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| THE DEMISE OF THE PETRO DOLLAR (USD)
THE POLITICAL AGENDAS OF RUSSIA AND THE US IN CRIMEA, UKRAINE AND SYRIA
Crimea, Ukraine and Syria have one common denominator. Let me be brutally frank, unfortunately it’s not about humanitarian or civil liberties. It’s all about the United States trying to save the Petro Dollar (USD), and Russia’s AND CHINA’S desire to destabilise the USD and have the Petro Yuan and Ruble play
a significant role on to the world economic stage. Russia’s aim is to undermine the status of the USD as the world’s reserve currency.
The situation in Crimea and Ukraine and Syria is all about securing energy supplies into Europe and China. For the US, it’s about protecting the Petro Dollar, and for Russia and China it’s about ensuring
the continuation of Russian gas and oil supplies monopoly in Europe. Russia’s response to the apparent US concern of humanitarian violations in the Ukraine and Crimea was to frustrate and block the US and Saudi’s plans for Saudi gas distribution into Europe via Syria, by aiding the Assad regime in Syria. A new regime in Syria backed by the US would allow the proposed supply of gas into Europe via Syria. This strategy is seen as crucial by the US, as it seeks to prop up its Petro Dollar status by eliminating Russia’s monopoly of gas supply into Europe.
It is interesting to note the US is always concerned with the violations of human rights in countries like Ukraine, Crimea, Syria and Venezuela who are ultimately involved with potential disruptions
or benefits to the status of the Petro Dollar. The US turns a blind eye to the dictatorial policies, and inhumane treatment of women in Saudi Women and many Muslim countries.
Russia prepares to attack the Petro Dollar (USD).
The US dollar’s position as the base currency for global energy trading gives the US a number of vital advantages. Moscow is ready to take those advantages away.
The existence of Petro Dollars is one of the pillars of America’s economic might because it creates a significant external demand for American currency, allowing the US to accumulate enormous debts up to this time without defaulting.
If a Japanese buyer wants to buy a barrel of Saudi oil, he has to pay in dollars even if no American oil company ever touches the barrel. The USD has held a dominant position in energy trading since the early 1950’s.
Even Gazprom’s natural gas contracts for Europe are priced and paid for in US
Dollars. Until recently, a significant part of EU-China trade had been priced in dollars. But that is changing as Russia and China are now quickly re-pricing oil and energy payments with Rubles, Yuan, gold and even Euros to dethrone the USD.
The strength of the dollar is historically (ARAMCO in the 1950’s) based on the US agreement with Saudi Arabia that all contracts for fuel deliveries are in the US dollars. Now, Moscow and the BRICS are collapsing the Petro Dollar if Russia starts selling its fuels for anything but the dollars. Germany’s Merkel would be only happy, for Germany, as well as other European countries would then have no need for currency markets. The cost of oil and gas would go down as the USD hedge risk is eliminated. But the United States should be ready for an abrupt increase in gasoline prices, for hyperinflation amid a poor business climate and devaluing of the Petro Dollar.
The slapping of sanctions on Russia and China is tantamount to the US shooting itself. One of the sanctions that the US said it would resort to would be to cut Russia out of the SWIFT interbank payment system. But should this happen, the sanctions would hit hardest the US and major Western banks. Technically, it is pretty easy to cut Russia out of the SWIFT system by blocking Russian banks IP addresses. Hardly anyone in the US or Europe would like to resort to this kind of move, since banks are interrelated. If Russian banks are unable to use the system,
they will fail to make timely payments to their western counter parties, which will prove quite a shock to the financial system including the major US Banks.
One of the more notable recent developments in the Ukraine crisis has received surprisingly little attention. Namely, the BRICS grouping (Brazil, Russia, India, China, and South Africa) has unanimously and, in many ways, forcefully backed Russia’s position on Crimea. The BRICS grouping as a whole has also stood by the Kremlin. Indeed, the BRICS confirmed their support for Russia at the recent Nuclear Security Summit in The Hague.
Just prior to the meeting, Australian Foreign Minister Julie Bishop19 suggested that Australia might ban Russia’s participation in the G20 summit it will be hosting later this year as a means of pressuring Vladimir Putin on Ukraine.
The BRICS foreign ministers warned Australia against this course of action in the statement. The BRICS ministers noted:
The custodianship of the G20 belongs to all Member States equally and no one Member State can unilaterally determine its nature and character.
The Ministers continued:
The escalation of hostile language, sanctions and counter-sanctions, and force does not contribute to a sustainable and peaceful solution, according to international law, including the principles and purposes of the United Nations Charter.
This was further reinforced recently when China, Brazil, India and South Africa (along with 54 other nations)
all abstained from the UN General Assembly resolution criticizing the Crimea referendum. Another 10 states joined Russia in voting against the non- binding resolution.
The anti-Western stance by the BRICS has usually taken the form of BRICS opposition to Western attempts to
place new limits on sovereignty. The fact the BRICS have now supported Russia suggests that their anti-Western leanings may be more strongly held than most previously believed. The BRICS and other non-Western powers’ support for Russia also suggests that forging anything like an international order will be extremely difficult, given the lack of shared principles to act as a foundation. Although the West generally celebrated the fact that the UN General Assembly approved the resolution condemning the Crimea referendum, the fact that 69 countries either abstained or voted against it should be a wake-up call.
China and Russia are now leading the BRICS efforts to dislodge the USD from its position as the main global currency. Recently the sanctions war between Washington and Moscow is giving an impetus to the long-awaited scheme to launch the Petro-Ruble and switch all Russian energy exports away from the USD. Vladimir Putin5 has been very vocal in his quest to replace the USD with the Russian ruble. On March 2, Andrei Kostin20, the CEO of state owned VTB bank OF Russia, noted that Gazprom, Rohnert, and Rosoboronexport21 (a state Russian company specializing in weapon exports), are to start trading in rubles. This is an extremely important step in Russia’s aim to destabilize the USD. Given that the majority of Europe’s energy supplies are sourced from Russian state own energy companies, and China is also now a major energy customer of Russia.
In October 2013, speaking at the World Energy Congress in Korea, Russia called for a global mechanism to trade natural oil and gas and said it was advisable to create an international exchange for the participating countries, where transactions could be registered with the use of regional currencies. Consequently, a Russian commodity exchange is now being set up to trade Russian oil and natural gas, where prices will be set in rubles instead of USD’s. This will be a major blow to the Petro Dollar (USD).
Russia has recently signed contracts for the supply of oil and gas to China and India. Iran will also give Russia around 500,000 barrels of Iranian oil per day to sell in the global market. This will then give Iran credits for the purchase of Russian goods (weapons and technology). Clearly the US sanctions have opened a Pandora’s box of troubles for the USD. The Russian retaliation will surely be unpleasant for Washington.
No doubt other oil producers and consumers will follow the example set by Russia. During the last month, China opened two centers to process Yuan- denominated trade flows, one in London and one in Frankfurt. Clearly the Chinese are preparing a similar move against the USD. The 21 May, 2014 priced in Rubles (equivalent to USD40 billion) gas deal between China is a major transaction in the energy world, further enhancing the Petro Ruble and taking the business away from the Petro Dollar. The transaction is for 30 years and China will also lend Russia, Yuan (equivalent to USD50 billion) to build the gas pipeline from Siberia to the Chinese border.
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The Dollar: Credit to Paul Marks
