Many people fail to recognize a significant issue: the era of petrodollars is coming to an end, and everything is shifting towards petroyuan. The biggest opportunity for this shift lies in the fact that China is beginning to wield more influence and have a greater say in the Middle East than the United States.

Is the Petroyuan Coming?

The Petroyuan is on the Brink!

The story begins with a cooperation agreement on May 1st. On this day, Baosteel, a renowned Chinese steel mill, and Saudi Aramco, the Saudi sovereign wealth fund, signed an agreement to jointly invest in the construction of a full-process steel manufacturing base in Saudi Arabia with an annual output of 1.5 million tons of heavy plate.

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Saudi Arabia and Baosteel Signed a Cooperation Agreement

This is Baosteel's first overseas steel mill and will be located within one of the four major economic zones in Saudi Arabia.

From this perspective alone, it seems that this is merely a further strengthening and tightening of China's Belt and Road Initiative and its ties with the Middle East. It's impressive, but there's nothing particularly boastful about it.

However, if we combine a series of historical events, we can uncover the secrets behind the scenes.

Let's go back to 1974. In that year, under the coercion and temptation of the United States, Saudi Arabia, a major Middle Eastern oil-producing country at the time, reached a "secret agreement" with the U.S. The U.S. provided military protection, and Saudi Arabia promised that its oil exports must be settled in U.S. dollars. This agreement has been historically referred to as the "petrodollar" agreement.

Saudi Leaders and President Bush of the United StatesIn the subsequent decade, the United States and Saudi Arabia undertook a substantial amount of infrastructure construction, involving an amount of $776 million. This was a colossal sum fifty years ago when the purchasing power of the dollar had not yet been diluted.

The "petrodollar agreement" between Saudi Arabia and the United States is evident.

It can be observed that at that time, the United States and Saudi Arabia engaged in numerous infrastructure cooperation agreements, with a very simple purpose: to further consolidate the petrodollar system.

Since last March, the relationship between China and Middle Eastern countries has also seen a rapid escalation, neither in speed nor intensity inferior to that of the United States and Saudi Arabia at the time. China and countries like Saudi Arabia have signed multiple strategic cooperation agreements in the field of energy infrastructure.

These multifaceted strategic cooperation agreements and deployments indicate that China and Saudi Arabia have embarked on deeper cooperation. China's plan is to "within 3 to 5 years," where China is willing to work hard with Middle Eastern countries in five key areas.

Two points are particularly crucial: "carrying out oil and gas trade settlement in RMB" and "carrying out local currency swap cooperation."

The future focus is on petroyuan.

That is to say, we are currently going through all the necessary processes with the Middle East, and once the timing is right, we will announce the official launch of petroyuan settlement, as well as the local currency swap cooperation agreements between China and Middle Eastern countries.

It can be明确的 is that if both parties officially announce the effectiveness of this agreement, it means that petrodollar will officially disintegrate.

In fact, the disintegration of petrodollar is already underway. The United States used to have very low oil production, and most of its energy depended on imports from Middle Eastern countries, which led to multiple "oil crises" in the 20th century. This was an important means for the Middle East to sanction the United States.However, with the successful energy revolution in the United States, extracting shale oil resources from oil shale, it has successfully transformed into the world's largest oil producer. After China's reform and opening up, it has become the world's factory, and the continuously rising energy demand has led China to import a large amount of oil resources from the Middle East.

In 2022, China imported oil from 48 countries, with a total demand of 508 million tons, and the import amount spent 365.5 billion US dollars, a year-on-year increase of 41%.

Saudi Arabia and Russia have become the first and second largest crude oil importers to China.

Where does it import from?

In fact, since 2019, Saudi Arabia has surpassed Russia to become China's largest crude oil import source country. For Saudi Arabia, the export volume of oil sold to China has also exceeded the United States.

So from a trade perspective, China has surpassed the United States to become Saudi Arabia's largest customer. As the saying goes, the customer is God, and it is no wonder that the common interests between China and Saudi Arabia are increasing, and the relationship is becoming closer and closer.

For the United States, since it has become the world's largest oil producer, its connection with Middle Eastern countries is not so close. On the contrary, former allies have gradually become competitors. This is also one of the reasons why the OPEC organization no longer helps to maintain the petrodollar.

So for Saudi Arabia, when the main buyer changes from the United States to China, it also means a change in the pricing of oil currency. When China gradually becomes Saudi Arabia's largest crude oil buyer, it is also the time for Saudi Arabia to start getting rid of the "petro-dollar" and consider changing to the renminbi for pricing and settlement, laying a solid foundation.

The obstacles and future of oil renminbi

With the increasingly close geopolitical relationship between China and the Middle East, more and more Middle Eastern countries choose to embrace China, and China's influence in the Middle East is also increasing.For instance, China's recent mediation in the historic diplomatic dispute between Saudi Arabia and Iran, which led to the restoration of relations between the two countries, serves as an excellent example.

According to data, although not explicitly announced, 10% of China's oil trade volume in 2022 was settled in Renminbi, amounting to 246 billion Renminbi. How should these Renminbi be spent? This is a question that Middle Eastern oil-producing countries need to consider.

In summary, there are two main options: first, investment; second, imports. China can meet both needs.

For example, Saudi Arabia has invested in many Chinese companies, often using Renminbi for payment, which China is more than willing to accept, as it involves settlement in its own currency, eliminating the risk of exchange rate fluctuations.

Furthermore, as the world's factory, China offers a wide variety of products. As long as the wealthy Middle Eastern countries have money, they can import and purchase any kind of goods from China, with the exception of semiconductors and similar high-tech items.

For instance, oil-rich countries can purchase ten Type 052D destroyers at once.

Additionally, if Middle Eastern nations wish to enhance their national defense capabilities, they can directly import complete integrated brigades and equipment from China. They are also willing to spend money, and the export version of naval ships like the Type 052D is not a problem as long as they are willing to invest.

Of course, since the petrodollar has been a key support for the US dollar's reserve currency status over the past 50 years, the transition from petrodollars to Renminbi dollars will inevitably attract attention and face obstacles from the United States.

Thus, we can observe that since the initiation of the petro-Renminbi process in 2019, the United States has gradually regarded China as its biggest strategic competitor, continually imposing sanctions on China in an attempt to weaken China's development momentum.

The United States announced the signing of the CHIPS Act to sanction China's semiconductor industry.What about the future of the petro-yuan then? It can only be said that it is promising, because one of the outcomes of the petrodollar is that the dollar hegemony itself cannot withstand it.

Due to the abuse of dollar hegemony, the United States has sanctioned Russia and frozen its dollar reserves, leading to an acceleration of de-dollarization by countries around the world. More and more countries believe that although the dollar remains the world's largest reserve currency, the renminbi will become a more important international currency in the future, at least a regional currency.

Therefore, the significance of Middle Eastern countries promoting the settlement of oil in renminbi is very significant, especially when China can meet almost all the commodity and military needs of Middle Eastern countries. In a few years, if China has several more aircraft carrier battle groups, it may be able to meet the military missions of escorting the Middle East and compete with the United States.

Summary

As China's strategic deployment in the Middle East is steadily advancing, the United States is gradually losing control and influence over the Middle East. This means that the petrodollar system is nearing its end, and the petro-yuan that replaces it has taken a solid step.

The United States itself is in a great crisis.

For China, this is a great thing. Promoting the internationalization of the renminbi and increasing its share in the global monetary system has always been one of the important goals since China's reform and opening up.

And the settlement currency of energy trade is precisely an important pillar of international currency. Therefore, promoting the petro-yuan will undoubtedly promote the global circulation of the renminbi and enhance the international status of the renminbi.

Anyway, the pace of promoting the petro-yuan will gradually accelerate, which is the trend. However, China should learn to use soft diplomatic means to make Middle Eastern countries feel promising and work together for prosperity. Only such a way and speed of promotion will ultimately achieve the desired effect.

China's petro-yuan is imminent!Only by breaking the shackles of the latest increments at the right time can the petroyuan truly rise. Therefore, on this issue, China particularly needs patience and wisdom. Instead of being eager for a moment, it is better to look to the future and let this generous gift come naturally in the long river of history. This is precisely a manifestation of rationality and far-sightedness.