China could destroy the ‘petrodollar’

The world second largest economy, China could be shattering the hegemony of petrodollar as it is likely to “compel” Saudi Arabia to sell crude oil in yuan.

These were the views expressed by the chief economist and managing director at High Frequency Economics Carl Weinberg. This will hit the US dollar, he says.

Saudi Arabia has "to pay attention to this because even as much as one or two years from now, Chinese demand will dwarf U.S. demand," Weinberg said, in an interview to CNBC.

The economist informed that the rest of the players in oil market would follow China.

"I believe that yuan pricing of oil is coming and as soon as the Saudis move to accept it — as the Chinese will compel them to do — then the rest of the oil market will move along with them."

It is pertinent to inform, that as per a 1974 agreement between U.S. President Richard Nixon and Saudi King Faisal, Saudi Arabia has accepted payments for almost all of its oil exports in dollars.

Therefore, coining the term ‘Petrodollar’

However, as China imports more and more oil from countries across the world and less from Saudi Arabia. Meanwhile, what would happen to the dollar if the oil market move its trade into the yuan.

The world's transaction currency would suffer "lesser demand for U.S. securities across the board," said Weinberg.

"Moving oil trade out of dollars into yuan will take right now between $600 billion and $800 billion worth of transactions out of the dollar… (That) means a stronger demand for things in China, whether it's securities or whether it's goods and services.”