According to an analyst quoted by Markets Insider, the rise of the petro-yuan will gather speed as China seeks to capitalize on its status as the world’s largest oil importer and Russia has effectively become an Asian country.

But Victor Katona, chief crude oil analyst at commodity trading analyst Kpler, says the dollar will remain the world’s dominant currency for the foreseeable future, with the U.S. currency the most used in international trade and foreign exchange reserves.

But China has increasingly aggressively pushed the yuan in oil deals, challenging the dollar in commodity markets as Russia’s invasion of Ukraine led to sweeping sanctions against the Russian economy and the ruble.

The situation prompted Moody’s rating agency to officially declare Russia in default at the end of June last year after the US Treasury Department banned Moscow from making payments in dollars.

Moscow was left without major European importers of natural gas and oil

Russian President Vladimir Putin threatened back in April 2022 that his country would shift natural gas and oil exports to Asia amid Western sanctions, his comments came just two weeks after he announced that Russia would no longer accept payment for energy supplies than in rubles.

The measure only applies to countries Russia classifies as “unfriendly,” but the list includes all EU and NATO member states, including major importers of Russian gas and oil before the war broke out on February 24.

Information that emerged in the following months showed that Moscow tried to sell its oil to Asian countries, offering deep discounts, especially to China, because Chinese state-owned companies were initially reluctant to import energy from Russia.

On December 27, Russian President Vladimir Putin finally announced a ban on all exports of crude oil and petroleum products to countries that impose a price ceiling on them, a measure agreed by the EU and G7 countries for seaborne shipments.

On December 3, the EU announced a cap on the maximum price that can be paid in the EU for Russian oil at $60 per barrel. Specifically, with this ceiling, the EU prohibits European companies engaged in the delivery of Russian oil by sea (transport companies, insurance companies, etc.) from offering their services if the delivered oil exceeds the threshold of $60 per barrel.

However, publicly available data show that Russia has increased exports of Ural oil, its flagship brand, to Asia by 50% since October.

Russia, an Asian country?

Victor Katona declares that all these events mean, in fact, “Russia has become an Asian country that introduced the yuan into large-scale oil operations.”

Analyst Kpler also states that it would be “naive to think that China will not try to control oil prices or that it will not want to conduct transactions in a currency that it controls.”

In this regard, Katona also reminds of the aggressive monetary policy adopted last year by the Federal Reserve, the Central Bank of the United States, which led to a record increase in the dollar last summer.

And since oil deals are mostly done in dollars, a strong dollar means more expensive oil for importing countries, and Chinese President Xi Jinping is urging Gulf states to use the Shanghai exchange for energy deals in yuan.

Xi made the call last month during a visit to Saudi Arabia, during which the two countries signed $30 billion in trade deals.

Credit Suisse analyst Zoltan Pozar says the official visit marked the “birth of the petroyuan,” noting that Russia, Iran and Venezuela control 40% of OPEC’s proven crude reserves, with the Gulf states holding another 40%.

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