The Petroyuan is the answer to the Middle East’s problem

Iranian members of parliament have called on Muslim majority nations to sever all ties with Israel and reduce economic ties with the United States to a “minimum”. This comes as the Palestinian party Hamas formally declared the Third Intifada. 

Iran’s challenge was clearly directed towards Egypt, Jordan and Turkey, the only three Muslim majority nations which recognise Israel, although in a wider sense, the challenge was directed to Saudi Arabia and its allies Bahrain and the UAE–countries with strong, however covert ties to Israel.

As Turkey has already threatened to cut its long-standing ties with Israel, one can assume that Iran’s statement was in this sense, directed more towards the Arab world as Turkey and Iran have both led the rhetorical charge against the US and Tel Aviv over the decision by Washington to recognise Jerusalem/al-Quds as the Israeli capital. In the Arab world, while Syria, Iraq and most of Lebanon have stood by Palestine, there is a fear that Arab states in the Southern bloc of the Middle East will soon go quiet on the matter. In many ways Saudi Arabia already has.

Palestine can be a decisive factor in finalising a rapprochement between Turkey and Syria

Ultimately though, Iran, as a nation effectively cut off from the US based financial system through sanctions, ought to send an even stronger and in the long term, a more viable message. Iran can tell the Islamic world to jump onto the Chinese Yuan as a standard means of international exchange.

Apart from nuclear weapons, which even at this stage in American history, are unlikely to be used, the biggest means of leverage the United States has over adversaries is the power of the US Dollar and the Petrodollar in particular.

In 1973, shortly after the official birth of the Petrodollar, following on from Richard Nixon ending the gold based Bretton Woods system, OPEC, led by Gulfi Arab states, cut oil production, thus increasingly the price of oil to such an extent that many Israeli allies, including and especially the United States paid a large economic, financial and social price. Consumers were hit hard and this led to widespread discontent among western populations who rarely get exorcised about foreign policy matters.

The 1970s oil embargo was an example of mostly Arab nations using their oil wealth as leverage against the US. Today, with the US increasingly energy self-sufficient, a repeat of the 1973 oil embargo would not be as impactful, but if OPEC switched to selling oil futures contracts in the Petroyuan rather than the Petrodollar, the effects could far eclipse the impact of the 1973 oil embargo while also outlasting them. Venezuela has already taken such a move to effectively circumvent aggressive US sanctions against Caracas.

A pan-OPEC switch to the Petroyuan would represent a seismic hit to the prestige of the Dollar, one which would diminish one of the increasingly few leverage points the US has over the wider world. Furthermore, it would prepare OPEC for such a time when China will float the Yuan, which is all but inevitable in the long term, thus reducing the Dollar’s might, many fold.

A global switch from the Dollar to Yuan as the standard means of exchange in international trade would signify Chinese rather than US domination of international monetary markets and in an inevitably inter-connected world, the country which dominates international monetary systems, dominates almost everything else.

China is well on its way to this domineering position and will soon be in a position to demand OPEC begins trading in the Petroyuan. However, if OPEC were to to preempt China and voluntarily abandon the Petrodollar, Middle Eastern nations would break-free of the cycle of co-dependence with the US which has allowed Washington and Tel Aviv to treat governments in the Middle East as contemptuous satellites to politically de-stabilise at will.

This is not to say that China itself would help Iran or others to lead such a move because of Palestine. China, like Russiam remains neutral in the Middle East. The role of superpowers is naturally to cultivate lasting bonds between traditional allies while fomenting new ties to historically less friendly nations. China and Russia are both doing just that in the Middle East and it is already helping to de-escalate tensions as the largely Russian authored Astana process is proving. The United States which remains stuck in an ideological induced delirium has set a poor example for the proper role of a superpower in a so-called civilised age.

For China, the issue of Palestine is a matter of longstanding conscience and a consistent one, but it is not a matter of passion. China after all does business with Iran and Saudi Arabia–Israel and Syria. That being said, China would welcome any nation happy to trade in the Petroyuan, irrespective of the domestic justification.

Iran, Syria and to a degree, even Iraq have nothing to lose by switching to the Yuan as a de-facto trading currency, but that being said, even a close US ally like Saudi Arabia could stand to gain much.

China will soon eclipse the US as the world’s foremost economic superpower in areas which it hasn’t already and likewise China’s international markets as part of One Belt–One Road, will mean that all of roads of global trade will both literally and metaphorically lead to Beijing.

Most crucially, unlike the US, China places no policy caveats on financial, commercial and monetary affairs. This means that the Petroyuan would not inhibit Middle Eastern countries from developing a more independent foreign policy the way the US Dollar has made much of the Middle East totally subservient to a foreign policy authored in Tel Aviv and executed by the Pentagon.

Of course, the US has been known to use its military weapons against countries which threaten its weaponised Dollar, but if OPEC as a whole, along with OPEC’s clear partners made the switch all at once, the US would be clearly limited in its realistic options, especially with China on the other end of the proverbial mega cash register.

The future the Middle East craves is one that is not for sale–but it can be bought and sold via the Petroyuan.