Lots of things are happening behind the scenes of global finance. It would appear the Petrodollar is coming to an end, and may be replaced by the Petroyuan. That would be a big blow to the West and a massive boon for the East.
It is not too surprising to see the Petrodollar come to an end eventually. Although Saudia Arabia benefited thanks to the Petrodollar arrangement with the United States, it was on life support for several years. Dollar debts are not the way forward, whereas oil – and demand for this resource – will always remain present. Moreover, the West is weak in the financial-economic department, whereas the East has bucked up and built solid fundamentals.
In addition, Saudi Arabia clearly intended to be part of the BRICS+ alliance. In addition, they eye a full-time membership of the Shanghai Cooperation Organization. Part of those changes would also include developing a new “synthetic” backup currency to eliminate the dollar. It is not the first time countries openly question their reliance on the greenback. Nor will it be the last time, and many more countries will seek alternatives. Some, like El Salvador, turn to Bitcoin as legal tender to take a drastic route.
For Saudi Arabia, strengthening ties with the East and BRICS members makes sense. There has been a growing political and financial gap between the oil kingdom and the United States. Moreover, China has invested heavily in Saudi firms, resulting in over $130 billion changing hands. Plus, there is much more money where that came from, whereas the West needs to keep its wallets closed for the foreseeable future.
The ongoing collaboration with China primarily focuses on oil and gas. More specifically, several new plants will be erected in both countries. Aramco and Sinopec have agreed to build facilities in the other party’s country, which should be completed in the next year or two. When global energy conglomerates join forces, the world must take notice, for better or worse. Another clear sign the Petrodollar is on the way out.
Hello Petroyuan (and goldyuan?)
Although most of the focus lies on the Petrodollar, one must monitor other developments too. When China and Saudi Arabia strengthen ties and remove the Dollar, a Petroyuan is a next option. Both parties agreed to sell oil and gas for Yuan through the Shanghai Exchange. That allows Gulf Cooperation Council members to receive yuan transactions. Any leftover yuans can – at a later stage – be converted to gold through the Shanghai Gold Exchange. Details regarding that option remain scarce, but it creates an intriguing precedent.
Although Russia isn’t anyone’s favorite country today, it has similar ambitions. The Moscow Gold Standard and Exchange will tie energy sales to bullion. It may not impact the Petroyuan – or Petrodollar – much, but it shows a growing demand for independence from the greenback. The Moscow Gold Exchange may eventually welcome the Petroyuan, though. All of that would create more financial concerns for the West.