U.S. commitment to Saudi security is waning, opening the doors to China
Chinese President Xi Jinping’s visit to Riyadh last week provided a sharp contrast to the one that U.S. President Joe Biden undertook to Saudi Arabia last July.
Pomp, show, warmth and a consensus of views on geopolitical issues were very visible during the discussions between the leaders of China, Saudi Arabia, and its other regional allies.
Oil supplies and security were at the core of discussions. Trade between China and Saudi Arabia has been galloping at full speed in recent years. Last year, bilateral trade between Saudi Arabia and China hit $87.3 billion, up 30 per cent from 2020, according to Chinese customs figures.
Oil forms the basis of the growing alliance between China and oil-rich Saudi Arabia. After all, Saudi Arabia is the world’s largest exporter, and China is the world’s largest importer of crude oil. According to reports, China’s crude imports from Saudi Arabia stood at $43.9 billion in 2021, accounting for 77 per cent of its total goods imports from the kingdom. That amount also makes up more than a quarter of Saudi Arabia’s total crude exports.
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China is heavily dependent on imported energy to keep the wheels of its economy running. Seventy-two per cent of Chinese oil needs were met through imports from other countries. Some 44 per cent of Chinese natural gas demand was also met from overseas sources.
Ensuring energy security is a strategic objective for China today, as it used to be for the U.S. when U.S. President Franklin Delano Roosevelt struck a deal with King Abdulaziz of Saudi Arabia some eight decades ago to ensure regular crude oil supplies. In return, Washington agreed to extend a security blanket over the Saudi regime.
Today it is a different ball game. U.S. dependence on Saudi oil is dwindling, and its commitment to the security of Saudi Arabia is wavering, so Riyadh is on the lookout for partners to ensure its security. An emerging China, with its allies such as Pakistan, fits nicely into that picture.
Talk of Riyadh selling its oil to China in yuan, the Chinese currency, has also been in the air for some time now. Until now, an understanding between the U.S. and Saudi Arabia has pegged the U.S. dollar as the currency of choice for global oil. As oil is the world’s largest traded commodity, this understanding between the two helped make the U.S. currency the most sought-after currency in the world. Any country, big or small, needed U.S. dollars to purchase oil.
China, and to some extent Russia, have been striving to make inroads into this global financial system. There have been indications recently that China and Saudi Arabia have been talking about the yuan being used as the currency for their trade.
During his visit to the oil kingdom, Xi Jinping told Gulf regional leaders that China would work to buy oil and gas in yuan. He also underlined that China would “make full use of the Shanghai Petroleum and National Gas Exchange as a platform to carry out yuan settlement of oil and gas trade.”
There has not been any formal reaction to the Chinese proposal by Saudi Arabia yet. Any move by Saudi Arabia to ditch the dollar in its oil trade would be a seismic political move, a Reuters report underlined.
Riyadh had threatened to adopt the yuan as a currency for its oil trade in the wake of the possibility of U.S. legislation exposing the Organization of Petroleum Exporting Countries to antitrust lawsuits. The U.S. has since backed away from any further action on this subject.
Reports in the press that some small transactions for crude oil in yuan may have taken place between Saudi Arabia and China have been difficult to confirm.
Any such move would not be easy for the United States to accept. It is said that Saddam Hussain’s announcement to use currencies other than the U.S. dollar for its oil transactions turned out to be the last nail in his coffin.
Qaddafi of Libya was no exception. His days were numbered when he began to insist on oil payments in gold dinars.
The Saudis know this history well. Even if they decide to go down this path, the steps will be small and discreet.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. Energy and the Middle East are his areas of focus. Besides writing regularly for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has provided his perspective on global energy issues to the Department of Energy in Washington and the International Energy Agency in Paris.
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