Saudi Arabia announced this Tuesday that it is ready to start trading not in US dollar anymore, but in other currencies.
In an interview with Bloomberg TV on Tuesday, finance minister of Saudi Arabia, Mohammed al-Jadaan, said that his country will consider trading in currencies other than the US dollar. “There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal,” al-Jadaan, told Bloomberg in Davos, Switzerland.
Saudi Arabia’s move towards diversifying its choices for currencies in trading and denouncing the US dollar comes a few months after China called for the Kingdom to price oil sales in yuan, a move that could dent the dollar’s dominance.
During his visit to the Persian Gulf countries back in December, Chinese President Xi Jinping told Arab leaders that Beijing would prefer to buy oil and gas in yuan, as it looks to position its currency for use in international trade.
Xi said Beijing would continue to import large quantities of oil from Gulf Arab countries and expand imports of liquefied natural gas, adding that their countries were natural partners who would cooperate further in upstream oil and gas development.
China would also “make full use of the Shanghai Petroleum and National Gas Exchange as a platform to carry out yuan settlement of oil and gas trade,” he said.
The end of dollar dominance closer than ever
For decades since the 1970s, many Persian Gulf states, including Saudi Arabia, have pegged their currency to the US dollar for trade in and out of their borders. This is because from that time to the present, oil sales across the globe are priced in US dollar. In addition, most of Saudi Arabia’s assets and reserves are in dollars including more than $120 billion of US Treasuries that Riyadh holds, and the Saudi riyal, like other Gulf currencies, is pegged to the dollar.
But things are changing as China is growing its economy to even surpass that of the US in the coming years. To read between the lines, China is now the world’s second-largest economy and as estimates suggest, is expected to have ‘significantly higher’ GDP growth potential than the United States by 2035.
As of now, China imports more than a quarter of Saudi Arabia’s crude exports and the bad news for Washington is that the Kingdom is the top country by exports of crude oil in the world. As of August 2022, exports of crude oil in Saudi Arabia was 7,601 thousand barrels per day.
This means that if Saudi Arabia moves toward a “petroyuan”, it could dent the dollar’s status as the world’s reserve currency.
To make matters even worse for Washington, Saudi-US relations are experiencing tensions like never before these days. Saudi Arabia and its Gulf allies, for example, defied US pressure to limit dealings with China and break with fellow OPEC+ oil producer Russia over its invasion of Ukraine.
On the contrary, Riyadh seems to be enjoying a good rapport with Beijing, which could further trouble the United States over how to fix ties with its once-strategic Persian Gulf ally.
“We enjoy a very strategic relationship with China and we enjoy that same strategic relationship with other nations including the US and we want to develop that with Europe and other countries who are willing and able to work with us,” Jadaan also said Tuesday.