China’s Middle Eastern business will increase yuan-for-oil-deals, but dollar expected to stay dominant in world trade
- China is looking to expand the use of the yuan in oil and gas settlements with the six Gulf Cooperation Council states
- While the currency is likely to get a boost in energy markets, the yuan will not replace the US petrodollar, analysts say
China’s plan to expand use of its currency for oil trading with six Middle Eastern countries will elevate use of the yuan in global commerce among friendly countries and futures traders drawn by its stable exchange rate, market analysts forecast.
But while that may lead to more yuan-for-oil deals – largely so China can buy fuel without intervention from the United States – experts say the shift will not offset use of the petrodollar or substantially boost the yuan’s use outside energy markets.
“China and the Middle East in the past would use US dollars as their long-term currency,” said Zhao Xijun, associate dean of the School of Finance at Renmin University in Beijing.
“But in face of geopolitics and US sanctions in the finance space, so few countries are considering whether they can use other currencies to settle oil and gas accounts.”
The number of yuan deals should rise, however, because China - the world’s biggest buyer of oil - would ask exporters to use its currency, Zhao said.
Other parts of the world will catch on if yuan exchange procedures are convenient and the Chinese currency is regarded as “safer” than the dollar, he said. Among the candidates are Hong Kong, Singapore and some European nations.