The German Marshall Fund of the United States

  • Our Organization
    • About GMF
      The German Marshall Fund of the United States (GMF) strengthens transatlantic cooperation on regional, national, and global challenges and opportunities in the spirit of the Marshall Plan.

    Transatlantic Offices

    • Washington, DC
    • Ankara
    • Belgrade
    • Berlin
    • Brussels
    • Bucharest
    • Paris
    • Warsaw
    • Alliance for Securing Democracy
  • Our Work
    • Policy
      GMF provides effective ways forward to solving today’s transatlantic policy issues.
    • Leadership
      GMF programs offer rising leaders dynamic opportunities to hone their leadership skills.
    • Civil Society
      GMF supports civil society by fostering democratic initiatives, rule of law, and regional cooperation.
    • Research
      GMF publications examine the challenges facing the transatlantic region today and offer policy recommendations to address these challenges.
    • Perspectives
      Media, blogs, podcasts, video on the issues shaping the transatlantic relationship.
  • Our Events
    • Major Conferences & Forums
      GMF brings together hundreds of policymakers, elected officials, academics, and business leaders from around the world to discuss topics from energy to migration, economics to security, urban growth to diplomacy.
    • Recent & Upcoming Events
      GMF is committed to bringing the policy community together around transatlantic topics. Learn about events in its offices and other locations around the world.
  • Our Experts
  • Stay Informed
Search
Home
  • Our Experts
  • ABOUT US
  • FOUNDING CHAIRMAN
  • EXPERTS
  • LATEST RESEARCH
  • NEWS&EVENTS
  • PUBLICATIONS
  • SUPPORT CHARHAR

The Charhar Institute

  • About Us

    • About Us
    • Founding Chairman
    • Membership
    • Contact Us
    • Careers
    • Support Charhar
  • Regions

    • All Regions
    • America
    • Europe&Middle East
    • Asia
    • Africa&Latin America
    • Indo-Pacific
  • Topics

    • All Topics
    • Public Diplomacy and International Relations
    • Belt & Road Initiative
    • The Korean Peninsula
    • Economic and Trade
    • Communication
    • Law, Culture and Religion
    • Energy, Safety and Peace
  • Experts

  • Publications

    • All Publications
    • Public Dipmacy Quarterly
    • Other books and reports
    • Charhar Public Diplomacy series
    • Charhar Newsletter
    • Charhar International Relations series
    • Introduction to Public Diplomacy
  • News&Events

    • News&Events
    • Public Diplomacy
    • Peace Studies
    • Belt & Road
    • Charhar News
    • Announcement
    • For Media
Facebook Twitter YouTube Instagram LinkedIn
ForeignAffairs.com
  • ABOUT US
    • About Us
    • Contact Us
    • Careers
  • FOUNDING CHAIRMAN
  • EXPERTS
  • LATEST RESEARCH
  • NEWS&EVENTS
  • PUBLICATIONS
  • SUPPORT CHARHAR

NEWS&EVENTS

Facing challenges, US' IPEF may make the Asia-Pacific economy more...

June 09, 2022

Behind Biden’s Asia Trip

June 09, 2022

US sinks its claws back into Somalia with an eye on China and Russia

May 23, 2022

The Taiwan Question amid Russia-Ukraine Conflict

May 06, 2022

China’s Oil Deal v.s. the Dollar Mar 28, 2022

March 28, 2022

Biden’s Indo-Pacific Foray

February 26, 2022
More

Energy, Safety and Peace

Sudan's 'military-civilian co-governance' dies halfway

November 03, 2021

Human rights standards shall not be monopolized

October 14, 2021

Law, Culture and Religion

Israel's diplomatic breakthrough in Maghreb faces challenges

December 11, 2020

Meng ruling makes Ottawa new front line between Washington and Beijing

May 29, 2020

Communication

He Wenping: Fake news fails in damaging Sino-African ties

January 31, 2019

Resistance from within the White House

September 10, 2018

Economic and Trade

Challenges for the G20 in overcoming the pandemic

November 26, 2020

Liberalization and non-interference by government will clean up Pakistan'...

July 07, 2020

The Korean Peninsula

Su Hao: Tokyo should give ground to resolve tensions with Seoul over ‘comfo...

June 26, 2019

Swaran Singh: Can next U.S.-DPRK meeting be expected?

June 12, 2019

Belt & Road Initiative

China-Africa unity sees friendship of new era

January 05, 2021

Unchangeable Commitment

February 19, 2020

Public Diplomacy and International Relations

The key to peace between Russia and Ukraine CGTN

March 03, 2022

Biden’s first year marked by lows and challenges

March 03, 2022
More

Introduction to Public Diplomacy

Diplomatic Theory and Practice

June 21, 2018

Introduction to Public Diplomacy 2nd Edition

June 20, 2018

Charhar International Relations series

International Public Product: China and the World at the Midst of Revolut...

June 21, 2018

Power and Wealth: Economic Nationalism and International Relationships und...

June 21, 2018

Charhar Newsletter

Charhar Newsletter

August 16, 2018

Charhar Public Diplomacy series

Winning the Chinese Hearts and Souls

June 20, 2018

City Diplomacy: China’s Practice and Foreign Experience

June 20, 2018

Other books and reports

The impotence of conventional arms control

March 25, 2020

How Did Stalin Fall into the “Thucydides Trap”

February 27, 2020

Public Dipmacy Quarterly

Public Diplomacy Quarterly

August 17, 2018
More

China’s Oil Deal v.s. the Dollar Mar 28, 2022

March 28 ,2022

Oil dollar.png

With the outbreak of war between Russia and Ukraine, the rapid rise of oil prices and the exclusion of Russia from the U.S. dollar-dominated SWIFT system, a “de-dollarization” trend seems to be occurring again in oil trading. It poses a challenge to the dollar hegemony around the world.

The Wall Street Journal reported on March 15 that Saudi Arabia is considering pricing its oil deals with China in Chinese yuan rather than in U.S. dollars. I believe this shift by the world’s largest crude oil exporter toward Asia once again will weaken the dollar’s dominant position in the global oil market.

Will the China-Saudi oil deal accelerate the de-dollarization process? What is driving this important change of direction?

First, the Saudi decision reflects its dissatisfaction with U.S. policy in the Middle East. It is interesting to note that Saudi media were not the first to reveal the momentous decision; a U.S. mainstream media outlet was. If the report is true instead of disinformation, it does reflect an important change and development trend in international oil trading.

On one hand, the disclosure by a U.S. media outlet and subsequent analysis seem to reveal a sense of crisis and helplessness on the part of the U.S. with regard to the dollar hegemony. On the other, Saudi Arabia has been tight-lipped to avoid irritating the U.S., as Saudi wants to maintain the warmth of diplomatic relations.

Indeed, talks between Saudi Arabia and China over an oil contract to be priced in yuan started as early as 2016. The six-year negotiation process accelerated significantly this year under U.S. President Joe Biden’s Middle East policy and the recent war between Russia and Ukraine. Biden’s withdrawal of firm support for Saudi Arabia in the Yemen war and the U.S. administration's pursuit of a return to a nuclear deal with Iran have distanced Saudi. This was also the direct reason that Saudi Arabia and the United Arab Emirates refused to pick up Biden’s calls after the outbreak of the war, as neither was willing to pay for the U.S. to suppress international oil prices.

Second, the use of Chinese currency in oil transactions between China and Saudi Arabia is bound to pose a challenge to the U.S. dollar hegemony. As the world’s largest exporter of crude oil, Saudi Arabia has been using dollars to settle its oil trade since an agreement was reached with the U.S. in the 1970s. The dollar has thus established its position as the world’s leading reserve currency.

Over the past decade, however, as the U.S. has become less dependent on oil from Saudi Arabia and other Middle Eastern countries, and as China increases its oil imports from the region, Saudi’s structure of international oil trade and foreign economic cooperation have undergone fundamental changes.

The U.S. imported 2 million barrels a day of Saudi crude around 1990; the figure fell to less than 500,000 barrels toward the end of last year. According to data released by the Chinese General Administration of Customs, China imported 542.39 million tons of crude oil in 2020, 7.3 percent more than in the previous year, making it the world’s largest oil importer, with Saudi Arabia remaining the country’s largest source of crude. China bought more than 25 percent of Saudi oil exports.

In addition to the energy sector, Saudi Arabia and China are increasingly working together in other economic areas, increasing connections between China’s Belt and Road Initiative and Saudi’s Vision 2030, as well as more bilateral cooperation on infrastructure, trade and investment. All of these have objectively expanded the space and potential for the use of Chinese yuan in trade settlement.

Western financial sanctions and the economic blockade of Russia related to the war with Ukraine have also pushed countries dependent on Russian energy (and having good relations with Russia) to de-dollarize trade in oil and other commodities. For example, India recently bought about 15 million barrels of oil from Russia in defiance of U.S. warnings and has been in talks with Russia to settle oil deals in its own currency. The prime minister of Belarus recently said that Russia and Belarus will forego energy supplies paid in dollars and are collaborating on a new oil supply pricing formula. Iraq decided to settle its oil transactions in Euros as early as 2003. Iran, under U.S. sanctions, has been committed to abandoning the dollar for oil settlements.

Finally, even though the dollar hegemony in international oil trade has been shaken, it will not collapse or end in the short term. Since the U.S. dollar was established as an international currency by the United Nations Monetary and Financial Conference in July 1944, its international dominance has been complementary to and co-existing with America’s status as the hegemon of the world. Eighty percent of the world’s oil trade is still settled in dollars. Even though Saudi may settle 25 percent of its oil exports (those to China) in yuan, the remaining 75 percent are settled in U.S. dollars.

Settling oil trade between China and Saudi Arabia in yuan nonetheless helps the internationalization of the Chinese currency.


Author

HE Wenping

Adjunct Senior Fellow

Stay Informed

Don't miss our latest dynamic. Sign up to receive emailed news, events, opinion, and publication notifications.

Subscribe

Follow

  • Twitter
  • Facebook
  • Linkedin
  • Youtube
  • SoundCloud
  • Instagram
Charhar Institute
  • About Us
  • Founding Chairman
  • Experts
  • Latest Research
  • News&Events
  • Publications
  • Support Charhar
  • Careers

 

"The Charhar Institute is committed to promoting progress in China’s foreign policies and the development of international relations in a more orderly manner."
- Dr Han Fangming,Charhar Chairman

CONTACT US

  • Phone:+86 10 68290431
  • Fax:010-80777830
  • Email:secretariat@charhar.org.cn
  • Facebook:The Charhar Institute
  • Twitter:@CharharINST

©2023 Charhar Institute. All rights reserved. Privacy Policy and Terms of Use