Yuan for oil could upend global markets, shaking the dollar’s longstanding dominance.

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A seismic shift in global economics may be on the brink as Saudi Arabia and China edge closer to transforming the crude oil market by advancing the use of the yuan for oil transactions. The deepening ties between these two economic powerhouses, fueled by President Xi Jinping’s landmark visit to Riyadh in December 2022, signal a potential tectonic change in the way oil is traded worldwide. This move could diminish the dollar’s dominance, shaking the very foundations of the global financial system.

Underpinning this transformation is Saudi Arabia’s ambitious Saudi Vision 2030 initiative—a blueprint for economic diversification that seeks to pivot the kingdom away from its over-reliance on oil revenues. This vision aligns seamlessly with China’s aspirations to elevate the yuan as a global currency. The burgeoning non-oil linkages between the two nations, spanning a multitude of sectors, have laid fertile ground for the yuan’s expanded role in their bilateral trade, further reinforcing the economic bond between Riyadh and Beijing.

However, the road to the “PetroYuan” is not without its challenges. While the idea of using the yuan for oil purchases has been discussed in economic circles for years, the transition from concept to reality faces significant hurdles. Currency risks, coupled with the limited use of the yuan in international trade and finance, pose serious questions about the viability and profitability of such trades in the short term.

Yet, the potential rewards are too great to ignore. If Saudi Arabia, the world’s largest oil exporter, begins conducting oil transactions in yuan, it could set a precedent that might encourage other oil-producing nations to follow suit. This could gradually erode the dollar’s dominance in the oil market, a development that would have profound implications for global trade dynamics and U.S. economic influence.

As Riyadh and Beijing move closer to realizing the PetroYuan, the world watches with bated breath. The outcome of this deepening partnership could reshape not just the oil market, but the very nature of global commerce. While the journey toward fully profitable yuan-based oil trades may take time, the trajectory is clear—Saudi Arabia and China are laying the groundwork for a new chapter in the history of global trade, one where the yuan could play a starring role.