Saudi Arabia is in active talks with Beijing to price some of its oil sales to China in yuan, people familiar with the matter said, a move that would dent the U.S. dollar’s dominance of the global petroleum market and mark another shift by the world’s top crude exporter toward Asia.

The talks with China over yuan-priced oil contracts have been off and on for six years but have accelerated this year as the Saudis have grown increasingly unhappy with decades-old U.S. security commitments to defend the kingdom, the people said.

The United States on Tuesday said it is not asking its allies and partners to choose between the US and China when negotiating trade deals.

US State Department spokesperson Ned Prices made these remarks while referring to the Saudi-Chinese talks on oil sales.

"What we are not asking countries to do is to choose between the United States and China. When it comes to many of our partners, what we seek to do is to give them choices and to make partnership with the United States and all that we bring to the table, all that we could bring to a bilateral relationship," he added.

Media reports say Saudi Arabia is growing discontent with US foreign policy.

In particular, Riyadh is not pleased with the lack of support from Washington for the Saudi-led Arab coalition in Yemen. Reportedly, they are also not happy about the Biden administration's efforts to negotiate a nuclear deal with Iran.

Reports suggest that the national oil company Saudi Aramco is also considering using yuan-denominated futures contracts, in its pricing model. However, this transition from petro-dollar to yuan is unlikely to happen, a senior US official told the Wall Street Journal.

The US official was quoted in the report describing the negotiation as "highly volatile and aggressive" and "not very likely."

The official further stated selling oil to China in yuan will likely stagger the Saudi economy and undermine the Saudi government's fiscal outlook.

Some officials have cautioned Prince Mohammed that accepting payments for oil in yuan would pose risks to Saudi revenues tied in U.S. Treasury bonds abroad and the limited availability of the yuan outside China.

The impact on the Saudi economy would likely depend on the quantity of oil sales involved and the price of oil. Some economists said moving away from dollar-denominated oil sales would diversify the kingdom’s revenue base and could eventually lead it to repeg the riyal to a basket of currencies, similar to Kuwait’s dinar.

“If it is (done) now at a time of strong oil prices, it would not be seen negatively. It would be more seen as deepening ties with China,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.

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