Our translation of an article from vestifinance.com preceded by our commentary.
China is set to open its oil futures market on March 26 via the Shanghai International Energy Exchange. The futures will be denominated in RMB (yuan), thereby launching the petroyuan. Since the yuan is now essentially convertible to gold, this reintroduces the gold standard, which was eliminated by Richard Nixon in 1971.
Nixon floundered around in search of a new prop for the dollar and finally settled on a petrodollar agreement with the Saudis whereby the US would become essentially a mercenary force to defend the Saudi royals and their oil fields (though judging by the outcomes of US-waged wars since then, it would appear the unspoken part of the deal was to rid the Saudis of Shiite and secular leaders as well, to the benefit of radical Wahhabism/Salafism) in exchange for them charging only US dollars for their oil and keeping their reserves in USD as well. The confidence in the USD that this unsavoury deal created in the biggest investors has kept the buck afloat since that time. However, the Chinese are now exerting enormous pressure on the Saudis to drop this sordid deal and start using the yuan instead. There are signs that Saudi is starting to crack. For example, Crown Prince Salman has broken a sacred tradition of buying all its military arms from the US and has been negotiating with Putin for the purchase of the S-400 air defence system.
If he eventually decides to make a clean break of it, adopting the petroyuan and kicking the buck under the bus, the US dollar will be hard put to hold its own as a reserve currency for world trade settlements.
This is not the best of times for the dollar since it has lost considerable value against a basket of world currencies and the US stock market is starting to crumble.
The rampant imposition of US sanctions on a wide assortment of states for an arbitrary host of misdeeds is also making the petroyuan more attractive as an immunizer against this possibility. While the US seems oblivious to this side effect of its liberal sanctions policy, the EU, Russia, Iraq and others are keenly aware of how easily the US could bring down their economies with a strict application of it. And it’s not just the US-designated “enemies.” In June 2014 the US Justice Department fined French bank BNP Paribas $8.9 billion for trading with Iran in US dollars. Thus, even “friendly” countries need to fear trading in dollars. The petroyuan might be just the ticket for them.
China changes the rules of the game in the oil market
Moscow, September 4 - Vesti.Ekonomika
China is preparing to launch a futures contract for oil, denominated in RMB with a possible conversion to gold. According to experts, this may radically change the rules of the game in the oil market, as it will allow raw material exporters to avoid using the dollar.
Considering the fact that China is the world's largest oil importer, this contract could become a new benchmark for traders, only this time it will be based in Asia. Recall that two reference contracts for crude oil - WTI and Brent, are now traded on the world market, and both are denominated in US dollars.
The launch of the futures, denominated in RMB, will allow exporters, such as Russia and Iran, to avoid using dollars and, if necessary, avoid sanctions. In addition, the exchanges of Hong Kong and Shanghai will be able to convert the yuan into gold, which will be an additional incentive for the displacement of trade in Asia, as reported by the agency Nikkei.
LAUNCHING A NEW OIL CONTRACT
Shanghai International Energy Exchange in June and July carried out the necessary preparatory work, as well as a test auction, and is now beginning to train potential participants. This will be China's first commodity futures contract, open to foreign companies, such as investment funds, trading houses and oil companies.
Many experts, including the US, admit that now the rules of the game on the global energy market can change.
By the way, China has already matured to launch its futures. The fact is that in recent years, active participation of Chinese independent oil refineries has been noted, which has made the domestic market in China diverse. This means that an environment was created in which the contract for crude oil will be in demand.
Further, China has long wanted to reduce the dominance of the US dollar in commodity markets. Gold futures have already been launched, and have traded on the Shanghai Gold Exchange since April 2016. Now the exchange plans to start trading on the stock exchange in Budapest by the end of this year.
In addition, the contracts for gold in RMB were launched in Hong Kong in July, although this was preceded by two unsuccessful attempts.
Once again, we emphasize that the presence of two contracts (for oil and gold, denominated in RMB) will allow bidders, in fact, to pay for oil in gold or convert the yuan into gold. In any case, it is an excellent opportunity to avoid settlements in US dollars, and even if the trader has no desire to pay in RMB, he can use gold.
Russia, for example, will be able to sell oil to China, and while converting yuan into gold, our country will have no obligation to keep money in Chinese assets or transfer proceeds from the sale of "black gold" to dollars.
As already mentioned above, these futures are of the greatest interest for countries against which the US conducts an aggressive foreign policy: Venezuela, Iran, Qatar and others.
By the way, China is using an element of pressure, stating that those who do not want to sell oil through a new contract in RMB will lose a share in the Chinese market. Thus, for example, according to Chinese media, Beijing has already proposed calculations in the yuan for Saudi Arabia. While the Saudi response to this s not known, China has already reduced its share of oil imports from Saudi Arabia.
Original text: http://www.vestifinance.ru/articles/90448
NSS translation and commentary
Below is our translation from the Russian of an article from EADaily. The possibility of adding tariffs to aluminium and steel products was raised back in January. The EU has now reiterated its intent to levy retaliatory tariffs in response. So higher prices in both the US and Europe will be the outcome. This is why most administrations have refrained from imposing tariffs as a means of offsetting non-competitively priced imports to the US.
FAZ: EU prepares for trade war with US
The European Union is preparing for a trade war with the United States. If the restrictions on steel imports and aluminium imposed by Washington on the import of steel and aluminium are also affected by European enterprises, the EU can, within a few days, introduce retaliatory duties on important products from the United States, the Frankfurter Allgemeine Zeitung (FAZ) reports with reference to sources in the European Commission.
At the same time, penalties can be imposed on the widest range of American products from orange juice to motorcycles and whiskey, the newspaper writes.
According to spokespersons for the publication, agricultural products from the United States, including potatoes and tomatoes, head the European Commission’s list. At the same time, Europeans want to strengthen the sensitivity of the retaliatory measures by the fact that the blow is supposed to be inflicted on goods of great importance for the constituencies of the closest supporters of US President Donald Trump. This includes notably motorcycles, since the head office of Harley Davidson is in Wisconsin, home of House of Representatives speaker Paul Ryan. European Commission’s list also includes Bourbon whiskey, which is produced mainly in Tennessee and Kentucky - in the homeland of Trump adviser Mitch McConnell, the Republican majority leader in the Senate.
As the FAZ notes, the European Commission took as a basis the list of goods that was drawn up during the last major trade conflict with the US under President George W. Bush, but updated it. The fact that the EU, in response to possible penalties on steel and aluminium, will react with higher duties on goods from completely different sectors of the economy, does not contradict the norms of the World Trade Organization (WTO).
At the end of last week, US Secretary of Commerce Wilbur Ross proposed to introduce large-scale protectionist duties on the supply of aluminium and steel from 14 countries to protect "US national security".
Ross proposed three different options: to increase the import duty to at least 24% for all countries, or increase the tariff to at least 53% for imports from 12 countries - Russia, China, Brazil, Costa Rica, Egypt, India, Malaysia, South Korea, South Africa, Thailand, Turkey and Vietnam. As a third option, it is proposed to introduce "quotas on all products from all countries equal to 63% of their exports in 2017".
Read more: https://eadaily.com/en/news/2018/02/20/faz-evrosoyuz-gotovitsya-k-torgovoy-voyne-s-ssha
When the US legislature was weighing sanctions to impose on Russia, they were worried that Russia could hit back by banning titanium exports to the US, a vital product for Boeing. But during those discussions it was mentioned that the next contract for the titanium was already signed and nothing could be done about its implementation.
But for every tit there is a tat.
What they forgot was that the Russian Duma can do whatever it darn well pleases. The article as translated below doesn’t tell us whether the new bill calls for this titanium contract to abrogated, but theoretically, that could now happen.
Further, the article hints that other aerospace cooperation with Russia could be affected. Without those Russian missile engines, the US could be in a bit of a bind. US communications companies are relying on those engines to launch their satellites.
Both sides are playing Russian roulette, no pun intended.
NSS translation from 24molnia.com:
Package of Russian counter-sanctions to the US will be one of the harshest
Russia has decided on a response to the next package of US sanctions. This time, according to experts, Moscow’s response to Washington will be the most painful one. The Federation Council has already supported the corresponding bill of the State Duma. "A Russian responses to unfriendly US actions should be systemic in nature, and the draft law implies just such a system," Andrei Klimov, deputy chairman of the Federation Council's international affairs committee, told reporters. He said the following about the areas that Russian counter-forces will touch upon.
According to Klimov, it is about imposing restrictions on cooperation between Russia and the United States in the export of titanium and space activities. Planned restrictions on shipments in the US components for Boeing airliners. We are talking about the supply of titanium, which deals with the Russian "VSMPO-Avisma." According to various experts, American aircraft construction depends on the export of titanium from Russia by 40-60% of the total.
By New Silk Strategies staff
So what would happen to the dollar if the long-standing deal with the Saudis should fail?
The most likely first step in this scenario is that China would strong-arm the Saudis into accepting payment in RMB only for oil sold to China. In that scenario, considering that KSA’s oil sales to China amounted to only $26.7 billion in 2015, the amount is negligible, particularly in comparison to a US debt of $20 trillion, much of which came from printing (QE) dollars out of thin air. In fact, considering that, according to WTEx, total Saudi oil sales amounted to only $136.2 billion in 2016, and that only part of this went into their dollar denominated reserve fund, their contribution to the dollar’s value has really been only minimal. According to money.cnn.com Saudi disclosed last year that they had stockpiled a measly $116.8 billion of U.S. Treasuries as of March 2016. Obviously, to a country with a $20 trillion debt, this contribution to the value of the dollar is negligible, suggesting that the US-Saudi petrodollar deal has a mostly psychological effect, if any at all, on the dollar's value against other currencies.
We had previously pointed out that the amount of RMB used in non-dollar international trade settlements was practically negligible compared to the amount of euros used. Indeed the amount of euros used in international trade in 2016 was 23.8% vs 43.0% for the US dollar, while the amount of yuan used was so small that no figure was entered in the sliver representing it in the bar graph (Chart 3 shown here). Further, tellingly, this very substantial percentage of euros in international trade settlements did not cause any palpable rise in the oil price as against the dollar. So what real monetary effect did the petrodollar agreement have?
Foreign Policy Journal reported last April that “although the RMB was the fifth most used currency globally, it only accounted for 2.5% of all international payments tracked by SWIFT, as opposed to 43.3% for the dollar or 28.7% for the euro. [It] also reported that 70% of the international transactions involving the RMB were between Hong Kong and the mainland. If Hong Kong is excluded, then the RMB only accounts for 0.8% of global SWIFT payments.”
Is anyone really afraid the Chinese yuan will push aside the USD within the foreseeable future?
Thus, even if China persuaded trading partner KSA to demand only RMB for their oil exports to all countries, the amount in question would not be much more than $182 billion. And if that euro amount of non-dollar settlement was not sufficient to break the buck, a few more billion would hardly suffice. Further, this is only a small fraction of the amount held by Japan ($1.1 trillion) or China ($1.3 trillion) and by all others combined ($$3.8 trillion). All foreign nations put together hold only 32.35% of US sovereign debt. Further, even this amount is absolutely dwarfed by the share of the debt held by various US agencies.
The rest of the countries and US agencies holding US debt account for many times the amount held by the Saudis. As another example, this site shows that the Saudis hold a very minute share of US debt.
From all of the above we can conclude that, even if the dollar should collapse, it will not be a result of China-Saudi skulduggery because, while NIxon and Kissinger had supposed that the impact of the Saudis settling exports only in US dollars would bolster the dollar, we have just demonstrated beyond a shadow of a doubt that the Saudi-US petrodollar agreement makes only a negligible contribution to international dollar settlements and is therefore of no use to the US.
This supports our theory that the effect of the Nixon-Faisal petrodollar deal is really mostly psychological. Indeed, it is possible that even the Bretton Woods dollar, backed by gold, was propped up mostly by crowd psychology.
So if the petrodollar agreement had little or no real effect on the dollar’s value, what could have driven the US elites, including notably Henry Kissinger, the putative author of the idea, to propose the plan to the Saudis back in the 70s? And why would economists still believe this agreement is of any value whatsoever to the dollar's standing as the world reserve currency?
In view of the minute fraction of US debt held by Saudi Arabia, one must wonder if in fact the deal was not motivated in large part by a radical-Enlightenment-inspired desire to undermine Christianity in the Middle East/North Africa and the West by going along with a Saudi (and/or Israeli) de-Christianisation policy under the guise of protecting the dollar. This would have sold well to the financial and political elites, who were aware from the outset of the Nixon-Faisal deal. Certainly, nothing is more of a hindrance to policies designed to take from the poor and give to the rich than Christianity and its attendant old-fashioned common sense.
Certainly no feature of American culture has been under more systemic attack in recent decades than traditional Christianity. And certainly, the Western intervention in Iraq, Syria, Kosovo and Libya had the effect – intentional or not – of undermining traditional Christianity in those regions thanks in large part to Wahhabist-terrorist intolerance of Christians indigenous to the region and also to the mass migration of Muslims to Europe, which have undeniably diluted what was left of the Christian culture there. All of this seemed to be the quid pro quo for the Saudis, whose contribution to propping up the dollar was obviously way overrated and, in the current status quo, is clearly superfluous.
Judging by Donald Trump’s behaviour at the Saudi court, he too had fallen for the myth that the Saudis were the mainstay of the USD. Thus the US continued, and continues, to pretend that there is no alternative to holding our noses and supporting the Saudis and their genocidal war on the Houthis, their clandestine support of ISIS and Al-Qaeda and their insistence on attacking Iran, even if such could lead to WW III.
Yet, assuming the figures quoted above from reputable sources are accurate, the whole petrodollar agreement has been nothing but a gigantic, tragic hoax intended to support useless and patently immoral slaughter. And the biggest victims to it are the Christians of the Middle East/North Africa and Europe. Coincidence? Or exactly what was on the agenda?
Regardless of motive, we conclude the petrodollar agreement was never key to keeping the US dollar afloat but was indeed key to destroying Christianity in the Middle East, Kosovo and Europe.
Kindly share your opinion in our Comments section (top of page for first comment, bottom of page thereafter)
To give you an idea of the extent to which Christianity is being sabotaged in the West, please read this article by the creator of Russian Faith, whose site has been blocked by the “Enlightened Ones” of the West.
By New Silk Strategies staff
None of this US manipulation was, of course, based on anything resembling sound economic principles or natural market forces. In the past, even the US would probably not have stooped so low as to hold a proverbial gun to the customer’s head to force a sale. The government was at least somewhat constrained by a semblance of ethical principles.
There are two glaring examples of how the US resisted growing its economy on sound principles, blocked from doing so by a failed ideology.
First, in the Obama administration, China offered to all interested parties a chance to enter its Asian Infrastructure Investment Bank (AIIB) from the ground floor, as the vast majority of US allies did (despite Obama’s dire warning not to). This was based on the Chinese principle of fairness to all involved – the disarmingly simple essence of Chinese business policies since the dawn of time. Call it Confucianism, call it Chineseness, but whatever, this policy is part and policy of Chinese culture and the secret of Chinese business success. It is the diametric opposite of the now typical Western approach of cheating and lying one’s way to success – a formula that can be called financialisation of the economy. Economy and finance used to be two separate realms. Not any more, not in the West. This is the approach that gave the world the real estate bubble and the attendant Great Recession. Today it has degenerated further into the casino-isation of Wall Street, where economic growth is based on a gross overvaluation of stocks. There is no way this manipulation can be called economic growth, put bread on US tables or generate jobs. The resulting deflation of the dollar has only succeeded in creating more millionaires holding rapidly deflating portfolios.
If the US had joined the AIIB, it would have been able to cash in on the Chinese bank’s inestimable future profits, but this would have required adhering to Chinese rules of fairness, and the US financial elites, by now thoroughly addicted to the old method of cheating and bankrupting its customers (as chillingly detailed by John Perkins, CEO of strategic-consulting firm Chas. T. Main, in his book “Confessions of an Economic Hit Man”), just could not kick the habit. The ideas of the radical school of the Enlightenment were approaching their logical end. (We refer here not to the Enlightenment per se but specifically to the more radical school, as detailed in our three part resource: Part 1, Part 2, Part 3. To understand the Western world, we believe it is vital to keep in mind this ideological context in which the Western elites operate. Otherwise it all seems random. Indeed it is absurd, but not random).
It is no exaggeration to say that the US financial system is a full-fledged mental disease in its terminal stages.
The second example was the US’ refusal to join the BRI (Belt and Road Initiative, once called the One-Belt One-Road, or OBOR), even though many US allies joined. But it was worse than that. There is an irrational desire in the US to sabotage the project, to the detriment of the Chinese and the Third World, particularly the Africans, who are counting on this project to help lift them out of poverty (as detailed in our article on Xi Jinping). No less than Steve Bannon, former presidential strategist, said in an interview to The Economist: “Let’s screw up the Belt and Road.” This was a direct attack on the Third World poor and Americans didn’t bat an eyelash. It mattered not that the US was on a path toward the destruction of economics per se, ie, toward a post-economic world where even they would eventually be living below the poverty line!
After all, why should this matter to Americans who had sat in their armchairs for decades as their bombers blew up millions of innocent men, women and children in their homes. Just as long as their pay-checks or pensions kept rolling in, they would never protest government-sanctioned mass murder. The US had developed a culture of murder for hire, to the benefit of the Saudis and their allies, including Israel. (As detailed in this NSS resource: Part 1, Part 2, Part 3).
This mind set was now part of the culture of planned destruction. After all, the more losers were created, the more gloriously the Americans were winning.
Nonetheless, however richly the US might deserve to have its currency implode à la Weimarer Republik, there are a number of reasons why the dollar is probably not facing imminent doom.
Let us consider the possibility of China’s persuading the Saudis to back out of the petrodollar deal and start accepting RMB or other currencies in settlement for their oil. This is a real possibility considering that the kinsmen arrested and held by Crown Prince Mohammed bin Salman include two loyal friends of the US regime, ie, Mohammed bin Nayef, a CIA favourite (they awarded him a prize for “counter-terrorism”) and Bandar bin Sultan, an old family friend of GW Bush. When the FBI tried to investigate the Bandar-headed Saudi embassy in Washington for complicity in the 9-11 attacks, it was Bush himself who, according to the NY Post, blocked the investigation on the grounds of diplomatic immunity – despite the deaths of 3,000 Americans. (Imagine if the embassy of Iran had been implicated.)
In other words, the future king was taking unprecedented steps that ran counter to US government interests. Breaking off the petrodollar deal would not be incompatible with this behaviour.
By New Silk Strategies staff
Those rare news outlets that dare report the details of Russian and Chinese economic infrastructure projects are now exploding with news that the Chinese are about to force the Saudis into using the Chinese yuan (RMB) to settle their debts for oil sold to China. At the time of this writing, no one knows if the reports are true. Many of them are coming from gold sellers.
The forum participants at Russia Insider and RT, for example, are almost all jubilant at such news because they believe that if the dollar collapses, the US will be hard put to wage more wars.
Firstly, what are these reports based on? Is there a risk of collapse at all?
Yes, the risk is there and most analysts believe it hinges on the Saudis, who have never been less stable.
Crown Prince Mohammed bin Salman has jailed hundreds of his kinsman and seized most of their assets. He has also recently agreed to purchase not only American air defence systems of the Patriot type but also the Russian S-400 system.
This was wise because the Patriot system is said to be designed so as not to permit the targeting of US-made missiles or planes, while the Russian system has no such qualms.
Likewise, the Russian system is said to be designed so as not to shoot down Russian missiles and planes.
These assumptions may or may not be accurate. But it is safer for the Saudis not to take any chances, and therefore they apparently will be installing both systems.
But what worries the West the most is the Saudis’ rapprochement with China and Russia in the military and economic spheres, respectively, leading to a strong suspicion that China may be effectively pressuring the Kingdom to accept RMB (renminbi, or yuan) in payment for its oil. China has successfully pressured, or persuaded, other countries, such as Venezuela and Iran, to accept non-dollar settlements for international trade. Venezuela obstinately refuses the US dollar. If the Saudis succumb to this kind of pressure, many economists and investors believe the petrodollar could be in trouble.
Some believe without the support that the Saudis have been providing both by demanding only US dollars in settlement for their oil trade and by keeping their cash reserves in the form of dollar-denominated treasuries, the USD would collapse. But we have investigated the accuracy of this belief and have arrived at some surprising findings.
So if the Saudis turn against the US and drop the dollar prop, will the dollar truly just wither and die?
Well, remember that the main effect of the Saudi “prop” is psychological. Ever since the 1974 when Richard Nixon signed the first petrodollar deal with King Faisal, there has been a strong belief among Western observers that without this prop, and absent the gold standard, which was abolished in the early 70s, the dollar will enter free fall.
However, it was not the Saudi prop but rather investors’ and economists’ faith in said prop that held the USD aloft. The US and many of its trading partners will not give up their beloved buck without a fight. Their faith will not wither overnight.
Further, what currency could supplant the dollar?
The Russians and Chinese have both been on a gold buying spree for years and it is clear they are seeking a gold prop in analogy to the Saudi oil prop.
But remember that the now-defunct US gold standard, which Russia and China may be emulating, was based on a promise that the buck would be backed by gold. That is, if a holder of a certain amount of US dollars (above a legal threshold) so desired, he could demand the equivalent amount of gold in exchange for his dollars. This system, eventually failed because too many users were demanding their physical gold and the supply got dangerously low. Now if the Chinese, for example, should decide to offer a similar deal to users of the RMB, that would no doubt work for a while, just like the US Bretton Woods system did. But such a Chinese-implemented system could suffer from the same problem – though it is important to note that, under the Bretton Woods system, the dollar was overvalued with gold pegged at $35 per ounce. Or to state it differently, gold was undervalued at that level. The Chinese should be able to avoid this pitfall with proper pricing.
However, Chinese monetary experts believe that it is not so much an external backing but a strong economy and especially, the use of a given currency in international settlements that lends said currency its value. As China’s economy grows stronger, the US economy is declining. In fact, there seems to be no interest in Washington or Wall Street in growing the US economy on sound honest principles. For example, Trump and the US Congress seemed to be working in tandem on a plan to use Russian sanctions as a way to build the US economy. This ties in with the US’s zero-sum philosophy, ie, the notion that there is a specific amount of wealth in the world, and there can only be loser and winners – no such thing as a win-win situation, the kind targeted by the Chinese. Specifically, the US hoped to use sanctions against individuals who were invested in the Russian Nord Stream II gas pipeline so as to stop the project and force Europe to buy grossly overpriced fractionally distilled (fracked) liquefied natural gas delivered by ship, inherently costly processes that, to say nothing of the up-front costs of fractional distillation, required special liquefaction and re-gasification and storage systems paid for by the suckers who bought the gas in Europe. Trump’s speech in Poland, where a weak-minded government was sold this white elephant, was designed to set the stage for the sanctions to take effect. (We had shown here that the US gas would be at least 15% more expensive than gas piped from Russia. However, that was computed based on US LNG heavily discounted because of over-extraction. It’s probably worse than that in the long run).
Fortunately, the EU Commission grew a pair and stood up to the US in a historic move and the US wound up not selling its gas to a captive customer as it had hoped to. Further, attempts to punish the investors did not stop the Nord Stream II project.