In a first, UAE LNG sold to China in yuan; Saudi to follow next
The Chinese national oil company CNOOC and France's TotalEnergies have conducted China's first yuan-settled LNG trade through the Shanghai Petroleum and Natural Gas Exchange. The LNG was sourced from the UAE. The step aims to induce multi-currency pricing, settlement, and cross-border payment of energy sales.
The UAE has been facilitating global trade de-dollarisation and sanctions evasion since the beginning of the conflict in Ukraine. Particularly, the UAE financial system has been used by India, Russia and others to settle trade in roubles, rupees, and dirhams. By selling energy in non-dollar currencies, the UAE is cementing its position as a global hub for de-dollarisation reflecting its leadership view of a multipolar world order.
In pursuit of deepening de-dollarisation, the UAE launched its Central Bank Digital Currency (CBDC) strategy two weeks ago which will partner with India to conduct joint proof of concept and pilots of bilateral CBDC cross-border transactions, focusing on remittances and trade in digital national currencies.
Last week, Saudi Arabia completed its first yuan-denominated loan transaction with the Chinese EXIM Bank and expressed willingness to sell energy in currencies other than the dollar, so we are likely to see similar sales from Saudi soon. Yesterday, the Saudi Council of Ministers approved Saudi dialogue partner status in the China-led Shanghai Cooperation organisation. The deepening financial ties between Saudi Arabia and China are a result of President Xi’s commitment made in December 2022 to enable GCC countries to access the Chinese financial market.
Business implications
By buying energy in yuan and other non-dollar currencies, China aims to reduce the impact of any future western sanctions on its economy due to its perceived support for the ongoing war in Ukraine or a prospective war in Taiwan. Furthermore, the excess weaponisation of the dollar is creating an opportunity for China to promote a multipolar financial architecture, which is in-line with its view of an emerging multipolar world order.
For gulf countries, de-dollarising part of their trade aims to reflect the changing dynamics in the global economy and their warming ties to eastern powers such as China, Russia, and India.
For the west, the step will challenge its ability to enforce financial sanctions generating a dilemma for sanctions enforcement agencies as alternative financial avenues emerge which are not controlled by the US or other western powers.