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China and Saudi Arabia Sign $50B In New Agreements

China & Saudi Arabia Sign $50B In New Energy, Security, and Investment Agreements

December 14, 2022843 view(s)

Chinese President Xi Jinping attended the Riyadh Gulf-China Summit for Cooperation and Development Summit. China signed several memorandums of understanding and more than 40 new energy, security, technology, and bilateral investment agreements with Saudi Arabia and other Arab gulf states totaling more than $50 billion. The new deals will increase the Saudi-China trade to nearly $140 billion annually compared to $24.7 billion of Saudi-U.S. trade.

China and Saudi Arabia agreed to have biennial meetings between the heads of state to discuss further shared interests .

Saudi Arabia’s press release highlights eighteen specific areas of cooperation. The areas of cooperation include expanding energy, food, security, technology, and commitments to each other's sovereignty and territorial integrity. (The press release referenced President Xi Jinping's speech supporting a two-state solution in Israel and Arab support for the One-China policy relating to Taiwan, “Arab states firmly support the one-China principle and support China in safeguarding its core interests. Likewise, China supports Arab states in upholding sovereignty, independence, and territorial integrity. On issues such as the Palestinian question, China's firm support for Arab states has been consistent and unwavering.” The countries agreed to “synergize China’s Belt and Road Initiative and Saudi Arabia’s Vision 2030.”

China & Saudi Arabia Sign $50B In New Energy, Security, and Investment Agreements

President Xi Jinping Calls for Oil Trade in Yuan

During Chinese President Xi Jinping's speech on Friday, he stated he would work to buy oil and gas in Chinese Yuan. He stated China would use the Shanghai Petroleum and National Gas Exchange as a platform to carry out Yuan settlement of oil and gas trade.

China & Saudi Arabia Sign $50B In New Energy, Security, and Investment Agreements

In March 2022, China and Saudi Arabia began negotiations for China's oil to settle in Yuan. Concerning Saudi Arabia abandoning the Petrodollar for Yuan, a Saudi official told Reuters before the summit, “It is not yet the right time.” 

Why would Saudi Arabia use the phrase "not yet” to answer exchanging the Petrodollar for Yuan?

Saudi Arabia still has substantial Dollar-denominated assets, including $121 billion in U.S. Treasuries and $608 billion in the U.S. stock markets. In 2020, Saudi Arabia held $184.4B in U.S. Treasuries. Two years later, Saudi Arabia has reduced its Treasury holdings by 34.4% to $121B. Saudi Arabia is systematically de-dollarizing their economy and reducing Treasury holdings. Saudi Arabia knows how vital the Petrodollar agreement is for their investments. The Saudis want to retain $700+ billion and secure trade with China. They want their cake and eat it too. They have to be careful not to move too quickly. Accepting Yuan prematurely would put their $700+ billion at risk. What does that say about the importance of the Petrodollar agreement for the value of Dollar-denominated assets?

 In politics, the words not said are often as crucial as those spoken. The Saudi's statement was uncommonly forthright for a political response to a news outlet. Despite the strained U.S./Saudi relations, one still expects an ambiguous political word salad. A word salad like "Saudi Arabia values all our trading partners and looks to bring the best solution to all parties. Our long-standing relationship with the U.S. will continue to endure as we grow our relationship with China.” Instead, we got unambiguous, “It is not yet the right time.” The phrase “not yet” implies “not now but coming soon.”

China & Saudi Arabia Sign $50B In New Energy, Security, and Investment Agreements

The President of China signs new agreements worth more than double the U.S./Saudi trade. He openly calls for an economic overhaul of the Petrodollar system. The response of the Saudis is “not yet.” Saudi Arabia has formally applied to join the BRICS nations. Crown Prince Muhammed bin Salman (MBS) said to President Jinping that he appreciates China supporting Saudi Arabia's communication efforts with the BRICS and G20. The BRICS nations are openly trying to compete against and overthrow the Dollar hegemony, and this is why MBS thanks President Jinping? There isn't any doubt that the economic and energy ties between Saudi Arabia and China will grow substantially.

Why would Saudi Arabia seek military support from China if it trusted the U.S. to protect it?

More than the economic agreements, the security agreements may be the loudest warning for your portfolio. In October, OPEC denied White House requests to stall oil production slowdowns until after the elections. U.S./Saudi relations suffered strain after President Biden promised "consequences" for Saudi Arabia in response to the denial. Within a week, China and Saudi Arabia released a joint statement reaffirming their commitment to the oil trade's stability. A week later, Saudi Arabia lowered the oil price for Asia while raising it in Europe

At the time, MBS said China was Saudi Arabia's primary economic partner, and the U.S. was their military partner. (In the Petrodollar agreement, the U.S. promised to provide military support, and Saudi Arabia would keep the oil trade in Dollars.) Six weeks later, China and Saudi Arabia are signing military agreements. 

Military agreements are the realm of the U.S./Saudi relationship. China is wooing Saudi Arabia with the promise of military protection. In a marriage, this type of unfaithfulness would end in a divorce. Divorces are messy and very expensive. What would the U.S. lose in the divorce? What would you lose? Do you want to be holding Dollars when Saudi Arabia officially files for divorce from the Petrodollar? 

Saudi Arabia doesn't want to be holding dollars when the Petrodollar ends. Do you?

Precious metals are an excellent idea. Don't you agree?

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About the Author: Ryan Watkins

 

Ryan is proud to be an Army veteran. After honorably serving his country, he studied finance, marketing, and kinesiology and graduated Cum Laude. Sharing a professional, practical, well-rounded investment perspective is his primary objective. Ryan invests in many different assets but admits he likes tangible assets best. His sincere passion is educating people and helping them make the most informed choices.

This article expresses the viewpoints of one of our precious metals specialists, based on recent news reports and opinion-based analysis of the situation. This information should in no way be taken as professional investment advice. As always, we encourage you to talk to your financial advisor before making any investment decisions.

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Ryan Watkins, Op-Ed ContributorbyRyan Watkins, Op-Ed Contributor
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