Could US sanctions and closer Middle East ties fuel the rise of China’s petroyuan?
- China could be looking to secure long-term energy deals with Middle Eastern nations to increase the international use of its currency, analysts say
- Use of the so-called petroyuan could gain traction as energy exporters like Russia and Iran, which are subject to US sanctions, look to limit dollar exposure
A string of energy-rich economies appear to be moving closer into China’s orbit, expanding economic ties and potentially fuelling the rise of the petroyuan, analysts say.
“It would be a policy goal for both China and those Gulf States to be able to use an alternative to the US dollar,” said Steven Dooley, currency strategist for the Asia-Pacific at Western Union Business Solutions. “If they do use the petroyuan for circulation through the Middle East, the currency would become more important as part of the global financial system.”
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Why is Egypt’s Suez Canal so important?
In 2018, China launched yuan-denominated oil futures contracts in Shanghai, known as the petroyuan, with the aim of internationalising its currency and competing with US petrodollars, which have underpinned the existing system of oil valuation for decades.
The petrodollar dates back to the Bretton Woods Conference in 1944, where the US dollar was agreed upon to become the new global currency in the post-war monetary system.