Saudi Arabia in talks to accept Chinese yuan for oil

[asher2789]

outside of the existential threat of nuclear annihilation (not quite something I had on my 2020s are the beginning of the end of the world bingo card), this is IMO the most interesting and probably far reaching (for americans) geopolitical development right now. FYI saudi arabia produces 22% of OPECs' oil, and OPEC produces 80% of the world's oil.

from https://dcweekly.org/2022/03/15/saudi-a ... uan-media/:

Top oil producer distances itself from petrodollar hegemony

Saudi Arabia is considering selling some of its oil to China in yuan rather than dollars, people familiar with the matter told the Wall Street Journal on Tuesday, citing “active talks” between Riyadh and Beijing. Such a move could further marginalize the petrodollar paradigm that has controlled the global financial system for over half a century, placing the dollar’s status as the international reserve currency at risk.

China buys over a quarter of the oil exported by Saudi Arabia, meaning that denominating those deals in yuan would significantly boost the international profile of the Chinese currency. Currently, 80% of global oil sales are transacted in dollars, with the Saudis trading exclusively in the US currency since 1974 – when Washington offered Riyadh security guarantees in exchange for its loyalty to the petrodollar system.

a little bit of historic background on what happened in 1974 comes with this choice quote re saudi/US relationship: (from 2016)
In April, Saudi Arabia warned it would start selling as much as $750 billion in Treasuries and other assets if Congress passes a bill allowing the kingdom to be held liable in U.S. courts for the Sept. 11 terrorist attacks, according to the New York Times. The threat comes amid a renewed push by presidential candidates and legislators from both the Democratic and Republican parties to declassify a 28-page section of a 2004 U.S. government report that is believed to detail possible Saudi connections to the attacks. The bill, which passed the Senate on May 17, is now in the House of Representatives. (15/19 hijackers were saudi... but lets bomb afghanistan and iraq back to the stone age! for 20 years!)

also, since i brought up iraq... we decided to go on that military misadventure conveniently after iraq decided it wanted to trade its oil in euros, instead of dollars. (link from 2003)

we also decided to bring our "democracy" via bombs to regime change gaddafi's libya after he proposed rejecting euros and dollars for oil and instead wanted to trade in his currency backed by gold reserves. (link from 2011) funny how we bring "democracy" when our petrodollar is threatened. coincidentally (jk, not) the "arab spring" occurred in countries that agreed to gaddafi's plan to move to a gold-backed currency. in that link, there's a quote by general wesley clark saying this has been planned since 2001... its so brazenly unbelievable saying the quiet part out loud i had to search for it, and it has been well scrubbed from the internet but not entirely.

other countries that switched from dollars to euros to trade oil were venezuela and iran... countries we have sanctioned the sh*t out of and threatened with regime change and war.

see a pattern? the USD is backed by oil, and by extension the US military. threaten the value of the USD by divorcing it from its backing by oil as the petrodollar and risk regime change and/or war. however, is saudi arabia too powerful to overthrow? we shall see...

[easyrider16]

I think saying "the USD is backed by oil" is overselling it. The dollar's reign as the world reserve currency has been slowly eroding for a long time now, with many other countries suggesting we should be using a basket of currencies as the world reserve currency. That said, I doubt the USD is going anywhere any time soon. We still have the strongest economy in the world and until that status drops dramatically, the dollar will likely remain the world reserve currency or at least a major part of it.

But your comments do make a strong argument for why we should be putting a lot more resources into alternative energy. I think that's going to happen naturally in the private market with oil at $100+ per barrel, but I think the government needs to inject funding as well. With all that money we pumped out during the Covid pandemic, I really wish more of it had gone into research and manufacturing of renewable and nuclear energy. But in any case, imagine a world where we didn't have to give a sh!t about oil. It would change the geopolitical landscape entirely. Rouge states like Iran and Russia would lose significant power over us, and we wouldn't have to pretend to like repressive regimes like the one in Saudi Arabia.

I think getting off oil could be one of the most strategically important things the USA could do right now, and we should all be supporting it in a bipartisan manner. Right-wingers should support it for the strategic and geopolitical value, and left-wingers should support it because they care about the environment. It's a win-win for everyone.

[Bubba]

Let's get oil production numbers right before anything else.

World oil production is roughly 80 MBD (million barrels per day)
OPEC produces roughly 29 MBD of which Saudi Arabia pumps 10 - 11 MBD and peaks around 12 MBD
US production is currently 11+ MBD and was as high as 13 MBD pre-pandemic. It bottomed at 9 MBD following the economic shutdown.

Crude reserves do not equal crude production and should not be confused.

[easyrider16]

By the way, when foreign countries threaten to sell their US treasury holdings, they are usually making an empty threat. First off, if the action does succeed in harming the US economically, it also harms the country selling the treasuries, because their own holdings will decrease in value as they sell. Holdings of that magnitude can't be disposed of overnight. Second, few countries own enough US treasuries to even make a difference by selling. Third, even if a country like China that does hold enough to make a difference decided to dump their treasuries despite the injury to their own economy, our own federal reserve could take measures to counteract the effect.

In short, as economic weapons go, selling treasuries is pretty weak, at least so long as the US market remains as large and strong as it is today.