It is necessary to evaluate the petro-yuan breakthrough, which China started with the aim of a transformation in the global economy, mainly in supply chains and trade, but mostly within the scope of the de-dollarization effort on energy cooperation. As a matter of fact, states such as China and Russia, which want to transform the global system geopolitically, geoeconomically and geostrategically, want to challenge the global economic hegemony built by the United States of America (USA). At this point, it can be said that these states primarily aim to reduce the dependence of the global economy on the dollar. As a matter of fact, the aim of these states here is not only to break the dominance of the dollar, but also to build the dominance of their own currencies such as the yuan and ruble instead.
In this context, it can be said that the petro-yuan initiative basically aims to challenge the dominance of the US and the US dollar in global markets. In this context, first of all, it should be examined how and in what way the petro-yuan initiative was expressed, what exactly it was aimed at, and what kind of conjuncture would be drawn in terms of achieving the goals.
The first point that can be examined in this context is that on September 7, 2022, Gazprom, a Russian-based state-owned energy company, stated that it agreed with China that the natural gas to be supplied to China would be paid in yuan instead of dollars.[1] Because this agreement is important in terms of strengthening the discourse expressed by the two actors, Moscow and Beijing, who want to compete with the Western-based global hegemony.
As a matter of fact, it can be said that with this agreement, both actors aim to raise their voices in global issues. At the same time, it can be a concrete indication of the intention of both states to take a more active position and rebuild the global geopolitical and geoeconomic framework. It is known that Beijing and Moscow follow a close stance in their foreign policy production processes in line with their goals of building a multipolar world order.
The second issue that can be examined at this point was realized at the Shanghai Cooperation Organization (SCO) Leaders’ Summit, which is an important symbol of multipolarity. At the summit held in Samarkand, the ancient city of Uzbekistan on September 15-16, 2022, Russian President Vladimir Putin emphasized that the need for the use of national currencies within the SCO has increased.[2] This is of great importance since the de-dollarization target is expressed in a concrete way within the organization. Currently, it is seen that national currencies take up more space in the payments made between the member countries of the organization in recent years. For example, in the first half of 2022, the rate of trade between China and Russia through national currencies reached 27.5%.[3] However, these developments are not the first steps taken in the war against the dollar in the global economy.
De-dollarization efforts have been ongoing since the mid-2010s, when China tried to implement the “Cross-Border Interbank Payments System” (CIPS) instead of the US-based ” The Society for Worldwide Interbank Financial Telecommunication” (SWIFT). As a matter of fact, while Russia made approximately 80% of its exports in dollars in 2013, it is a remarkable development that it started to made 55-60% of it in dollars in 2022.[4] It can be said that an important reason for the decrease in this amount is the trade with China.
However, Moscow has turned not only to the yuan but also to the euro in order to suppress the dollar. However, it can be said that this situation makes Russia more open to sanctions that can be applied by the European Union (EU). In this context, there are some advantages and disadvantages of entering into a struggle against the dollar in the global economy and trying to integrate local currencies, especially the yuan and ruble, into supply chains.
First, states can avoid possible losses due to exchange rate differences by using their own national currencies in international trade. This is because that situation corresponds to the preservation of the exchange rate, since the actors reduce their need for dollars. At the same time, these countries will not have the problem of finding foreign currency during the import phase.
It should be noted that small-scale financial institutions of China, which is less dependent on the dollar compared to other actors, can play a critical role in the de-dollarization process. Moreover, Chinese banks could also help Russia with the sanctions it is currently facing by providing Moscow with yuan in cash. However, this can also find a response in the form of Western countries taking sanctions against China.
It can be said that with the petro-yuan and de-dollarization moves, China is challenging the dominance of the dollar in the global oil market. China, which is currently both the world’s largest exporter and largest importer of crude oil, may expect the change in the use of global currency to affect global economic hegemony in the long run.
On the other hand, the fact that more than half of all global foreign exchange reserves are in dollars provides a significant structural advantage to the USA. It can be said that this situation gives Washington economic and political power. The demand for the petro-yuan in the market may increase the demand for the Chinese currency. Because this, in turn, may provide China with the opportunity to buy oil with a currency that it can print and reach whenever it wants, and it may provide an opportunity to balance the USA in the global conjuncture economically and politically.
In this context, Saudi Arabia’s acting together with China may open the door for China’s petro-yuan framework to enter a faster rise and for China to claim rights in the global oil market in the long run. In the case of Russia, the increase in the ceiling price applied in the oil field will naturally improve relations between Russia and China in the context of oil trade. The situation may also be reflected in the fact that China’s petro-yuan strategy takes a more widespread and acceptable position on a global scale.
As a result, China is trying to challenge the hegemony of the dollar in the global economy by getting the support of Russia with the petro-yuan move. While this may have an attractive effect on both neutral and anti-Western countries in the short term, the continuation of the competition in the long term is really difficult because of the dollar-based global system built by the USA after the Bretton Woods Agreement signed after the United Nations Monetary and Financial Conference in 1944. Because there is no mechanism that China can offer as an alternative to this system at least not in the current situation. Moreover, it is not easy to establish a solid-based platform in the short term, only in cooperation with actors such as Russia and Saudi Arabia. In short, it can be said that the petro-yuan and de-dollarization moves are likely to remain a symbolic challenge in the current conditions.
[1] “Russia’s Gazprom, CNPC Agree to Use Rouble, Yuan for Gas Payments – Gazprom”, Reuters, https://www.reuters.com/business/energy/petrochina-signs-gas-agreement-with-russias-gazprom-2022-09-07/, (Date of Accession:12.01.2023).
[2] “Владимир Путин: Доля расчетов в нацвалютах стран ШОС растет”, RG, https://rg.ru/2022/09/16/vladimir-putin-dolia-raschetov-v-nacvaliutah-stran-shos-rastet.html, (Date of Accession:01.11.2023).
[3] “Путин отметил рост доли взаимных расчетов России и Китая в нацвалютах”, RİA, https://ria.ru/20220915/valyuta-1817022800.html, (Date of Accession: 01.11.2023).
[4] “Russia and China: Partners in Dedollarization”, Atlantic Council, https://www.atlanticcouncil.org/blogs/econographics/russia-and-china-partners-in-dedollarization/, (Date of Accession: 12.01.2023).
