The Petro-Yuan will Lead the Global Economy

Mian Majid Ali Afzal

Globalization described the world as a single society. However, countries of the world are divided into developed, developing, underdeveloped, and least developed countries based on the levels of their socioeconomic development, education, governance, international relations, trade and business. After the demise of the Soviet Union, the world order got upended and the United States emerged as the sole hegemon and the largest economy of the world. Owing to this decades-old hegemony, the US has been hitherto playing the role of a global policeman. But, it has changed now as China, the world’s second largest economy, is now coming up as the next superpower of the world.

Fastest-growing as a major economic powerhouse, China is the 4th largest source of foreign direct investments. Its economic policies seem imperialistic and can be termed as ‘modern colonialism’. China also plays a hegemonic role over the South China Sea that is a part of the Pacific Ocean, having importance chokepoints like Strait of Malacca which is very crucial for global trade. China’s strategy has been the one of finding an upper hand in world economy and for that it invested in countries that are usually considered rogue for their human security violations. China’s use of its veto power in the UN Security Council to protect countries such as Iran from sanctions is but only one dimension of its energy politics. The Chinese oil companies have pursued an aggressive investment policy in the western hemisphere—particularly in Venezuela and Saudi Arabia which is the holder of the world’s largest proven oil reserves, supplying 16 percent of China’s total oil imports. For the time being, Saudi Arabia has aligned its long-term security and defence interests with the United States, but it might one day make sense for the Saudis to align with China. Moreover, China is now the top importer of oil and gas from Iran. It is also the biggest investor in Sudan with an estimated cumulative stake of $8 billion. The China National Petroleum Corporation (CNPC) is the state shareholder of the largest oil enterprise in Sudan (40%).

China’s peaceful rise seems successful as it has been able to secure energy and raw materials without confronting the United States and the West. However, it has posed a daunting threat to the rule of petrodollar. Unseating the petrodollar will not be easy without the intervention of some of the major oil producers including Russia and Saudi Arabia which constitute 26 percent of world total oil output and 25 percent of oil exports. Along with Iran and Venezuela, Russia is also on board. Today, China seems successful in convincing Saudi Arabia to start accepting petro yuan for its crude oil, and other oil-exporting countries will follow suit. Saudi Arabia has accepted petro yuan for payments of oil exported to China and Asia-Pacific countries while continuing to accept petrodollar for exports to other parts of the world. Even such a compromise will tip the balance in favour of petro yuan, as 75 percent of KSA’s oil exports go to the Asia-Pacific region and China. The launch of the crude oil benchmark for the Shanghai Stock Exchange could mark the beginning of the petrodollar’s end. The effect of the US sanctions on Iran, Russia and Venezuela will be substantially reduced once petro yuan replaces petrodollar. It could prove to be a major game-changer for global energy markets, global economy, and the effectiveness of US sanctions. With the petro-yuan leading global oil exchange, the yuan will definitely emerge as the world’s biggest reserve currency within the next decade.

The writer is a member of Anti-Drug Task Force Punjab. He can be reached at: mianmajid582@gmail.com