PetroYuan Proliferation: Russia, China To Settle “Holy Grail” Pipeline Sales In Renminbi
Last week, in “The PetroYuan Is Born: Gazprom Now Settling All Crude Sales To China In Renminbi,” we discussed the intersection of two critically important themes which have far-reaching geopolitical and economic consequences. The first is the death of petrodollar mercantilism, the USD recycling system that has helped to buttress decades of dollar dominance and the second is the idea of yuan hegemony, a new, post-Bretton Woods world economic order characterized by the ascendancy of China-led supranational institutions.
These themes came together recently when it became apparent that Gazprom has begun settling all crude sales to China in yuan. Here’s a summary of the prevailing dynamics: Western economic sanctions on Russia have pushed domestic oil producers to settle crude exports to China in yuan just as Russian oil is rising as a percentage of total Chinese crude imports. Meanwhile, the collapse in crude prices led to the first net outflow of petrodollars from financial markets in 18 years, and if Goldman’s projections prove correct, the net supply of petrodollars could fall by nearly $900 billion over the next three years. All of this comes as China is making a concerted push to settle loans from its newly-created infrastructure funds in renminbi.
Now, it appears Russia and China will de-dollarize natural gas settlements as well.
First, a bit of history is in order.
Last month, Chinese President Xi Jinping visited Moscow, where Gazprom Chief Executive Alexei Miller and China National Petroleum Corp Vice President Wang Dongjin signed a gas export deal which paves the way for 30 bcm/y to China via a new “Western Route.”
(the Altai line)
As a reminder, the two countries ratified a “Holy Grail” gas deal last May for the delivery of up to 38 bcm/y over 30 years via an “Eastern Route.” Also known as the “Power of Siberia” pipeline, the Eastern route was billed as the largest fuel network in the world with a total contract value of around $400 billion.
(mapping the Western and Eastern routes)
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