Saudi Arabia Considers Using Yuan in Oil Transactions: A New Challenge for the U.S. Dollar

A senior official from Saudi Arabia, a key member of the Organization of the Petroleum Exporting Countries (OPEC), stated that the country is open to exploring new ideas in oil trade, including the use of the Chinese yuan in oil transactions. This move could pose new challenges to the U.S. dollar’s dominance in the global oil market.

ns dominant in oil transactions. The increasing use of the yuan is seen as a challenge to the greenback's status as the world's reserve currency.

The yuan's usage has surged following Western sanctions on Russia. Moreover, in November 2023, China and Saudi Arabia signed a three-year currency swap agreement worth 50 billion yuan (equivalent to $7.1 billion), boosting trade between the two nations and increasing the yuan's presence in international transactions.

The widespread use of the U.S. dollar in oil transactions has long been a pillar of the greenback's global dominance. Al-Khorayef also highlighted that Saudi Arabia's policy maintains a stable exchange rate between the riyal and the dollar, ensuring stability and providing investors with a hedge against currency risks.

While the Saudi government has expressed a positive outlook on the yuan’s use, Al-Khorayef did not specify a timeline for when this might materialize. In 2023, China was Saudi Arabia’s second-largest oil importer, though its purchases fell by 1.8% from the previous year to 86 million tons. In contrast, China imported 107 million tons of oil from Russia, securing a larger market share.

The cooperation between China and Saudi Arabia extends beyond oil. The two countries are strengthening ties in various economic sectors. Chinese tech giant Huawei has opened a cloud data center in Saudi Arabia and is advising the nation on automation projects. Additionally, Saudi Arabia's General Authority of Civil Aviation signed a memorandum of understanding with China’s aircraft manufacturer Comac to develop a domestic aviation supply chain.

Saudi Arabia is also pushing forward with mineral exploration projects under a $182 million program to tap into significant reserves of phosphate, gold, copper, and bauxite. Expanding the mining industry is part of the Gulf nation’s efforts to diversify its economy and reduce its reliance on oil.

As tensions between the U.S. and China continue, many Chinese companies have found opportunities to expand in the Middle East. Al-Khorayef predicts further collaboration between China and Saudi Arabia, particularly in areas such as renewable energy, electric vehicles, smart cities, and robotics.

The use of the yuan in oil transactions could not only boost China’s economy but also lead to significant changes in the global financial system, particularly regarding the future influence of the U.S. dollar.