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Xi Of Arabia and The PetroYuan Drive

Xi of Arabia

Petroyuan Drive

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Photo of Xi Jin Ping
Photo - Shutterstock / 360B
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Reprinted w/ Permission

Pepe Escobar provides an interesting take on the historic Sino-Saudi and Sino-GCC summits that took place this last December. His ability to place these meetings in a broader geopolitical and geoeconomic context makes this report a worthwhile read – above and beyond the multi-billion-dollar trade agreements that were inked in December, “Xi of Arabia” is now on the forefront of a massive pivot away from the petrodollar to the internationalized use of China’s renminbi (yuan).
Pepe Escobar
Xi of Arabia - Listen to Main Article

Xi of Arabia and the PetroYuan Drive


Xi Jinping has made an offer difficult for the Arabian Peninsula to ignore: China will be guaranteed buyers of your oil and gas, just pay us in yuan…

It would be so tempting to qualify Chinese President Xi Jinping landing in Riyadh a week ago, welcomed with royal pomp and circumstance, as Xi of Arabia proclaiming the dawn of the petroyuan era.

But it’s more complicated than that. As much as the seismic shift implied by the petroyuan move applies, Chinese diplomacy is way too sophisticated to engage in direct confrontation, especially with a wounded, ferocious Empire. So there’s way more going here than meets the (Eurasian) eye.

Xi of Arabia’s announcement was a prodigy of finesse: it was packaged as the internationalization of the yuan. From now on, Xi said, China will use the yuan for oil trade, through the Shanghai Petroleum and National Gas Exchange, and invited the Persian Gulf monarchies to get on board. Nearly 80 percent of trade in the global oil market continues to be priced in US dollars.

Ostensibly, Xi of Arabia, and his large Chinese delegation of officials and business leaders, met with the leaders of the Gulf Cooperation Council (GCC) to promote increased trade. Beijing promised to “import crude oil in a consistent manner and in large quantities from the GCC.” And the same goes for natural gas.

China has been the largest importer of crude on the planet for five years now – half of it from the Arabian peninsula, and more than a quarter from Saudi Arabia. So it’s no wonder that the prelude for Xi of Arabia’s lavish welcome in Riyadh was a special op-ed expanding the trading scope, and praising increased strategic/commercial partnerships across the GCC, complete with “5G communications, new energy, space and digital economy.”

Foreign Minister Wang Yi doubled down on the “strategic choice” of China and wider Arabia. Over $30 billion in trade deals were duly signed – quite a few significantly connected to China’s ambitious Belt and Road Initiative (BRI) projects.

And that brings us to the two key connections established by Xi of Arabia: the BRI and the Shanghai Cooperation Organization (SCO).

The Silk Roads of Arabia

BRI will get a serious boost by Beijing in 2023, with the return of the Belt and Road Forum. The first two bi-annual forums took place in 2017 and 2019. Nothing happened in 2021 because of China’s strict zero-Covid policy, now abandoned for all practical purposes.

The year 2023 is pregnant with meaning as BRI was first launched 10 years ago by Xi, first in Central Asia (Astana) and then Southeast Asia (Jakarta).

BRI not only embodies a complex, multi-track trans-Eurasian trade/connectivity drive but it is the overarching Chinese foreign policy concept at least until the mid-21st century. So the 2023 forum is expected to bring to the forefront a series of new and redesigned projects adapted to a post-Covid and debt-distressed world, and most of all to the loaded Atlanticism vs. Eurasianism geopolitical and geoeconomic sphere.

Belt and Road Initiative - Map
Image - Clingendael China Centre / Martin and Lammertink
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Also significantly, Xi of Arabia in December followed Xi of Samarkand in September – his first post-Covid overseas trip, for the SCO summit in which Iran officially joined as a full member. China and Iran in 2021 clinched a 25-year strategic partnership deal worth a potential $400 billion in investments. That’s the other node of China’s two-pronged West Asia strategy.

The nine permanent SCO members now represent 40 percent of the world’s population. One of their key decisions in Samarkand was to increase bilateral trade, and overall trade, in their own currencies.

And that further connects us to what has happening in Bishkek, Kyrgyzstan, in full synchronicity with Riyadh: the meeting of the Supreme Eurasia Economic Council, the policy implementation arm of the Eurasia Economic Union (EAEU).

Russian President Vladimir Putin, in Kyrgyzstan, could not have been more straightforward: “The work has accelerated in the transition to national currencies in mutual settlements… The process of creating a common payment infrastructure and integrating national systems for the transmission of financial information has begun.”

The next Supreme Eurasian Economic Council will take place in Russia in May 2023, ahead of the Belt and Road Forum. Take them together and we have the lineaments of the geoeconomic road map ahead: the drive towards the petroyuan proceeding in parallel to the drive towards a “common paying infrastructure” and most of all, a new alternative currency bypassing the US dollar.

That’s exactly what the head of the EAEU’s macroeconomic policy, Sergey Glazyev, has been designing, side by side with Chinese specialists.

Total Financial War

The move towards the petroyuan will be fraught with immense peril.

In every serious geoeconomic gaming scenario, it’s a given that an enfeebled petrodollar translates as the end of the imperial free lunch in effect for over five decades.

Concisely, in 1971, then-US President Richard “Tricky Dick” Nixon pulled the US from the gold standard; three years later, after the 1973 oil shock, Washington approached the Saudi oil minister, notorious Sheikh Yamani, with the proverbial offer-you-can’t-refuse: we buy your oil in US dollars and in return you buy our Treasury bonds, lots of weapons, and recycle whatever’s left in our banks.

Cue to Washington now suddenly able to dispense helicopter money – backed by nothing – ad infinitum, and the US dollar as the ultimate hegemonic weapon, complete with an array of sanctions over 30 nations who dare to disobey the unilaterally imposed “rules-based international order.”

Impulsively rocking this imperial boat is anathema. So Beijing and the GCC will adopt the petroyuan slowly but surely, and certainly with zero fanfare. The heart of the matter, once again, is their mutual exposure to the Western financial casino.

In the Chinese case, what to do, for instance, with those whopping $1 trillion in US Treasury bonds. In the Saudi case, it’s hard to think about “strategic autonomy” – such as what’s enjoyed by Iran – when the petrodollar is a staple of the Western financial system. The menu of possible imperial reactions includes everything from a soft coup/ regime change to Shock and Awe over Riyadh – followed by regime change.

Yet what the Chinese – and the Russians – are aiming at goes way beyond a Saudi (and Emirati) predicament. Beijing and Moscow have clearly identified how everything – the oil market, global commodities markets – is tied to the role of the US dollar as reserve currency.

And that’s exactly what the EAEU discussions; the SCO discussions; from now on the BRICS+ discussions; and Beijing’s two-pronged strategy across West Asia are focused to undermine.

Beijing and Moscow, within the BRICS framework, and further on within the SCO and the EAEU, have been closely coordinating their strategy since the first sanctions on Russia post-Maidan 2014, and the de facto trade war against China unleashed in 2018.

Now, after the February 2022 Special Military Operation launched by Moscow in Ukraine and NATO has devolved into, for all practical purposes, war against Russia, we have stepped beyond Hybrid War territory and are deep into Total Financial War.

SWIFTly Drifting Away

The whole Global South absorbed the “lesson” of the collective (institutional) west freezing, as in stealing, the foreign reserves of a G20 member, on top of it a nuclear superpower. If that happened to Russia, it could happen to anyone. There are no “rules” anymore.

Russia since 2014 has been improving its SPFS payment system, in parallel with China’s CIPS, both bypassing the western-led SWIFT banking messaging system, and increasingly used by Central Banks across Central Asia, Iran and India. All across Eurasia, more people are ditching Visa and Mastercard and using UnionPay and/or Mir cards, not to mention Alipay and WeChat Pay, both extremely popular across Southeast Asia.                        

Of course the petrodollar – and the US dollar, still representing under 60 percent of global foreign exchange reserves – will not ride into oblivion overnight. Xi of Arabia is just the latest chapter in a seismic shift now driven by a select group in the Global South, and not by the former “hyperpower.”

Trading in their own currencies and a new, global alternative currency is right at the top of the priorities of that long list of nations – from South America to Northern Africa and West Asia – eager to join BRICS+ or the SCO, and in quite a few cases, both.

The stakes could not be higher. And it’s all about subjugation or exercising full sovereignty. So let’s leave the last essential words to the foremost diplomat of our troubled times, Russia’s Sergey Lavrov, at the international interparty conference Eurasian Choice as a Basis for Strengthening Sovereignty:

“The main reason for today’s growing tensions is the stubborn striving of the collective West to maintain a historically diminishing domination in the international arena by any means it can… It is impossible to impede the strengthening of the independent centers of economic growth, financial might and political influence. They are emerging on our common continent of Eurasia, in Latin America, the Middle East and Africa.”

All aboard…the Sovereign Train.


Petrodollar vs Petroyuan

This is probably as good a time as any to consider the ramifications of Pepe’s thesis that China, Russia, and other major economic players are on the cusp of replacing the USD as the world’s reserve currency.

On the one hand, Pepe makes a compelling case in this (and other articles) for a critical mass of willing parties who have the economic clout, technical and financial expertise, and the political will to abandon the USD for central bank reserves, and SWIFT for international financial transactions.

However one wants to draw a circle around the potential revolutionaries who will take ownership for this movement, be it BRICS+ or the SCO, they represent 40% of the world’s population and 30+% of the world’s GDP. So they have the financial means to pivot away from the USD as the dominant currency for international trade (the USD currently represents approximately 60% or global transactions) and the commensurate currency reserves needed for USD-denominated transactions.

GDP X Key Groups (2021)

(click/tap legend to filter data)
GDP X Key Groups (2021)

Data Source – World Bank

And the political impetus is surely there – we’ve argued in other articles that the decision to confiscate Russian financial assets held in overseas banks as part of the sanctions associated with the Russo-Ukrainian War was a shortsighted blunder that will come back to haunt the US and its allies for years to come. Whether or not the US had a moral dictate to sanction Russia is somewhat irrelevant – the salient question is whether the methods employed by western allies made it patently obvious that foreign currency reserves denominated in the USD are no longer safe in the event of other international disputes.

To that end, we concur with Pepe that the BRICS+ and SCO members a have a legitimate basis for re-evaluating their commitment to the USD.

On the Other Hand...

On the other hand, unwinding that commitment is no simple task. China in particular has approximately one trillion USD that it has accumulated vis-à-vis its continuous trade surplus with the US. It simply cannot abandon that stockpile without triggering a sell-off by other foreign holders of US Treasuries.

Furthermore, Sino-US trade in 2021 amounted to $657.5 billion, with $506.4 billion in exports and $151.1 billion in imports to/from the US. If the underlying premise of the petroyuan concept referenced in Pepe’s analysis is the use of local currencies for international trade settlement, that still leaves China on the hook for Sino-US trade, which accounted for 9.9% of China’s total $6,638.2 billion in international trade for 2021. And unless there is an even more dramatic shift in geoeconomic power than that envisaged in Pepe’s article, we suspect the US would be unwilling to settle transactions in renminbi*.

Other countries would face similar conundrums in any wholesale pivot away from the USD.

Another consideration is weaponry – currently the US dominates global arms exports with a 39% market share. Considering the follow-on training, maintenance, and ammunition resupply that is part of weapons procurement, the countries that rely the most on the US will not jeopardize the political and economic ties with their arms suppliers. Notwithstanding Chairman Xi’s comments at the recent Sino-Saudi summit, seven of the US top weapons customers are from the Middle East – Saudi Arabia, the UAE, Qatar, Turkey, Iraq, Israel, and Egypt.

SPFS + Gold - The Tiebreaker?

The possible tiebreaker in all the pro’s and con’s for de-dollarization is Russia, which controls (or did control) 14% of the world’s energy market. Sanctions against Russian petroleum products and restrictions on its access to SWIFT have forced it to accelerate international trade settlement in rubles and other currencies and more importantly, to build out the technical infrastructure for SPFS, its alternative to SWIFT.

Finally, there is the economic risk called out by Pepe regarding fiat currency – if all major players continue using fiat currency, then the US current S&P AA+ credit rating is likely to remain stable, with its attendant advantages with regard to financing the current US government debt, which is now more than $31 trillion. But in addition to the risk of de-dollarization, there is a growing concern that both China and Russia may revert back to either a gold-backed or a commodities-backed currency. The ramifications of such a move beyond the scope of this paper, but suffice it to say they would not be trivial…

Foreign-Held US Public Debt (2022)

(click/tap legend to filter data)
Foreign-Held US Public Debt (2022)

Data Source – Statista

As of 2022, the US public (government) debt was $30.9 trillion, of which foreign entities (public and private) held approximately $7.5 trillion. And of that amount, China held $970 billion, a balance that has declined nearly 27% over the past 10 years. 

One can posit that Pepe’s argument that China is actively moving to de-dollarize its portion of international trade is supported by this decline in its holding of US Treasuries.

Therefore, we directionally agree with his thesis, although we are cautious regarding any predictions for its timeline.


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Works Referenced

Escobar, P. (2022) Xi of arabia and the Petroyuan Drive, The Cradle. Available at: (Accessed: January 5, 2023).


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Other Data Insights

"Things change gradually at first...

...then all at once..."

China GDP vs UST Holdings (2010-22) (billions)

(click/tap legend to filter data)
China GDP vs UST Holdings (2010-22) (billions)

Data Source – World Bank

Global FX Exchange Reserves (2001-22) (% of total)

(click/tap legend to filter data)
Global FX Exchange Reserves (2001-22) (% of total)

Data Source – World Bank

Global FX Exchange Reserves (2001-22) (% of total)

(click/tap legend to filter data)
Global FX Exchange Reserves (2001-22) (% of total)

Data Source – World Bank

Western media is starting to pay attention to China’s efforts to influence members of the so-called Global South, or more specifically the BRICS+ and Shanghai Cooperation Organization (with substantially overlapping membership), to denominate international trade in the Chinese Renminbi (RMB), aks the Chinese Yuan (CNY) and/or other local currencies. For very different reasons, Russia has promoted the idea of an entirely new currency for trade settlement. This is an accelerating trend among countries that have formed close economic and political relationships with China.

Coincident with the pivot to the RMB for trade settlement is a growing sentiment among the BRICS+ and SCO members that holding USD as their primary reserve currency poses a risk in the event the US declares sanctions and/or freezes a country’s assets, as happened with Russia and Belarus in 2022.  

The combined effect of these two trends should be observable in a country’s US Treasuries holdings, and that’s exactly what we’re seeing in the chart above – China’s USD and Treasuries holdings peaked at $1.277 trillion in 2013 and declined by more than 32% in 2022.

Things change “slowly at first, then all at once”...

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Pepe Escobar

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Pepe Escobar is a columnist at The Cradle, editor-at-large at Asia Times and an independent geopolitical analyst focused on Eurasia. Since the mid-1980s he has lived and worked as a foreign correspondent in London, Paris, Milan, Los Angeles, Singapore and Bangkok. He is the author of countless books; his latest one is Raging Twenties.

Pepe Escobar


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