Beijing attempts to internationalize the yuan
By Antonio Graceffo
Saudi Arabia is unlikely to accept the Chinese yuan for oil despite strengthening ties with China.
On Dec. 8, Saudi Arabia and China signed an agreement to have Huawei provide the Kingdom with 5G. Protests from the United States regarding national security are being ignored as Saudi Arabia and the Gulf States court the Chinese Communist Party (CCP).
Crown Prince Mohammed bin Salman has made a comeback on the world stage after shaking off the assassination of dissident Saudi journalist Jamal Ahmad Khashoggi. And he had his people roll out the red carpet for his new friend from Beijing—CCP leader Xi Jinping.
The welcome extended to Xi sharply contrasted with the lukewarm meeting with U.S. President Joe Biden in July. Biden’s relationship with Saudi Arabia has been rocky since he took office. Biden began the meeting by fist-bumping the prince rather than shaking hands. This insult came in the wake of Biden’s preelection comment that he would make Saudi Arabia “a pariah state” due to its human rights record.
Biden’s requests for Saudi Arabia to increase oil production and aid efforts to isolate Russia were ignored. However, a joint UAE-Saudi statement claimed that Prince Mohammed and the United Arab Emirates president used their relationship with Russia to secure the release of WNBA player Brittney Griner. At least Biden did not walk away empty-handed.
“The success of the mediation efforts was a reflection of the mutual and solid friendship between their two countries and the United States of America and the Russian Federation,” reads the UAE-Saudi joint statement.
Aside from the fact that Prince Mohammed may have been taking credit for something he had not actually done, the statement was clearly meant as a sign that Saudi Arabia would not abandon Russia to please the United States. Additionally, mentioning Russia and the United States in the same sentence suggests that Saudi Arabia ranks the two relationships equally.
The day after the Huawei deal was signed, Xi delivered the opening remarks at the first China-Gulf Cooperation Council (GCC) summit in Riyadh, where he recommended that Saudi Arabia and the other oil-producing countries begin transacting China’s oil purchases in yuan.
“China will continue to import large quantities of crude oil on a long-term basis from GCC countries and purchase more LNG,” said Xi. He went on to say, “The Shanghai Petroleum and Natural Gas Exchange platform will be fully utilized for RMB settlement in oil and gas trade.”
A man watches the Saudi Arabian Mecca Light Rail (MLR), a China Railway Construction Corporation (CRCC) project, in Saudi Arabia, on Nov. 2, 2010. To date, the light rail has incurred losses amounting to 4.13 billion yuan (US$641.28 million) for the Chinese regime. (Amer Hilabi/AFP/Getty Images)
The Shanghai Petroleum and Natural Gas Exchange platform is a Chinese exchange with a spot pricing index for liquefied natural gas imports, and it’s quoted in U.S. dollars. The Exchange has 10 shareholders, all of whom are state-owned enterprises of the CCP. Established in 2021, the purpose of the exchange was to encourage the internationalization of the yuan and the use of the yuan in the energy sector. So far, there has been very little movement on either front.
Saudi Arabia is the most influential OPEC nation and closest to the United States and China. For years, Xi has been urging the Saudis to accept yuan for oil to break the dollar’s hold on global commodities. Although there has been a lot of fervor in the press suggesting that this was likely to happen, there is no indication so far that Riyadh will go along with Beijing’s proposal.
For more than 40 years, the United States has had an agreement with Saudi Arabia: if Riyadh will price oil in dollars, Washington will provide it with military protection and sell it weapons. So far, no country has agreed to allow Chinese troops to replace U.S. troops on their soil. Consequently, Saudi Arabia needs to maintain its relationship with the United States. The agreement also allows Saudi Arabia to purchase U.S. government bonds (Treasurys) before they go to market. Just like no country wants Chinese troops on their soil, no country is leaping to replace U.S. government bonds with Chinese bonds in their currency reserves. The International Monetary Fund (IMF) and most countries keep less than 3 percent of their reserves in yuan.
Saudi Arabia’s foreign currency reserves mainly consist of U.S. dollars and Treasurys. In total, the Kingdom’s reserves contain $120 billion of U.S. Treasurys. Its national currency, the Saudi riyal, is pegged to the dollar like the currencies of most gulf countries. With oil, foreign currency reserves, and national currency all dependent on dollars, neither Saudi Arabia nor any Gulf nation would benefit from a weak dollar or an influx of yuan.
Like a troubled marriage, the U.S.-Saudi relationship has hit a rough patch. But this has happened before, and in the end, the United States can offer Saudi Arabia security and wealth accumulation—something the CCP cannot. Xi will find out that the red carpet can be used for both entrances and exits.
This article was originally published by the Epoch Times on January 7, 2023
