Nikkei is reporting the contract could become the “most important Asia-based crude oil benchmark,” because China is the world’s biggest oil importer. The vast majority of the world’s crude oil market is based on the price indices for Brent or West Texas Intermediate futures contracts—which are valued in “petrodollars.”

Exporters like Russia and Iran—both of which are currently under U.S. sanctions—could sidestep those sanctions by trading their crude oil in petroyuan. Gold conversions will be allowed through the exchanges in both Shanghai and Hong Kong.

The Shanghai International Energy Exchange began training for these contract trades earlier this summer. Once opened, the futures contract would be available for investment by foreign investment funds, trading houses, and petroleum companies.
Last year, China averaged 7.6 million barrels per day of crude oil imports.

One could make a strong argument this is exactly the soft trade war former White House adviser Steve Bannon warned was already underway. Even if investors don’t want to be paid in petrodollars, the new contract will attract attention because they can be paid in gold—which will likely further weaken the U.S. dollar overall.

China hasn’t exactly hidden its intent, either.

It has been working on building a successful crude oil futures contract for several months. And more recently, it informed its oil trading partners that those who wish to trade in petroyuan will see an increase in market share, while those who wish to remain with the petrodollar will lose market share.

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