Oil deal tries to dent the dollar’s dominance
Saudi Arabia has agreed to pump more oil (see page 12) but it is also in “active talks” with Beijing “to price some of its oil sales to China in yuan”, say Summer Said and Stephen Kalin in The Wall Street Journal. Such a move would “dent” the dollar’s dominance of the global petroleum market and mark “another shift by the world’s top crude exporter toward Asia”. The Saudis have traded oil “exclusively in dollars” since a 1974 deal with the Nixon administration that gave them security guarantees.
Today, around 80% of global oil sales are in dollars and that bolsters the greenback’s status along with US geopolitical influence, say Srinivasan Sivabalan and Netty Idayu Ismail on Bloomberg. Still, the Saudis may be bluffing: the kingdom has fallen out with US over various issues including the Iran nuclear deal (see page 8) and the murder of journalist Jamal Khashoggi by Saudi agents in Turkey in 2018. Since the riyal is pegged to the dollar, any dollar weakness would also threaten an arrangement that has protected it from price volatility and allowed its central bank to accumulate reserves.
However, the yuan would be a poor substitute, says Simon Nixon in The Times. The slow internationalisation of the currency took a hit in 2020 when China “ripped up the ‘one country, two systems’ agreement that underpinned Hong Kong’s status as a global financial centre”. Still, “no one should underestimate Beijing’s desire” to escape the “trap” of dollar dependence, or forget that other countries also want to erode the “exorbitant privilege” of dollar supremacy, which lets the US borrow cheaply to “fund western security”.