China Fires Shot Across Petrodollar Bow: Shanghai Futures Exchange May Price Crude Oil Futures In Yuan

Tyler Durden's picture

With the US shale revolution set to make America the largest exporter of crude, however briefly, the influence of Saudi oil is rapidly declining. This has been felt most recently in the cold shoulder the US gave Saudi Arabia and Qatar first over the Syrian debacle, and subsequently in its overtures to break the ice with Iran over the stern objections of Israel and the Saudi lobby (for a good example of this the most recent soundbites by Prince bin Talal ). But despite the shifting commodity winds and the superficial political jawboning, the reality is that nothing threatens the US dollar's hegemony in what many claim is the biggest pillar of the currency's reserve status - the petrodollar, which literally makes the USD the only currency in which energy-strapped countries can transact in to purchase energy. This may be changing soon following news that the Shanghai Futures Exchange could price its crude oil futures contract in yuan, its chairman said on Thursday, adding that the bourse is speeding up preparatory work to secure regulatory approvals.

 In doing so China is effectively lobbing the first shot across the bow of the Petrodollar system, and more importantly, the key support of the USD in the international arena.

This would be in keeping with China's strategy to import about 100 tons of gross gold each and every month, in addition to however much gold it produces internally, in what many have also seen as a preparation for a gold-backed currency, which however would require a far broader acceptance of the renminbi in the international arena and most importantly, its intermediation in a crude pricing loop. It is precisely the latter that China is starting to focus on.

Reuters reports:

China, which overtook the United States as the world's top oil importer in September, hopes the contract will become a benchmark in Asia and has said it would allow foreign investors to trade in the contract without setting up a local subsidiary.


"China is the only country in the world that is a major crude producer, consumer and a big importer. It has all the necessary conditions to establish a successful crude oil futures contract," Yang Maijun, SHFE chairman, said at an industry conference.


Yang's presentation slides at the conference stated that the draft proposal is for the contract to be denominated in yuan and use the type of medium sour crude that China most commonly imports.

It is hardly panic time yet: Reuters adds that industry participants with direct knowledge of the plan have said the contract would be priced in the yuan, otherwise known as the Renminbi, and the U.S. dollar. However, one can argue that the CNY-pricing is for now a test to gauge acceptance of the Chinese currency, and will take on increasingly more prominence as more and more countries, first in Asia and then everywhere else, opt for the CNY-denomination and in the process boost the Renminbi to ever greater parity with the USD.

Here are the punchlines:

"The yuan has become more international and more recognised by the financial market," Chen Bo, Chinese trading firm Unipec's executive general manager, told Reuters.


"I don't think it would be unacceptable for the world to use the renminbi for commodities trading."

Certainly not, although it would also entail a depegging the CNY from the USD, something which China is for now unable and unwilling to do. Because once the Yuan is freely priced, kiss all those Wal-Mart "99 cent" deals goodbye. 

Which in retrospect may be just what the US wants: a very gradual and controlled dephasing of the USD's reserve currency status. Recall that what the Fed wants at any cost is inflation which has so far failed to materialize at the level demanded by the Chair(wo)man thanks in part to cheap Chinese goods and ongoing US exporting of inflation to China. So if that means a spike in the prices of China imports - so key to keeping US inflation in check - so be it. Because we can already see the Fed's thinking on the matter - certainly it will be able to always restore the USD's supreme status in "15 minutes" or less when it so chooses.

Of course, by then China, and the Petroyuan, may have a very different view on the world.

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y3maxx's picture

...It Could be time for a "Neutral" World Currency Reserve. The Canadian "Loonie". ...No pun intended.
Certainly Western Canada w/ a plethora of Natural Resources, just 12.5 million citizens as it is strategically located between Asia and the USSA...kinda like a Switzerland.
Would make Vancouver the World's next Financial and Cultural Capital.

Indian_Goldsmith's picture

Nothing new, India already does that on the MCX (in Rupees)

BTW, To the Americans, British and the French, your cultures are pretty sick.

BaBaBouy's picture

USD Collapse On The Horizon...
Afterwhich GOLD Manip Over AND $50K /OZS.

Stuart's picture

the price miners charge for physical needs to break free from paper driven manipulated prices.  For that to happen, executive management of the gold mining companies need to stop acting like beaten cowards and stand firm to set their own prices.  Sell what you need to keep lights on and stockpile the rest like Rob McEwen used to do.    

DaddyO's picture

Fires "another" shot across the bow.

It will only get more interesting from here.

Notice how things have really begun to accelerate?


LawsofPhysics's picture

Indeed.  Exchanging one fiat for another, accomplishes nothing.

jekyll island's picture

I almost stopped reading at the comment about the US will become the largest oil exporter. After finishing the article, I wish I would have gone with my gut.


Inflationary for Amurika. When petrodollars rush back to US prices will reflect their arrival. 

Flakmeister's picture

Possible, but unlikely....

When the bond market goes, a lot of those dollars will evaporate...

They don't exist as stacks of Benjamins...

Theta_Burn's picture

The big problem is, permits, environmental concerns, hostile government foreign OR domestic, insures these mining concerns take the paper pushers money.

Mining is a tough expensive buisness

One day they will all be driven to bankruptcy

sagerxx's picture

"One day, they will all be nationalized."


Viva -- Sager

Obese-Redneck's picture

Stock up on xxxxxxl strtetch pants now bitches!

kralizec's picture

Begun the currency wars have, fucked America is!

Think I'll buy more PMs while this fiat still holds some apparent value for some...

YC2's picture

So are recent high gas prices more of a convergence with the prices in the EU reflecting non-reserve currency pricing?  Just spitballin...

Stuart's picture

That did it.  Time for the US to go after China now..

NoDebt's picture

Indeed and you will have a good indicator of when that process would start in ernest:

"it would also entail a depegging the CNY from the USD, something which China is for now unable and unwilling to do."

Oldballplayer's picture's a short story about India:

My daughter has a friend who is doing a "semester abroad" in India.  One of her tweets the other night went something like this:  "These people do not have toilets.  There is shit everywhere.  Who doesn't have toilets?"

So, my culture may be sick, but I can take a shit without going outdoors.

new game's picture

humans = indians too; ps you are just as fucked up culture, only in different ways.

humans are fucked up species destined to extinction. think indians will survive 100 cels. or -100 cels.

you are just another fucking think you are superior bigot...

Indian_Goldsmith's picture

For now, the time is coming when all your plumbers will be hooked on crack

new game's picture

hey, you are probably a preety decent person face to face. most people are.

so, really, power is transitory. if india rules the next 200 years than someone would be making the same remarks in reverse...

Running On Bingo Fuel's picture

"if india rules the next 200 years"

lol, good one.


Running On Bingo Fuel's picture

Your days are numbered. You and your disgusting people will be the new energy source for strongest military force in the world.

Get ready to be melted. Hopefully our catalytic converters will mask the smell of curry.


Indian_Goldsmith's picture

LOL coming from america-the nation of reprehensible homosexuals

Meat Hammer's picture

Wow this comment thread turned to garbage in a hurry.

Oldballplayer's picture

Yes, but my point was that our plumbers have already done their jobs.

You caste system is your downfall.  Allow all of your people to be free, and you could take over the world.  But you are so backward it will never happen.  And India regularly gets into it with China.  Land Wars in Asia are always such a good idea.

And you kill each other over religion.  There is some culture for ya.


Indian_Goldsmith's picture

Great points you raise Oddball.

When you think about the caste you realize why it worked for 2000 years? Do you even know the characteristics of the Caste System? Do you know the rationale behind it? Or are you so dumb as to dismiss it as something crappy just because your liberal teachers tell you to?

If you really want to be enlightened about the caste system, give me your email address so we may communicate.


You call us backward? You have your daughters being taught how to act like strippers, your culture teaches every little girl to be a whore, and you call us backward? ?


Hindus dont, never have and never will kill anyone over religion, I think you refer to another religion.

fonzannoon's picture

You could not answer my simple question the other day. I asked you what happens when these women that you "worship" attempt to leave the kitchen and become a doctor or have a career. So since you went ad hominem and punted my question I assume that to mean that the Caste system in your country means that when women attempt to go out on their own they end up wearing a cast.

Indian_Goldsmith's picture

You need patience to understand the extremely advanced culture and customs of ancient india.


Women by nature, are created to bear children, to give love to their husbands, and this is where they find the most fulfilment. Now nowhere in the 100s of scriptures in Hinduism is there a absolute prohibition against women doing what they want. You see, hinduism is not a cult, its a culture, a way of life, a guide. The scripture say what should be done for a better and more fulfilling societal life for every member of society. We dont prohibit anything. But we shun those who dont follow the scriptures, But we never "kill" the non believers as some recent cults that call themselves religion have done in the last 2000 years. Hindus have never been aggressors. Think why!

fonzannoon's picture

Can you elaborate on "shun"?


Indian_Goldsmith's picture

Exactly! I believe,the Amish Culture is the closest westerners can get to Traditional Hinduism. Wonderful Wise people theyr are, the Amish

The Abstraction of Justice's picture

I cannot believe 7 people ticked you up. You deleting your cache and clicking yourself up over and over?

Disenchanted's picture

We only have red dots on our foreheads when we have a kill team on our case.

Not sure what that says about either culture...


I think it may be a wash.

Running On Bingo Fuel's picture

"Hindus have never been aggressors. Think why!"

It's easier to be a coward. You are a lazy culture full of scams and scum. No innovations and you tax the world that we all live in with too many births of future scum.

A harvest moon is near.


Indian_Goldsmith's picture

"""It's easier to be a coward. You are a lazy culture full of scams and scum.""" LOL, i bet you havent fought an Indian yet. Scams are everywhere. But atleast we condemn such scams. Not like you AMericans. You morons have legalized Bribery and given it the name "Campaign Contributions, Lobbying" LOL

Running On Bingo Fuel's picture

" LOL, i bet you havent fought an Indian yet. "

As stated, you are cowards, passive, afraid to engage. Too busy petting your cows and sleeping in their feces.


Indian_Goldsmith's picture

You really cant understand, can you? Let me give you an example closer to home. You think the amish dont fight because they are cowards? You think dogs bark at everyone because they are brave? What do you call a dog who bites everyone he can ? A Mad Dog, right? What do the Americans do? Fight everyone around the world. Everyone!! Why do you? Whats wrong? Not happy in your homes? Is it because your women are so immoral that they sleep with all your friends and your plumbers and your mechanics, that being so frustrated, you wage wars on indegenous cultures?

Zwelgje's picture

Why bother? He's dumb or trolling.

Anusocracy's picture

He's someone who can't stop being an animal.

Running On Bingo Fuel's picture

You have some cow feces in your hair.

Cowards, with your welfare mentality, you can't even create enough jobs inside your country to support your people. STOP BREEDING YOUR FILTH already!


Running On Bingo Fuel's picture

You have some cow feces in your hair.

Cowards, with your welfare mentality, you can't even create enough jobs inside your country to support your people. STOP BREEDING YOUR FILTH already!


The Abstraction of Justice's picture

Which 9 cretins ticked you up? The only people who are glad for the scriptures of Hinduism are the Brahmin. Yes for them it worked, for the other 90% it has been 2500 years of tyranny. Silly Thuggee.

StychoKiller's picture

The Age of Kali Yuga too shall pass!

jtb14's picture

I am sure many sikh people do not share your sentiment about hindu's not killing anyone. Operation Blue Star, Operation Shudi Karan to name a few. I assume  your definition of not killing anyone over religion does not include an attempted systmatic genocide that led the Hindu government to the steps of that religoin's holiest shrine in order to kill Sikhism's "a religion" most recognized leaders. 

The Indian Forces also began a program of "shudhee karan", which was a code name for the rape of Sikh women. They joked that the offspring of their rapes would change the genetic makeup of the Sikh community and they would kill the Resistance in this way. Many rape victims took their own lives, unable to live with the ongoing humiliation at the hands of the Indian police.

Its is very clear see the policy of the RSS Hindutva behind these operations."

Son of Captain Nemo's picture


Depends on the definition of "free" Doesn't it?

Are the people we've been wiping off the face of the earth the last 12 years free in the real "living in the World" sense?  Long as freedom applies to you at the end of your own gun and 'not' the people you're killing for there resources -Right?

Just remember who sent those jobs "Goldsmith's" way 20 years ago, and why we pushed our way to the front of the line after 9/11 because we gave it all away out of choice with no resistance by the people in this Country and opted to use the last option (well almost) our Reserve Currency status to compensate for those like China and India who prefer to use money vs. bombs.

Just Sayin

Hulk's picture

LOL, plumbers, crack,

ts a real fucking problem over here...

stant's picture

No they are dying off and not being replaced because thier kids are hooked on crack or the bs they are to special to be plumbers electricians etc