Since the United States enforced sanctions against Russia, the dollar is perceived as an unreliable trading currency. Countries are increasingly moving away from the dollar as the global reserve currency. China has delivered another blow to the dollar’s standing as a reserve currency by permitting oil and natural gas to be exchanged in yuan. However, it must be determined whether or not this move to Yuan trading will take place soon.
One of the cornerstones of the global financial system over the past four decades has been one that is based on the petrodollar. This has been an essential component in keeping the reserve position of the dollar stable. The money that is gained by oil-producing countries through the export of oil is referred to as petrodollars. These nations frequently invest a sizeable amount of their petrodollars in the bonds issued by the United States Treasury, contributing to the sustained strong demand for US dollars. This, in turn, contributes to the maintenance of the standing of the dollar as a reserve currency. The United States’ position as the uncontested financial superpower of the world would be bolstered as a result of all of these developments. Yuan now challenges this phenomenon.
During his trip to Riyadh this week, China’s president Xi Jinping stated that the Shanghai Petroleum and Natural Gas Exchange would be “completely employed in renminbi (RMB) settlement for oil and gas trade.” Most commodities, such as crude oil, are traded in US dollars. The renminbi trade is one of several “key areas” in which China is prepared to collaborate with Gulf nations over the next three to five years.
According to a transcript of Xi’s December 10 speech published in the China Daily, China will continue to import substantial amounts of crude oil from Gulf Cooperation Council (GCC) nations long-term and purchase additional LNG. The comments were made on December 9. It is unclear whether any Gulf Cooperation Council countries are exploring a transition from dollars to yuan. The GCC comprises Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, and the UAE.
Xi stated that China would increase its cooperation with the GCC in the upstream sector, engineering services, and oil and gas storage, transportation, and refining.
According to Chinese customs data, Saudi Arabia delivered 1.76 million b/d of petroleum to China from January to August of this year, increasing its market share in the world’s largest crude importer to 17.7% from 16.6% a year earlier despite the volume declining 0.3% year on year.
China has also made significant strides in the Gulf countries’ renewable energy sector through the sale of solar components, Xi noted in his talk. Other priority areas he listed included advancements in financial and investment cooperation, expansion into sectors like innovation, science and technology collaboration, aeronautical cooperation, and linguistic and cultural cooperation.
First and foremost on his list of goals was an “all-dimensional energy collaboration.”
According to him, both parties will cooperate more closely on developing environmentally friendly and low-carbon technologies, such as hydrogen, energy storage, wind and photovoltaic power, intelligent power grids, and the localised manufacture of new energy equipment.
In addition, he stated that China and the GCC would work together to construct a forum for the peaceful application of nuclear technology and a demonstration centre for nuclear security.
Saudi Arabia has stated that it will install approximately 17 GW of nuclear capacity by 2040 and has aspirations to put online two reactors with a combined total of 3.2 GW during the next decade.
The kingdom has been in talks with China to develop nuclear technology and previously held talks with the United States during the administration of former President Donald Trump to get a so-called “123 agreement” that would allow it to obtain technology from the United States. The deal would restrict uranium enrichment for military uses.
The United Arab Emirates is the only Arab country with nuclear power reactors.
Joint deals in the Downstream sector
China and Saudi Arabia have also been exploring options for collaborative ventures in the downstream crude industry. The Middle Eastern nation sees vast potential for developing diverse chemical product lines.
Saudi Arabia intends to convert approximately 4 million barrels per day of its petroleum into chemicals as part of a strategy shift from selling crude to selling more complicated, less carbon-intensive products.
During Xi’s visit, Saudi Aramco and Shandong Energy struck an agreement to investigate integrated refining and petrochemicals potential in China, the companies announced in a joint statement on December 9.
Aramco, the largest oil exporter in the world, will investigate the possibility of a crude supply arrangement and a chemicals offtake agreement, which would result in the construction of a downstream hub in the eastern Shandong province.
Li Wei, chairman of Shandong Energy Group, stated that the two sides have an extensive possibility for collaboration, particularly in oil and gas resources development and integrated refining and petrochemicals growth along the entire industrial chain.