "GSK scandal China").

Hummm. But US companies that complain still operate there and sell into that market everyday. Sorry but as a person from a developing country you will find this everywhere in developing countries from China to India, Russia, Indonesia to Nigeria etc etc.

Only one person rules China and can take anything in it, and it is Xi Jinping. If you're trusting him with your money you're in for a very rude awakening.

I think we should have this conversation in 20 years time ;). But EU can also do the same as we are discovering with Russian assets being taken. Fall out of favor and it can happen to anyone anywhere ask about Canadian trucker protest or someone who donated to them what happened to their bank accounts etc.

Lots of people here like talking **** about the EU, US and I'm no fan of either, but looking at history there have been multiple times in which the Chinese government took its investors to the cleaners with an immediate -100% loss.

That's the problem you are looking at history rather than the future. As they say in investment "past performance is no indication of future performance" ;).


Look the hard reality is that you are probably sat there typing on your Chinese made keyboard, with your Chinese made headphones plugged in to you your Chinese made computer wearing Chinese made sneakers and apparel while eating of a Chinese made plate. Without China you would be sat their barefoot and naked typing into thin air with no router to connect to internet while eating of the floor smi(&%.

People can get as mad as they want about Chinese rise but its inevitable as is the fact everything around you will continue to be made in China...lol. When you need to buy from China and they ask for RMB rather than USD in future then adoption will be widespread regardless of your personally feeling about the currency.
 

Silvio

Entrepreneur
Look the hard reality is that you are probably sat there typing on your Chinese made keyboard, with your Chinese made headphones plugged in to you your Chinese made computer wearing Chinese made sneakers and apparel while eating of a Chinese made plate. Without China you would be sat their barefoot and naked typing into thin air with no router to connect to internet while eating of the floor smi(&%.
Few decades ago when the China was a backwater ditch we also had apparels, sneakers and plates. It was just manufactured elsewhere.

Many companies are already leaving China in droves for Vietnam, Mexico, Cambodia and other cheap manufacturing centers as in recent years China became much more hostile to foreigners and foreign companies and the trend is only getting worse (and as a result of the tariffs that are still in play).

"A study by the UBS Evidence Lab found that a staggering 76% of US companies with factories in China were in the process of or considering moving operations to other countries in 2020"

And it's being reported in many other sources:

Look the hard reality is that you are probably sat there typing on your Chinese made keyboard, with your Chinese made headphones plugged in to you your Chinese made computer wearing Chinese made sneakers and apparel while eating of a Chinese made plate. Without China you would be sat their barefoot and naked typing into thin air with no router to connect to internet while eating of the floor smi(&%.

Just for the fun of it I checked and my shoes were made in Vietnam, my phone was made in South Korea\Vietnam and I was happy to see that my laptop was manufactured in Malaysia.
So no, we will not be barefoot without China.

Will definitely be interesting to have this discussion again in 20 years. I think we will definitely see a decoupling of the West from China, but hard to say who will win and how to protect yourself from the fallout.
 

EuroKiss

Entrepreneur
Just for the fun of it I checked and my shoes were made in Vietnam, my phone was made in South Korea\Vietnam and I was happy to see that my laptop was manufactured in Malaysia.
So no, we will not be barefoot without China.
that’s correct, but from factories hold by Chinese companies…
 

Martin Everson

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Will definitely be interesting to have this discussion again in 20 years. I think we will definitely see a decoupling of the West from China, but hard to say who will win and how to protect yourself from the fallout.

Yup definitely will be. We will see what belt and road really looks like by then. Plus China will be world number one economy officially by then. That means only one thing for US. US will go to war economically and politically with China with the rogue province of Taiwan as the excuse ;). Sadly by then China's deep economic ties will mean the collation of the willing will be much much smaller than that against Russia today. It will be some Europeans and US only maybe....lol.
 

khinkali

Silver Member
The moment that RMB is freely convertible it will immediately free fall as normal Chinese will immediately flee to safety of other currencies.

I never took you for a Bitcoin maximalist before!

Seriously though, Russia + Iran + Syria + some others lack the gravity to pull many into their orbit, though India is not insignificant. China has gravity on its own, not just because of its weight but because of its trajectory.

If Washington are crazy enough to push Russia and China together then you have the stans, Pakistan, India and large parts of Africa who have growing relationships with both Russian and China. This is a lot of mass, which starts to pull others in. I did not expect Turkey to switch trade with Russia from USD or EUR to RUB, gold and yuan this early.

Grain, energy, cooking oil and fertiliser importers cannot rely on North America, who will look after their own. EU will have trouble supplying themselves let alone partners. Middle East is pivoting because they see how screwed they are if they shun the East.

If Brazil pivots in the next two months, then @Martin Everson's 20 years timeline for the end of USD hegemony will be more like 20 months.


I weep for the people of Ukraine and I don't blame their President for doing his job to try to defend his country from unjust invasion. That does not excuse the callous positions of the Old World Order, cheerleading conflict and sacrificing the lives of innocents.

1999, 2008, 2014, 2022 - they can pretend that they didn't know. But we know that they did know. And we know thanks to declassified material and Wikileaks:

RUSSIA'S EXPECTATIONS FOR NATO SUMMIT DEPEND ON MAP FOR UKRAINE AND GEORGIA

RUSSIAN ANALYST WARNS OF CONSEQUENCES IF UKRAINE JOINS NATO, SAYS RUSSIANS BELIEVE U.S. HAS HIDDEN AGENDA


Europe’s Defense Wanes as the Putin Threat Grows
 

Martin Everson

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Yup people don't see what China is up to in Africa and South America economically and now Middle East. I think US is making mistake of thinking their values are universal in developing world. They are in for a surprise and what they did to Russia will spur other countries to hedge their bets especially among countries that don't have democracy i.e Saudi and Gulf states etc.




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China overtook Brazil as Argentina’s main trading partner in 2020, with total trade in 2019 valued at around $16 billion. Argentine exports to China represented 42 percent of the balance – fairly strong compared to many other developing countries, particularly because of a bilateral five-year plan for agricultural cooperation.

Argentina has also realized China’s importance when it comes to finance. Thirteen years ago, Argentina agreed to a currency swap deal with China worth just over $10 billion at the time. Argentina was not alone – 22 others including Malaysia and Indonesia also did so around the same time, and since then Nigeria and Sri Lanka have also negotiated swaps. Argentina and China renewed their swap in 2014 and 2017, and this year, in 2022, Argentina secured an increase – making the entire swap now worth $23.7 billion.

The swap entails an agreement between both countries’ central banks, where each country has a local-based account in the other’s currency, enabling the banks to draw funds from the accounts for needs and to repay with interest, including for trade settlement. For China, the swap is helpful in interacting internationally without relying too much on the dollar. For Argentina and others, the swap is similarly helpful for trade but also offers alternative options to International Monetary Fund (IMF) lending and eases foreign reserves. Argentina has experienced several fiscal crises over the years and is due to repay about $3-4 billion to the IMF in the first quarter of 2022, including interest and principal payments. So the recent increase of the China swap helps, and seems likely to continue to grow.


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khinkali

Silver Member
I think US is making mistake of thinking their values are universal in developing world.
If Russia does ultimately call Washington's bluff and turns off the gas to EU at the start of next Winter (which looks increasingly unlikely, given that Western sanctions are largely on Putin's wish list anyway), US might even find their values are not universal in the Western World.

No comment. I shall not be trolled, Sir. ;)
 

Martin Everson

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If Russia does ultimately call Washington's bluff and turns off the gas to EU at the start of next Winter (which looks increasingly unlikely, given that Western sanctions are largely on Putin's wish list anyway), US might even find their values are not universal in the Western World.

lol.


Sadly US does not listen to anyone. They never listened to Saudi's when they said not to invade Iraq and remove a Sunni (Saddam Hussein) as they would hand Iraq to Shia Iran. US ignored that request as they are not taking advice from no Arab and fast forward and Iraq is now part of Iran's sphere of influence :confused:.

The below the Saudi's are learning the hard way.


"To be an enemy of America can be dangerous, but to be a friend is fatal.” - Henry Kissinger
 

Golden Fleece

Entrepreneur
"To be an enemy of America can be dangerous, but to be a friend is fatal.” - Henry Kissinger
You have once again taken this quote out-of-context. Obviously, a Secretary of State for the United States would never say such a thing. The quotation referred to America’s role in Vietnam and, placed in its full and proper context, Kissinger meant that if America did not stand by its friends and allies (in this case, South Vietnam and its President), then it might ultimately be less dangerous to be America’s enemy. So, the quote actually stands for exactly the opposite meaning that you claim. Full quotation:
“Nixon should be told that it is probably an objective of Clifford to depose Thieu (South Vietnamese president Nguyen Van Thieu—ed.) before Nixon is inaugurated. Word should be gotten to Nixon that if Thieu meets the same fate as Diem, the word will go out to the nations of the world that it may be dangerous to be America’s enemy, but to be America’s friend is fatal.”
 
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Martin Everson

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Just waiting for Saudi's meeting with China PM. That will be an interesting state visit with interesting announcements to come ;). Wonder if they will do the Sword dance like they did for Trump smi(&%.


This will all happen after Ramadan. But still waiting on US to put pressure on Saudi's also for moving closure to China.
 
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