China’sgold-backed yuan oil contract is now a reality. The contract is trade on the Shanghai International Energy Exchange (INE). The Petro-Yuan is challenging the predominance of the petro-dollar in the oil market. This competition can’t be neglected because it will create a monumental shift in the world international market. The objective of the Petro-Yuan is to end the supremacy of the US dollar as the standard currency in the oil trade. Development of the Yuan oil trading will help increase the use of the Chinese currency in global trade. Currently the Yuan represent less than 3% of global trade. About 90 % of all transactions in the $5 trillion/day FX markets are made in US dollar, but the Yuan represent only 4% of this global trade. These 2 factors explain why the competition between the Petro-Dollar and the Petro-Yuan is a long-term challenge. They are among the many factors that explain why the beginning of the Petro-Yuan is not very strong. OPEC state “the extent to which the INE contract is independent from government interference is currently the main risk factor facing western investors, which is in addition to a currency risk, given that the INE is settled in yuan” (OPEC-April monthly oil market report).But, this reality could change very quickly. About 60% of China’s crude oil import come from OPEC. According to OILPRICE, on March 27, 2018 the Petro-Yuan oil futures volume was bigger than Brent crude oil futures volume. This performance demonstrate that the Petro-Yuan will be the world 3rd global price benchmark for crude oil. Many countries are trading oil in Yuan, this is the case of Russia (world number 2 oil producer), Iran, Venezuela, ect. In the future, when Saudi Arabia will accept the Yuan as the currency of payment of its oil export to China, the balance of power between the Petro-Dollar and Petro-Yuan will dramatically change.Saudi Arabia is the world biggest exporter of crude oil and China is now the world biggest importer of crude oil.On January 2018, the Chinese import reach of 9.61 million b/d. The Yuan a isgovernment-controlled currency, but it is one of the 5 global currencies in the IMF’s Special Drawing Rights (SDR) basket. Value of the oil market is about $14 trillion, it is bigger than the Chinese economy. The Petro-Dollar is the essential instrument of the supremacy of U.S in the world economy. Growth of the Petro-Yuan will weaken this domination and create a huge transformation of the world capital allocations and trade flows.
