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Friday, October 27

Will Al Saud support yuan hegemony? Maybe the question is whether Russia would.

From RT's interview with Max Keiser, published October 26:
[...]
“The imminent introduction of oil trading in yuan is a very bold move by the Chinese, because the US will not give up the basis of its hegemony – the dollar as the world’s reserve currency – without a fight, Max Keiser, host of RT’s financial program ‘Keiser Report' has said.
[...]
China ... is rumored to be a big buyer in the Aramco  offering of [five percent of] their state oil facilities coming down the pike,” Keiser said, referring to the anticipated sales of shares in the Saudi Aramco state oil company.
“This makes sense, geopolitical sense, in terms you’ve got China and Russia and the Saudis looking to escape the US dollar, US dollar hegemony.”
Saudi Arabia was pushed to the de-dollarization crowd only recently by the US itself, which, last year, allowed survivors and relatives of the victims of the 9/11 attack to sue the kingdom over its alleged role in the terrorist acts, Keiser stated.
“There’s decently motivation for the Saudis. They want to float Aramco, they are deeply in debt and they are running out of cash. And they wanted to do an APO [alternative public offering] of Aramco either on London or American exchange, but were prevented from doing so from the legal actions of the 9/11 survivors, who rightly pointed at Saudis as the cause of 9/11,” Keiser noted.
[...]
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I'm not so sure the Saudis want de-dollarization, which would wreak havoc on the global financial system, especially if it happened suddenly, and therefore on Saudi investments. But once again they are between a rock and a hard place since the price of oil tanked. They need the Aramco offering to be a success, and this might not be accomplished without China buying the lion's share of the Aramco offering.

As to whether Beijing is serious about challenging the U.S. dollar order -- certainly they've wanted to do this for years, but the move coming at this time could be suicidal for China's economy, which is pretty shaky. Surely the Saudis know this. 

From what's been published so far about the issue, I'm also not sure it's a done deal that the Saudis will accept payment in yuan for an oil futures contract. From Oil Price, October 24:

[...]

In its bid to establish the petro-yuan, China is now trying to persuade OPEC’s kingpin and biggest exporter, Saudi Arabia, to start accepting yuan for its crude oil. If the Chinese succeed, other oil exporters could follow suit and abandon the U.S. dollar as the world’s reserve currency. Pulling oil trade out of U.S. dollars would lead to decreased demand for U.S. securities across the board, Carl Weinberg, chief economist and managing director at High Frequency Economics, tells CNBC.
Weinberg believes that the Chinese will “compel” the Saudis to accept to trade oil in yuan.
Perhaps the question to ask is how the Kremlin is viewing China's push to substitute dollars with yuan in its oil dealings with Saudi Arabia. Russia would also like to see the end of U.S. dollar hegemony, but Chinese yuan hegemony might be considered by the Russian oil trading giant to be jumping from the frying pan into the fire. That's how I'd be looking at it, if I sat in the Kremlin. 

So did the recent visit by the Saudi ruler to Moscow have anything to do with a somewhat mutual caution about yuan hegemony? That's a purely speculative question.  

We'll just have to see how things play out.

See also Saudi Exchange Aims to Be Sole Listing Venue for Aramco Shares; October 26, Bloomberg

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