Whenever the “petroyuan” comes up (which is quite often these days), I’m always keen to mention the Iran factor.
The petroyuan tale is essentially just a yuan-for-Saudi-crude story, and it’s a favorite among the counter-narrative crowd. The idea is that China, bent on establishing an alternative to the dollar-based world order, can convince Riyadh to price its oil in renminbi, thus slowly supplanting the petrodollar system that’s dominated the commodities trade for decades.
The story is implausible. I’ve explored and explained why on multiple occasions over the years and particularly last year, when Zoltan Pozsar’s pretensions to foreign policy expertise shoved the petroyuan meme back into the limelight.
Although Xi Jinping is openly enthusiastic about facilitating and expanding GCC-China relations, Beijing has a long-standing ally in Tehran, and that’s an ostensible impediment to deeper geopolitical ties between Xi and Mohammed Bin Salman.
Riyadh is upset with Washington for a number of reasons, including waning support on Capitol Hill for the Kingdom’s brutal war in Yemen and US admonitions related to the Crown Prince’s human rights record which, as of 2018, included the extraterritorial execution of a Washington Post columnist. Tehran, meanwhile, is upset with Washington for all the usual reasons, including and especially the harsh sanctions regime which regards Iranian crude as tantamount to contraband.
So, the Saudis and the Iranians do share an interest in the establishment of an alternative to USD hegemony. For Riyadh, which pegs the riyal to the dollar, such a system would function merely as a kind of insurance policy against a complete collapse in Saudi-US relations. For Tehran, such a system, were it established and maintained “out in the open” (so to speak) with buy-in from the BRICS, could be a real game-changer — a lifeline that obviates the need to constantly pursue end-arounds and various backdoors to circumvent Treasury sanctions.
But make no mistake: All of that’s secondary to sectarian strife. There are no circumstances under which economic considerations override the Sunni-Shiite divide. That’s a conflict drenched in blood and enshrined in regional history. Notwithstanding OPEC cooperation, nothing has ever succeeded in overcoming ill-will born of sectarian concerns, and it’s unlikely that anything ever will.
That’s an obstacle to deeper Sino-Saudi ties given Beijing’s traditional geostrategic support for Iran. Part and parcel of the petrodollar system is US military protection for the Saudi state primarily from IRGC aggression. Who, exactly, is going to provide for that in the event Riyadh makes too much noise about pricing its oil in renminbi? Certainly not China. Xi isn’t going to arm the Saudis against Iran.
It’s with that in mind that I wanted to highlight Ebrahim Raisi’s Tuesday visit to Beijing. It was the first trip by an Iranian president to China since Hassan Rouhani made the pilgrimage more than four years ago.
Raisi, as it turns out, is at least a little bit upset, describing a “serious regression” in the two countries’ bilateral relationship ahead of his chat with Xi. Among other things, he (Raisi) wants more trade and deeper economic integration, consistent with a strategic plan agreed in 2020. Xi was charitable on Tuesday. “China will unswervingly develop friendly cooperation with Iran no matter how international and regional situations change,” he said.
It wasn’t immediately clear what he meant by changing “regional situations,” but some Iranian politicians weren’t amused late last year when Xi failed to visit Tehran en route to the GCC summit with Bin Salman. Nor were officials in Tehran enamored with Xi’s implicit endorsement of a GCC communique which included a reference to Iran’s “destabilizing regional activities” and financing for “terrorist and sectarian groups.”
That latter reference was, of course, to Hezbollah and a hodgepodge of Shiite militias operating out of Iraq which, post-Saddam, effectively became a US-occupied fiefdom of slain Iranian general Qassem Soleimani. Tehran summoned the Chinese ambassador over the statement, which also contained controversial language around a trio of disputed islands.
Raisi was accompanied to Beijing this week by a half-dozen top Iranian officials, including the central bank governor, the economy minister and diplomats in charge of oil, trade, transport, urban development and foreign affairs.
It’s difficult to escape the suspicion that although Xi, unlike US presidents, won’t be taking sides officially, he may nevertheless be inclined to develop a closer relationship to the Saudis irrespective of Tehran’s wishes. That’d represent a kind of “China first” policy to the extent the Saudis simply have more to offer.
If you’re Tehran, there’s always Moscow, I suppose. Russia apparently overtook China recently as Iran’s largest foreign investor, even as China remains the largest buyer of Iranian crude amid ongoing US sanctions. But then Vladimir Putin is close to Bin Salman too, not just as a brother in autocracy, but as a managing partner in OPEC+.
Late last month, a Biden administration official warned Xi against buying Iranian oil, calling China “the main destination of illicit exports.” Asked if the White House was actually countenancing the trade in illicit Iranian barrels as a way to drive down oil prices amid tension with Russia, Biden envoy Robert Malley said, “No, we’re not fine with it.”
Related: The Petroyuan Meme
