In a move that would lessen the U.S. dollar's dominance of the global petroleum market, Saudi Arabia is talking with China about pricing oil sales to Beijing in yuan, The Wall Street Journal reported.
The move, which WSJ learned from people familiar with the situation, would mark another shift by the world's top crude exporter toward Asia.
"The dynamics have dramatically changed," one Saudi official told WSJ. "The U.S. relationship with the Saudis has changed; China is the world’s biggest crude importer and they are offering many lucrative incentives to the kingdom.
In fact, the source said, "China has been offering everything you could possibly imagine to the kingdom."
A senior U.S. official told WSJ that the idea of the Saudis selling oil to China in yuan was "highly volatile and aggressive” and "not very likely."
Although Saudi Arabia-China discussions about yuan-priced oil contracts have been intermittent for six years, they've intensified this year as the Saudis have become disenchanted with U.S. security commitments to defend the kingdom, WSJ reported.
The Saudis are angry over the lack of American 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, WSJ said.
Also, Saudi officials were shocked by President Joe Biden's withdrawal of U.S. troops from Afghanistan last year, and they remember that then-candidate Biden in 2020 said the kingdom should be a "pariah" for the killing of Saudi journalist Jamal Khashoggi in 2018.
China, meanwhile, has helped Saudi Arabia build its own ballistic missiles, consulted on a nuclear program, and begun investing in Crown Prince Mohammed bin Salman’s pet projects, such as Neom, a futuristic new city, WSJ reported.
Beijing purchases more than 25% of the oil that Saudi Arabia exports, and those sales being priced in yuan would boost the standing of China's currency.
Crude oil prices, impacted by Russia's unprovoked attack on Ukraine, are up by roughly a third for 2022 so far. A barrel of U.S. oil slid 5.8% Monday to settle at $103.01. Brent crude, the international standard, fell 5.1% to settle at $106.90.
"Crude oil is going to move in this pretty wide range until we get more clarity on Ukraine," Jay Hatfield, CEO of Infrastructure Capital Advisors, told The Associated Press.
Nearly 80% of global oil sales are done in dollars. The Saudis, who export 6.2 million barrels of crude daily, have traded oil exclusively in dollars since 1974, when they struck a deal that included security guarantees from the Nixon administration.
Beijing introduced yuan-priced oil contracts in 2018 but China hasn't made a dent in the dollar's dominance of the oil market.
WSJ reported that China using dollars "has become a hazard" in light of U.S. sanctions on Iran over its nuclear program and on Russia following its invasion into Ukraine.
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