(Mar 17): The world’s biggest oil importer has found itself contemplating rock-bottom prices and the opportunity for an unprecedented power play. Russia and Saudi Arabia’s struggle for market share — and the resulting tumble to near US$30 ($42.56) a barrel — has left China in a position to dictate conditions. That may include encouraging the world’s top two exporters to price and sell more of their crude in yuan.
Last year, Beijing imported a record 506 million metric tons of crude oil, according to official customs data — roughly 10 million barrels a day. Saudi Arabia and Russia alone accounted for about a third of that. At 2019’s average import price, their Chinese sales amounted to almost US$80 billion; it’s a tempting target for President Xi Jinping’s currency ambitions.
China has sought for over a decade to encourage international use of the yuan, with varying degrees of enthusiasm, hoping to bring the currency’s role in international trade and investment into line with the economy’s clout. For a number of reasons, including capital controls, that has faltered. China accounts for roughly a fifth of global GDP, but the yuan accounted for barely 1% of international payments as of January, according to the SWIFT international payments system. This gambit wouldn’t fix that. Nor, despite China’s inroads elsewhere, would it mark the end of dollar preeminence in commodities trading, especially in oil, where the greenback has dominated since the 1970s. China is also more fragile financially than it was before its quarantine efforts.