Since 1974, Saudi Arabia has conducted all of its oil sales in U.S. dollars. That might be about to change, and President Joe Biden’s snubbing of Arab leaders might be the cause.
Barely a year after the Trump administration cultivated a close relationship with this gradually secularizing ally and its autocrat, Mohammad bin Salman, Saudi Arabia is reportedly considering accepting yuan for its oil sales to China.
Xi Jinping has made no secret of his ardent desire for the Chinese currency to unseat the U.S. dollar as the world’s reserve currency. Considering historical trends, there’s little reason to consider the Chinese Communist Party’s goal too far-fetched. Since the advent of the Florentine florin and the Venetian ducat in early modern times, currencies have rarely dominated the globe for more than a century. Even the florin and the ducat were more reserve currencies of a continent than of the world, as it wasn’t until the Portuguese real and Spanish dollar that a currency truly achieved global reserve status.
China comprises just a quarter of the Saudis’ oil export market. But with China at a crossroads as regards its relationship with the West and its equivocation over the Russia-Ukraine war, it is a bit terrifying that China feels ready to plant the yuan’s flag in the ultrarich sands of the Saudi oil market.
The Spanish inflated away the value of their dollar as they mined more precious metals in the Americas. Xi and China’s communists have watched the Fed do the same, increasing the M2 money supply by more than 40% since the start of the pandemic. Inflation has hit its highest rate in 40 years, and a decade of near-zero interest rates has left the Fed no choice but to hike rates even if it causes a recession. Independently, the U.S. dollar has lost ground, falling from 70% to 60% of global foreign exchange reserves since the start of the century.
Bin Salman didn’t just relate to Jared Kushner personally. He was ready to reorient the Middle East, aligning with Israel and turning against Iran as a benign and gradually secularizing power. Biden savaged Saudi leadership on the campaign trail and slighted bin Salman diplomatically, even while doing nothing of consequence about his war in Yemen or the killing of Jamal Khashoggi. Now, he won’t even take Biden’s phone calls.
Poor diplomacy has consequences.