Saudi and Chinese officials are currently in talks to price some of the Gulf state's oil sales in yuan rather than dollars or euros. This was first reported by The Wall Street Journal on Tuesday (15/3/2022), citing people familiar with the matter.
The two countries have been discussing the issue for six years, but talks are reported to have escalated in 2022.
Reportedly, Riyadh is dissatisfied with the United States' nuclear negotiations with Iran and the lack of support for Saudi Arabia's military operations in neighboring Yemen.
Still citing the WSJ, nearly 80% of global oil sales are priced in dollars, and since the mid-1970s the Saudis have exclusively used dollars to trade oil as part of security agreements with the US government.
The talks are the latest in ongoing efforts by Beijing to both make its currency tradable on international oil markets and strengthen its relationship with the Saudis in particular.
China previously assisted Riyadh in ballistic missile development and consultations on nuclear power.
On the other hand, the relationship between Saudi Arabia and the US has been strained in recent years. Crown Prince Mohammed bin Salman initially displayed a public image as a reformer, liberalizing state policies on women's rights and criminal justice.
However, the 2018 killing of journalist Jamal Khashoggi was catastrophic for relations between the crown prince and Washington.
Meanwhile, Middle East Eye reported, while many analysts doubted China's desire to replace the US as the guarantor of regional security, economic relations between Beijing and Riyadh have grown.
China is the kingdom's biggest trading partner, mainly because it purchases 25% of all of Riyadh's oil exports.
According to data from the China Global Investment Tracker run by the American Enterprise Institute, Saudi Arabia is also a key pillar of China's Belt and Road infrastructure initiative and ranks among the top three countries globally for Chinese construction projects.
The move to transact oil with China in yuan would mark a major turnaround for the oil market, where 80% of sales are made in dollars. All Saudi Arabia sales are exclusively in dollars.
This will help China's efforts to convince more countries and international investors to transact in its currency.
The US dollar has dominated the global financial system as a medium of exchange since the Second World War. Apart from allowing the US to print treasury papers and sell its debt globally, the supremacy of the dollar is a major reason why the US has been able to impose strong sanctions on countries like Russia and Iran, cutting them off from international financial transactions.
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