The first China-UAE gas deal in yuan: A new blow to dollar dominance

April 06 2023

Chinese allies control 40 percent of OPEC+ oil reserves, and the GCC controls another 40 percent. With this China-UAE gas trade settled in yuan, the petrodollar today is under serious threat.

Photo Credit: The Cradle

ByA Cradle Correspondent

On 28 March, the Shanghai Petroleum and Natural Gas Exchange (SHPGX) made history by announcing the first-ever deal on importing 65,000 tons of liquefied natural gas (LNG) from the UAE, settled in the Chinese yuan currency. China National Offshore Oil Company (CNOOC) and French TotalEnergies finalized the transaction, and TotalEnergies confirmed that the LNG imported was from the Persian Gulf state.

China’s Global Times in a report the following day, cited the chairman of the SHPGX, Guo Xu as saying that the deal is:

“A meaningful attempt to promote multi-currency pricing, settlement and cross-border payment in international LNG trading. It also provides a new channel for international players to participate in the Chinese market, helping to build a new pattern of dual circulation in China.”

Beijing pushes yuan for energy trade

The yuan settlement of international LNG trading is a “major event in China’s market-oriented oil and gas reform, which will help promote the docking of international and domestic markets,” the report quoted experts as saying.

The development comes after Chinese President Xi Jinping announced in December 2022, during a landmark visit to Riyadh, that his country should make “full use” of the SHPGX as a platform to carry out yuan settlement of oil and gas trade.

This deal represents a departure from the decades-long practice of conducting global oil sales exclusively in US dollars. A prominent economist, who spoke to The Cradle, speculated that “the French either resorted to the yuan due to the acute shortage of Russian gas supplies to the European continent, or they have reserves in the Chinese currency that they want to use.”

The deal came as a surprise, as French President Emmanuel Macron typically does not take such steps without the approval of the US. As for the UAE, the move is part of a larger trend of Persian Gulf countries opening up to China in the aftermath of the US withdrawal from Afghanistan and the Biden administration’s shift in regional policies.

The yuan payment also follows the global polarization taking place over the Ukraine war and further demonstrates the reluctance of Persian Gulf states to align with western hostility toward Russia, China, and other US adversaries. According to the same economist, “The Emirati move cannot be separated from the changes taking place in the world. Abu Dhabi and Riyadh sense the global imbalance of power, and decided to expand the margins of their international relations.”

Yuan’s growing acceptance

Given the current global geopolitical shifts, the yuan is gaining increased acceptance as an international currency. Since President Xi Jinping assumed office, China has settled agreements with several countries in its local currency in an attempt to challenge the dominance of the US dollar in global trade.

As a result, the yuan has become the world’s fifth-largest payment currency, the third-largest currency in trade settlement, and the fifth-largest reserve currency. According to the Global Times, the yuan today accounts for 7 percent of all foreign exchange trades worldwide and has experienced the most significant expansion in currency market share over the past three years.

Experts have noted that “with the recovery of the momentum of China’s economic growth and the further opening of the financial market, the investment and hedging function of the yuan has gradually increased.”

In an article earlier this year for The Cradle, Pakistani analyst F. M. Shakil cited the Currency Composition of Official Foreign Exchange Reserves (COFER) report by the International Monetary Fund (IMF), which shows that:

“The percentage of US dollars in central bank reserves has decreased by 12 percent since 1999, while the percentage of other currencies, particularly the Chinese yuan, have shown an increasing trend with a 9 percent rise during this period.”

Shakil also noted that the “cumulative cross-border yuan settlement handled in Xinjiang (western China), the financial hub between China and Central Asia, exceeded 100 billion yuan ($14 billion) as early as 2013 and reached 260 billion yuan in 2018.”

He concluded that “dollar reserves are dwindling and the influence of the United States of America is receding in the global economy, which represents an opportunity for regional powers’ currencies and alternative payment systems.”

Rise of the petroyuan

Since 2009, Beijing has implemented a policy to reduce its reliance on the US dollar in commercial transactions. This policy includes settling the majority of its goods in foreign markets in its local currency, establishing mutual lines of credit with several central banks worldwide, and negotiating with West Asian and North African countries to conduct trade using the yuan. These efforts have started to show results recently, with a number of Asian governments partially adopting the Chinese currency.

Iraq is one of the countries that have partially adopted the yuan in trade. In February, the Iraqi Central Bank announced plans to allow direct settlement of trade from China in yuan to improve access to foreign currency and compensate for the dollar shortage in local markets, largely due to measures imposed by the Federal Reserve on money transfers leaving Iraq to prevent them from reaching Tehran and Damascus. Egypt also announced its intention to issue yuan bonds last August.

Russia has played a significant role in changing the course of the yuan by signing the Eastern Natural Gas Pipeline Agreement from Russia to China and converting the currencies of gas payments from the US dollar to the Chinese yuan and the Russian ruble.

According to the latest data from the Russian Central Bank, the yuan has become a major player in Russia’s foreign trade, with its share of import settlements increasing from just 4 percent in January 2022 to 23 percent by the end of the year. The yuan’s share of exports rose from 0.5 percent to 16 percent in the same period.

During his trip to Saudi Arabia, the Chinese president encouraged Gulf Cooperation Council (GCC) countries to use the SHPGX for yuan-based energy deals. The visit also saw China and Saudi Arabia sign over $30 billion in trade deals, which some analysts believe marks the rise of the petroyuan.

According to US-based Credit Suisse analyst Zoltan Pozsar, Russia, Iran, and Venezuela – all allies of China – account for 40 percent of OPEC+’s proven oil reserves, with the GCC making up another 40 percent. If these three states alone settle their energy exports in yuan, the petroyuan is here to stay.

A response to US policy 

In a January interview with Bloomberg, during the World Economic Forum in Davos, Saudi Finance Minister Mohammed al-Jadaan said that “the kingdom is open to trading in currencies other than the US dollar in order to improve trade.”

Interestingly, despite being a stalwart US ally for decades, Riyadh is deepening its ties with key trading partners, including Beijing, as China imported over 500 million tons of crude oil and over 100 million tons of natural gas, including 63.44 million tons of LNG, in 2022.

Middle East Briefing suggests that this shift towards national currencies in global trade “is partly due to Washington’s sanctions policy against Russia.” Riyadh is now “following an increasing trend of hedging against US dollar use in trade” amid concerns that the US may use its currency as a weapon for trade and sanctions.

The trend towards using national currencies in global trade chains has continued to mature, with recent developments, including the announcement of two large-scale investment plans in China by Saudi oil giant Aramco.

The first plan involves building an integrated refining and chemicals plant in Liaoning Province, while the second plan involves Aramco’s acquisition of 10 percent of the shares of Rongsheng Petrochemical Company.

Meanwhile, the emirate of Dubai has opened its door to dealing in the Chinese currency in its global financial center, and Brazil and China have agreed to ditch the dollar and use their local currencies in their commercial dealings. In addition, Brazil and Argentina have announced the start of work on launching a common currency in their commercial dealings, dubbed “Sur.”

The petrodollar under threat

Petrodollars refer to US dollars used to purchase crude oil following a 1974 deal struck between Washington and Riyadh. The agreement not only ensured the military defense of the kingdom through US guarantees but also secured a steady stream of foreign purchases of US Treasury bonds and debt, which is a strategy of recycling the petrodollars back to Washington through Saudi Arabia’s reserves.

This transformed the ability of oil-rich Arab states to weaponize their vast energy resources against malign western policies – into a powerful economic weapon for the Americans, who, overnight, became the masters of the oil market. Today, however, with China’s rapid steps to challenge this entrenched system, there is a global spotlight on the rise of the Petroyuan versus the decline of the Petrodollar.

Asia Financial describes China’s deal with TotalEnergies as a “step forward in China’s long-term battle to reduce the power and reach of US dollar hegemony,” adding that “further such moves appear to be in the winds.” Importantly, according to Viktor Katona, lead crude analyst at Kpler:

“While the dollar will likely remain the dominant global currency in the near future, the rise of a so-called petroyuan will gain momentum as China leverages its status as the world’s largest oil importer.”

Saudi Arabia is reportedly considering accepting payment for its oil exports to China in yuan. However, any such shift is likely to be marginal, as most West Asian currencies are pegged to the US dollar, and accepting payments in other currencies increases foreign exchange risk.

Researcher P.S. Srinivas opined last year that oil deals with countries in West Asia “do not constitute a threat to the US dollar,” and the likelihood of the yuan replacing the US dollar as the benchmark currency for pricing is even more remote due to China’s capital controls and the yuan’s lack of convertibility.

While the possibility of the yuan gaining greater prominence in the global oil trade cannot be ruled out, it is unlikely to replace the US dollar as the primary currency for pricing in the oil and gas industry in the short term.

Most West Asian nations continue to maintain a vested interest in preserving the strength of the dollar, and any shift towards accepting payments in other currencies is likely to be minimal, at first. In the next few years, it will be important to keep an eye on China’s slow but steady ascent to global economic dominance and the growing usage of the yuan in international trade.

The views expressed in this article do not necessarily reflect those of The Cradle.

A footnote

13 Sep 2022 16:32

Source: Al Mayadeen English

Bouthaina Shaaban 

Because they cannot stop igniting wars in one part of the globe or another, that is the most pending danger NATO countries constitute to the welfare of human beings everywhere. 

Professor John Mearsheimer said the war in Ukraine will be a footnote in the history books written about the world changes this war has triggered. This remark may provide the best explanation of the huge noise the NATO countries have made about providing Ukraine with more sophisticated armaments and with billions of dollars in order to prevent a Russian victory. It also explains the big media campaign led by the West about the so-called advance made by the Ukrainian army against the Russians in Kharkov area. The press conference by NATO Secretary General, Jens Stoltenberg, and the US Secretary of State, Antony J. Blinken, has to be seen and understood in light of the dire economic crisis which is biting into Europe. 

Despite the iron fist laid on Western media, it is an open secret today that the sanctions imposed by the West against Russia have backfired on the West itself, and it has become clear that Western people are the ones suffering because of these sanctions, and not the Russian people as the western governments planned. In addition, the Eastern rapprochement between China and Russia is treading fast steps toward an alliance, and the Shanghai organization is attracting more member states, which in a short while, will become one of the most important world alliances that NATO countries do not want to see at all. Both China and Russia have announced that their future dealings and trade are going to be in Yuans and Rubles, which will start to weaken the dollar and shake its world status. 

During the week and contrary to the expectations of Western media, the Chinese President, Xi Jinping, announced that he is going to Kazakhstan for a Shanghai meeting with the aim of meeting with President Putin. Every time these two leaders meet, they add another brick to the fortified base of their alliance whose grand announced aim is to change the world system into a multipolar system after getting rid of Western hegemony once and for all.

Of course, western experts and planners know all this and dread it, but instead of mentioning it or trying to address it in the real world, these jumped to the domain that they know best; i.e. the military claiming to their audiences that “Ukrainian forces have been able to stall Moscow offensive in the Donbass strike back behind Russian lines and retake territory.” On this narrative, they built the argument that NATO countries should send more support to Ukraine, with more billions of dollars and with the most sophisticated arms. Their imagination was set free to imagine that this is a very important moment for the Ukrainian people and army, and we should support them in order to prevent a Russian victory in Ukraine, as per their illusions.

First, there is no doubt that the press conference and all the media fever that came in its aftermath hailing progress made by Ukrainian forces against Russian forces was meant to change the focus of the Western people’s attention from the horrible consequences of the war on Ukraine on their daily lives and to stop the masses from taking to the streets to forcefully object to these policies, which proved to be disastrous to most of them.

Second, NATO countries have a history of supporting wars that have nothing to do with their geography or history. They now claim that they have to send hundreds of thousands of soldiers to protect the Eastern borders of NATO. What about Afghanistan, Iraq, and Syria; are those also bordering NATO, or threatening its power? And what about Taiwan now; is it on the borders of NATO too?

The history of these countries proves without a shadow of a doubt that the military industry is at the core of its survival and continuity, and that is why they cannot survive and keep their hegemony over the world without this industry being well and prosperous, knowing that for this industry to be well and prosperous, it can only feed on wars. That is why they cannot stop igniting wars in one part of the globe or another, and that is the most pending danger NATO countries constitute to the welfare of human beings everywhere. 

What we have to remember is that we are dealing with two different worlds, two different systems of thinking, two different histories, and two very different objectives. The West, which has subjugated and colonized many countries across the world over centuries, has perfected the usage of media and psychological wars to keep people as its subject. Throughout history, Western colonial powers gave no thought to civilian casualties. A reminder of the answer of Madeleine Albright about millions of Iraqi children being killed; she said, “But it was worth it,” whereas Eastern powers represented by Russia in this war pay so much attention to avoiding unnecessary loss of civilian lives. They change their plans and their tactics if they can save lives in their military or on the adversary’s civilian lives. In fact, the Eastern attitude always believes in taking time. They are not in a hurry, and they do not rush to launch a media or psychological campaign because their objectives are far-reaching and by far nobler than those of the party whose main concern is to sell arms and accumulate more capital. 

For those reasons and many others unlisted here, we have to take the Hollywood postures made by the NATO Secretary-General and the US Secretary of State with a huge pinch of salt. Their major aim was to divert attention from the huge disaster they have created to their people through this uncalculated and misconceived adventure. It would have been much wiser and historically correct to review their decisions and decide whether they should continue in this futile endeavor or acknowledge the new realities on the ground born from the rise of the East and its determination, supported by the majority of people on Earth, to put an end to Western hegemony and remap the world on the basis of equal integrity and mutual respect. This may take a bit more time than what most people desire, but the train has left the station and it will undoubtedly reach its abode. The rest are insignificant details that no one will mention in the future.

The opinions mentioned in this article do not necessarily reflect the opinion of Al mayadeen, but rather express the opinion of its writer exclusively.

• 40 Yearstyty on The Sabra-Shatila Massacre: West Complicit in ’Israeli’ Crimes against Humanity
• The World Today
• United Russia leader vows victory in Ukraine amid projected boost

Four signs that a US-Gulf ‘divorce’ is in the making

The rapid-fire ‘messages’ directed at Washington from old Persian Gulf allies are brutal, and strongly suggest that the days of US hegemony are done

March 20 2022

In all the geopolitical salvos issued left and right last week, nothing was less expected than the visit of Syrian President Bashar Al-Assad to the UAE. It is a strong sign of the Persian Gulf’s dissatisfaction with its US ally.Photo Credit: The Cradle

By Abdel Bari Atwan

If any good has come out of the Ukraine war for the Arab world, it is the diminished status and influence of the US in West Asia. Washington is losing many of its traditional allies in the region, especially in the Persian Gulf, and this trend looks like it will accelerate.

Four recent developments illustrate this.

First, Syrian President Bashar al-Assad’s visit to the UAE on Friday. The warm welcome laid on for him by its leaders was a slap in the face of the US administration, its strongly stated objections to the visit, and its sanctions aimed at de-legitimizing the Syrian government.

Second, the growing defiance of US hegemony by Saudi Arabia and the UAE, OPEC’s two largest oil producers. Most notable was their rejection of US President Joe Biden’s pleas to increase oil production in order to push down prices and provide extra supplies to enable western sanctions of Russian oil and gas imports.

Third, the failure of British Prime Minister Boris Johnson’s visit – on Washington’s behalf – to Abu Dhabi and Riyadh, where he conveyed veiled threats to the two countries should they fail to toe the western line on Ukraine, join in imposing economic sanctions on Russia, or break their oil production agreements with it.

Fourth, Saudi Arabia’s invitation to China’s President Xi Jinping for an official visit and Riyadh’s openness to pricing its oil sales to Beijing in yuan. This signals that the kingdom and possibly other Gulf states may be willing to join the new global financial system Russia and China are developing as an alternative to the western one.

Of the four developments, the reception accorded to President Assad in Abu Dhabi and Dubai was the clearest sign of this Gulf rebellion against the US and its domination. The visit didn’t need to take place now; that it did shows more about the mood in the Gulf centers of power than anything else.

Moreover, Saudi Arabia and the UAE have reportedly declined to receive US Secretary of State Anthony Blinken, who is keen to follow up Johnson’s visit to try to succeed where he failed.

Instead, in a snub seen around the world, the UAE’s foreign minister Sheikh Ahmad Bin Zayed visited Moscow for talks with his Russian counterpart Sergey Lavrov. The public show of bonhomie they displayed was bound to rub salt into the American wound.

The timing of Assad’s trip – on the 11th anniversary of the start of the US-led war on Syria aimed at toppling its government, and three weeks into the Russian invasion of Ukraine – and the UAE’s indifference to the angry US reaction, are further signs of the start of divorce proceedings with an abusive partner that fleeces and cheats on its allies.

Assad’s visit to the UAE provided important gains for both countries and their leaders. It broke Syria’s official isolation in the Arab world and heralded the breaking of the US embargo imposed on the country. This caps a broader process of Arab ‘normalization’ which is set to see Damascus regain its membership of the Arab League and role in collective Arab decision making, and take part in the Arab summit to be held in Algiers in November.

This bold step also benefits the UAE in many ways. It helps offset the hugely negative impact on its image that resulted from its signing of the so-called Abraham Accords and enthusiastic courtship of the Israeli enemy.

Building bridges of trust and cooperation with the Axis of Resistance via Syria, Iran’s closest ally, could also help the UAE and Saudi Arabia find ways out of their quagmire in Yemen. It may be no coincidence that Riyadh is proposing to host an all-party Yemeni dialogue and has officially invited the Houthi Ansarullah movement to take part.

In short, what we are seeing today are manifestations of a revolt against US hegemony in the Arab world by the axis of Arab ‘moderation’ led by the Egyptian-Emirati-Saudi trio. It is open for other Gulf and Arab states such as Iraq, Algeria, and Sudan to join should they wish. This new axis may take clearer shape at the Algiers summit in the fall.

The process of Arab normalization with Israel is bound to slow down. It is the most grievous error that normalizing countries – old and new – could have made, and should be halted completely. But there is optimism in this regard, as turning against the US also implies turning against Israel.

Meanwhile, Assad’s presidential plane, which over the past decade has only flown to Moscow and Tehran, looks set to do a lot more traveling in the coming weeks and months. Its next destination after Abu Dhabi could be Riyadh or Cairo, despite the best efforts of the US to bar its way.

The views expressed in this article do not necessarily reflect those of The Cradle.