In a harsh attack on the dollar, Saudi Arabia may sell its oil in yuan.

By Tulio Ribeiro, The Coffee - The geopolitics of oil is approaching a historic milestone. Just as in 1974 the agreement between Richard Nixon and King Faisal set the standard for the market by stipulating that oil would be sold in dollars, the day is drawing near when the yuan will be officially adopted as the new global currency for this sector.

According to US economist Carl Weinberg, director of "High Frequency Economics," in an interview with NBC, "the price of oil in yuan is close, and as soon as the Saudis move to accept it (as the Chinese will force them to do), then the rest of the oil market will move along with them."

Continuing with this approach, Weinberg highlights what the world is beginning to realize, "Beijing is set to become the most dominant global player in oil demand, as China usurps the US position as the world's largest importer (...) attention should be paid to this because in one or two years Chinese demand will diminish US demand."

In short, throughout this history, the OPEC leader will have no other option but to adopt the yuan as its currency for selling commodities, as well as for storing wealth in this era of change.

Today the United States consumes 20 million barrels per day, however 12 million are produced domestically via traditional oil or shale gas, plus supply from Canada originating from the Alberta oil sands. This leaves 8 million barrels to be sought on the world market, outside of the FTAA.

Based on the accumulated figures from 2017 up to July 23, China imports 8,44 million barrels per day, with Russia supplying 1,17 million barrels, followed by Saudi Arabia with 940 barrels.

Any analysis allows us to conclude that what China acquires from the rest of the world (outside of the FTAA) is effectively greater than what the US absorbs. When examining this data, it becomes clear that accepting the yuan is the most viable way to grow the Chinese purchasing power. Moreover, this model is already adopted by Venezuela and Russia. In fact, the Kremlin, together with Beijing, created a $10 billion fund (60 billion in yuan) in July, with the aim of facilitating payments in rubles and yuan.

This new paradigm will decrease the demand for dollars by between 600 and 800 billion per year, generating an appreciation of the Chinese currency and an inflection point for the US dollar. Generally speaking, a realistic explanation is that history has left Ryad with no choice. Delaying this new practice means losing market share, as well as maintaining wealth reserves in a currency that will no longer be the unanimous leader in the world. History returns to 1974, this time to demand the abandonment of the dollar.

Sources:

www.preciopetroleo.net/petroleo-china.html

www.cnbc/2017/10/11/china-will-compel-saudi-arabia-to-trade-oil-in-yuan–thats-going-to-affect-the-us-dollar.html

Books: The Oil Curse, Michael Ross, Citadel Publishing, 2012

The Tyranny of Oil, Antonia Juhasz, Ediouro 2009.

Author

Tulio Ribeiro holds a degree in Economics, a postgraduate degree in Contemporary History, a master's degree in Social History, and is a doctoral candidate in "Sciences for Strategic Development" at UBV-Caracas.

He wrote the book: State policy on oil resources, the Venezuelan case.