A Sino-Saudi Attack on the dollar

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Earlier today, I noted that the Saudis have signaled unhappiness with the Biden administration's pursuit of a deal with Iran by opening up to China. The Wall Street Journal reports that the Saudis may have a bigger signal in mind than first thought. Rather than stick to the dollar for its oil exports, the Saudis have begun negotiating with Beijing on a deal that would allow China to use its yuan instead — an opening gambit that could put a big dent in the dollar's standing as a reserve currency

Saudi Arabia is in active talks with Beijing to price some of its oil sales to China in yuan, people familiar with the matter said, a move that would dent the U.S. dollar's dominance of the global petroleum market and mark another shift by the world's top crude exporter toward Asia.

The talks with China over yuan-priced oil contracts have been off and on for six years but have accelerated this year as the Saudis have grown increasingly unhappy with decades-old U.S. security commitments to defend the kingdom, the people said.

The Saudis are angry over the U.S.'s lack of support for their intervention in the Yemen civil war, and over the Biden administration's attempt to strike a deal with Iran over its nuclear program. Saudi officials have said they were shocked by the precipitous U.S. withdrawal from Afghanistan last year.

China buys more than 25% of the oil that Saudi Arabia exports. If priced in yuan, those sales would boost the standing of China's currency. The Saudis are also considering including yuan-denominated futures contracts, known as the petroyuan, in the pricing model of Saudi Arabian Oil Co. , known as Aramco.

It would be a profound shift for Saudi Arabia to price even some of its roughly 6.2 million barrels of day of crude exports in anything other than dollars. The majority of global oil sales—around 80%—are done in dollars, and the Saudis have traded oil exclusively in dollars since 1974, in a deal with the Nixon administration that included security guarantees for the kingdom.

This isn't an energy problem, so it can't be fixed by rapidly increasing American production — at least not directly. This is a diplomatic and strategic issue, one that Joe Biden's pursuit of a renewed JCPOA deal with Iran has exacerbated, if not almost entirely created.

Hot Air quoting the WSJ

[BrianP.]

And Russia is leading the negotiations. What could go wrong? One article I read said the Iranians won't even sit with the American delegation.

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And Russia is leading the negotiations. What could go wrong? One article I read said the Iranians won't even sit with the American delegation.

They were more than happy to accept the pallet loads of $100 bills Obama air freighted to them