Here's Why The Saudi's Wouldn't Take Biden's Call
Joe Biden continues to worth with Russia to hammer out terms to bring back Obama's failed Iran Nuclear Deal. This time around, it could cost the world dearly. The Saudis fault the United States for not actively supporting its campaign in the Yemeni civil war and for pursuing a nuclear deal with Iran. China has also worked to gain influence in the kingdom in recent years, and Beijing hopes to promote the use of its currency globally and secure protection from U.S. sanctions by convincing Saudi Arabia to price oil in yuan.
If the Saudis sell their oil exports to China in yuan, it would transform the state of the foreign exchange market. China accounts for over a quarter of Saudi Arabia's oil exports, equivalent to tens of billions of dollars every year.
China buys more than 25% of the oil that Saudi Arabia exports, and if priced in yuan, those sales would boost the standing of China’s currency, and set the Chinese currency on a path to becoming a global petroyuan reserve currency.
As even the WSJ admits, a shift to a (petro)yuan system, "would be a profound shift for Saudi Arabia to price even some of its roughly 6.2 million barrels of day of crude exports in anything other than dollars" as the majority of global oil sales—around 80%—are done in dollars, and the Saudis have traded oil exclusively in dollars since 1974, in a deal with the Nixon administration that included security guarantees for the kingdom. It appears that the Saudis no longer care much about US "security guarantees" and instead are switching their allegiance to China.
According to OilPrice.com, Saudis plan to do most oil transactions in dollars, but the transition has begun, and the move could tempt other producers to price their Chinese exports in yuan as well. China’s other big sources of oil are Russia, Angola, and Iraq.
“The oil market, and by extension the entire global commodities market, is the insurance policy of the status of the dollar as reserve currency,” said economist Gal Luft, co-director of the Washington-based Institute for the Analysis of Global Security who co-wrote a book about de-dollarization. “If that block is taken out of the wall, the wall will begin to collapse.”
If the Suadis do this and other countries follow, it could change the order of the world completely.
Petrodollars are U.S. dollars paid to an oil-exporting country for the sale of the commodity. Put simply, the petrodollar system is an exchange of oil for U.S. dollars between countries that buy oil and those that produce it.
The petrodollar was the result of the oil crisis in the mid-1970s when prices spiked to record levels. It helped increase the stability of oil prices denominated in U.S. dollars.