China will "compel" Saudi Arabia to trade oil in yuan with the rest of the oil market to follow suit and abandon the U.S. dollar as the world's reserve currency, a leading economist told CNBC.
Carl Weinberg, chief economist and managing director at High Frequency Economics, said Beijing stands to become the most dominant global player in oil demand since China overtook the U.S. as the "biggest oil importer on the planet."
Saudi Arabia has "to pay attention to this because even as much as one or two years from now, Chinese demand will dwarf U.S. demand," Weinberg told CNBC.
In recent years, several nations opposed to the dollar being the world's reserve currency have sought to try and abandon it, Kallanish Energy understands.
Russia and China have sought to operate in a non-dollar environment when trading oil. Both countries have also increased their efforts to mine and acquire physical gold if, or perhaps when, the dollar collapses.
OPEC leader Saudi Arabia is at the center of the petrodollar. Since a 1974 agreement between U.S. President Richard Nixon and Saudi King Faisal, Saudi Arabia has accepted payments for nearly all of its oil exports in dollars.
However, as China imports more and more oil from countries worldwide, the idea of having to purchase that same oil in dollars has become increasingly upsetting to Beijing, CNBC reported.
In recent years, China has sought to ratchet up the pressure on Saudi Arabia over the form of currency in which their oil trade is conducted, with Riyadh now enjoying less and less oil purchases from Beijing.
When asked what it could mean for the dollar should the oil market move oil trade out of the U.S. currency and into the yuan, Weinberg said the world's transaction currency would suffer "lesser demand for U.S. securities across the board."
"Moving oil trade out of dollars into yuan will take right now between $600 billion and $800 billion worth of transactions out of the dollar… (That) means a stronger demand for things in China, whether it's securities or whether it's goods and services,” Weinberg said.