Nov 9, 2022
The BRICS countries have been discussing various possibilities of creating an alternative international currency. It remains to be seen what China is going to do. The PBoC has over $1 trillion in US Treasury debt, and it is unlikely that the Chinese would be willing to lose that amount of money in an effort to dethrone the USD. Much more likely is a gradual divestment that would not cause disruption in the markets.
Another major player in international financial markets is Saudi Arabia. The relations between the Kingdom and the US have apparently deteriorated to a certain extent as the Russians continue to maintain close contact with Saudi authorities. It is widely known that the petrodollar system depends largely on the Saudi insistence on receiving payment in dollars as do many other major oil producers. In this case geopolitical considerations play an important role in how financial equilibrium functions. If the Chinese and Russians succeed in weaning Saudi Arabia away from the US, there could be great changes in Forex m
China Oil Discovery.
China’s state-owned oil company CNOOC has tapped commercial oil and gas flows from a shale exploration well in the South China Sea, marking the first successfully drilled shale oil well offshore China on 28 July.
According to Chinese state media, the discovery at the Weiye 1 wildcat well, China’s first offshore shale well, might be a game changer for the country’s reliance on oil and gas imports.
CNOOC believes that the Beibu gulf contains 8.76 billion barrels of shale oil, and claimed that the wildcat well flowed 20 cubic metres per day of shale oil and 1,589 cubic meters per day of natural gas, which the Chinese oil giant is calling a commercial discovery.
The recent confirmation by Saudi Crown Prince Mohammed bin Salman, that the US is now regarded as just another one of its partners in a new global order, it provides an opportunity for China and its allies to share the leadership position with Washington, Saudi Arabia last week reiterated its commitment to China as its “most reliable partner and supplier of crude oil,” along with broader assurances of its ongoing support in several other areas. It seems that the Saudi Crown Prince seemingly now sees the US as a partner just for its security considerations, with no meaningful return on Saudi Arabia’s part, whilst regarding China as its key partner economically and Russia as its key partner in energy matters, should not surprise the US.
As a reminder, back in March 2018, China introduced yuan-priced oil contracts as part of its efforts to make its currency tradable across the world, but they haven’t made a dent in the dollar’s dominance of the oil market, largely because the USD remained the currency of choice for oil exporters. But, as Pozsar also noted recently, for China the use of dollars has become a hazard highlighted by US sanctions on Iran over its nuclear program and on Russia in response to its invasion of Ukraine.
If Saudi Arabia joins BRICS, it would be a promotion to the Middle East countries to strengthen their ties with BRICS countries and weaken the intervention and influence of the US in the area. The oil for security framework between Saudi Arabia and the US needs to be adjusted in light of the evolving international situation
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