For its part, China has made a concerted push to scale the adoption of the petroyuan, particularly in its purchasing arrangements with OPEC+ members. President Xi Jinping’s visit to Riyadh last December emphasized China’s commitment to purchasing oil and gas in yuan. Yet doing so could further strain OPEC’s ties with the United States, which has relied on the bloc to plug supply gaps in Europe. Furthermore, the appeal of cheap Russian energy exports extends to OPEC members, with some importing cheaper Russian refined fuels for domestic use in order to conserve their high-value crude exports to European markets.

Despite benefiting from reduced competition in European markets, OPEC members like Saudi Arabia and the UAE have ceded considerable market share to Russia over the last year in India, China, and Turkey. This displacement of Gulf exports by cheap Russian crude in critical Asian markets could compel additional countries in the region to facilitate trade using dollar alternatives. As one example, Iraq’s central bank recently announced its decision to allow the settlement of non-oil imports from China using the yuan this year. Beyond signaling the long-term outlook of Asian energy markets, Iraq’s decision also cited the need to protect the Iraqi dinar in bilateral trade and investment with its largest trading partner.

At present, the key anchors of Western sanctions on Russia include the unipolar status of the dollar, coupled with the scope of the SWIFT messaging service. Yet, dating back to its initial invasion of Crimea, Russia has implemented and scaled its own SWIFT-like financial messaging system, known as the SPFS. Though it no longer publishes the name or number of its participants, the SPFS network was last confirmed to represent over 50 organizations from a dozen countries and most recently fully incorporated Iran, establishing a connection between Russian and Iranian banks.

An additional pull factor for dedollarization stems from the unprecedented speed and scale of the sanctions imposed on Russia by the United States. Russia’s experience since launching the war in Ukraine remains informative for China, particularly in its assessment of an international response to armed conflict with Taiwan. Thus, the motives in dedollarization for the likes of Russia and China coincide in the common aim of paring the efficacy of US sanctions by lending support to a variety of alternative currency initiatives. The most recent round of US sanctions, coinciding with the one-year anniversary of the war, provide additional scope toward Russian banks, arms, and commodity exports, in addition to third-party entities in Europe, Asia, and the Middle East. Should such measures expand, the motives for governments in Asia and the Middle East could be particularly encouraged by dedollarization as a long-term insurance against the threat of looming US sanctions. Furthermore, a continuation of tightened monetary policy by the US Federal Reserve could provide additional heft to clearing arrangements conducted in Chinese yuan and the Indian rupee, reflecting the aspirations of their respective governments in internationalizing their currencies.

As Russia’s market share in Europe continues to shrink due to Western sanctions and price caps, Moscow has few options but to expand its market share among Asian and Middle Eastern buyers. With China, Russia finds a critical and influential partner in the international efforts to dedollarize and incorporate alternative reserve currencies that challenge the dollar’s unipolar status. These efforts are helped in part by the shift and tensions between the Gulf states and the Biden administration. The displacement of Gulf exports by cheap Russian crude in critical Asian markets faces no immediate threat thanks to the annual term contracts that China and India covet with Middle Eastern importers, but the willingness and signal in adopting alternative measures could very well represent the latest inflection point in the trajectory of the US dollar and its relevance to global trade.