The U.S.’s decision to weaponise the dollar in the form of sanctions in the wake of the war in Ukraine has led to increasing conversations about a move away from the U.S. petrodollar.
The petrodollar system is essentially the global practice of exchanging oil for U.S. dollars rather than any other currency. This means that no matter what country buys the oil, they pay the oil-producing country in U.S. dollars.
For the U.S., this gives them huge power, as restrictions to the dollar have the potential to cause energy insecurity for a nation.
The recent banking crises in the U.S. have led to further questions about the dollar’s potential to destabilise the global economy.
The world’s largest oil exporter, Saudi Arabia, is reportedly increasingly open to accepting oil contracts denominated in Chinese yuan instead of dollars.
The people said that the talks with China over yuan-priced oil contracts have been taking place for six years but gathered momentum this year as the Saudis have grown increasingly unhappy with decades-old U.S. security commitments to defend the kingdom.
The Saudis are said to be frustrated with the U.S.’s lack of support for their intervention in the Yemen civil war and the Biden administration’s attempt to strike a deal with Iran over its nuclear program.
China currently 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 and, in turn, put a large dent into the dollar’s strength.