Guest Post: From PetroDollar To PetroYuan – The Coming Proxy Wars

Tyler Durden's picture

Submitted by Golem XIV via Golem XIV Thoughts blog,

Why would the central bank of Nigeria decide to sell dollars and buy Yuan?

At first glance it might not seem the most interesting or pressing question for you to consider. But I think it is one of those little loose threads that if pulled upon carefully begins to unravel the hints and traces of a much larger story. But please be warned this is speculative.

Two days ago the Nigerian Central Bank announced it was going to increase the share of its foreign currency reserves held in Yuan from 2% at present, to up to 7%. To do this it was going to sell US Dollars. Now a 5% swing in anything financial is big. In our debt drunk times it’s difficult somethimes to remember that 2.15 billion dollars (which is what 5% comes to) is actually a great deal of money, even if it is less than a drop in America’s multi trillion dollar debt ocean. On the other hand even a 5% increase in Yuan would still leave 80% of Nigeria’s $43 billion worth of reserves in dollars.

BUT while it is small in raw financial terms I think it is significant in geopolitical terms.

Nigeria is Africa’s second largest oil and gas exporter. It holds as many dollars as it does because oil is sold in dollars. Nigeria gets paid in dollars which it then needs to recycle. This is the famous petrodollar in action. It is also a major reason the dollar is still the world’s major reserve currency and that in turn is why America can have such a monumental pile of debt and still (for now) be the  risk-off haven that institutional  investors run to when other currencies and markets become too risky and unstable.

What interest me is that prior to this announcement from Nigeria’s central bank, China has, for some years now, been working hard and succesully to buy exploitation rights in Nigeria’s oil fields. In 2009 The Wall Street Journal reported,

 Chinese companies have proposed investing $50 billion to buy 6 billion barrels of oil reserves in Nigeria, the African nation’s presidential adviser on energy said Tuesday.

A year later in 2010 the WSJ reported,

Nigeria and China have signed a tentative deal to build three oil refineries in the West African state at a cost of $23 billion, in a move to boost badly needed gasoline supply in Nigeria and to position China for more access to the country’s coveted high-quality oil reserves.

And just last year China extended a $1.1 billion loan in return for a reported agreement that oil exports to China would increase from around 20 000 barrels a day to 200 000 per day by 2015. This loan was on top of a range of development agreements betwen the two countries for various infrasctructure projects such a telecoms and railways.

Nigeria had, as of 2011, over 37 billion barrels of proven oil reserves. China is now one of its major trading partners. China wants Nigerian oil and my guess is that if it isn’t doing so already it is going to trade it entirely in Yuan. Such a move would mean Nigeria would need fewer dollars and more Yuan and the PetroYuan would begin to rise at the expense of the Petrodollar.

For some years now China has been making the Yuan a settlement currency. I have written about this a lot over the years. In 2012 I wrote a piece called “A new reserve currency to challenge the dollar – What’s really going on in the Straits of Hormuz.” China has created a series of bilateral settlement agreements with, among others, the EU, South Korea, Iran, India and Russia. All of these agreements by-pass the US dollar. If China now trades its oil in Yuan where will that leave the dollar?  Of course Saudi would never agree to such a thing, would it?

Now Its a long way from Nigeria’s 200 000 barerels a day to overthrowing the dollar as the premiere oil currency. But let’s face it the US has gone to war on more than one occasion recently in part because the country involved had been going to sell its oil in Euros. And the US is Europe’s friend, isn’t it?

The US hawks have always been afflicted with dominophobia – fear of falling dominoes. Somewhere in a room in the Pentagon or Langley, there is a huddle of spooks, military types, oil men and State department advisors all wondering how to prevent this new creeping menace. Because you cannot afford to be complacent you know. It starts in one country and if you don’t do something other’s will follow and before you know it the rich Western Africa oil bonanza is flowing into Yuan, to be followed by all those North African and Middle Eastern Arab Spring countries where the clean-cut boys are already having to ‘advise’ on the need to take a firm line with potentially anti-American Muslim Brotherhood types by  locking them up, shooting them and generally branding them as terrorists.

What would happen, someone will mention almost in a whisper, if Qatar were to triumph over Saudi and then cut a multi-lateral deal to sell its gas in Euros to Europe and in Yuan to China?

But to return from the overheated imaginations of the Virginia Hawks to some sort of reality, Nigeria is increasing its Yuan reserve at the expense of the dollar and is developing far closer ties to China than to the US. Which is why I think you will soon find the US dramatically increasing its involvement, both financial and military, in Angola.

Angola is going to be America’s answer to China’s Nigeria. And I think the signs are already there.

While in Nigeria Chinese companies are expanding, in Angola the big players are the Western Oil majors: Chevron/Texaco(US), Exxonmobil (US), BP (UK), ENI (Italy), Total (FR), Maersk (DK) and Statoil (NOR). There are others but these are the big players. Of these Total is probably the largest presence producing about a third of all Angola’s oil output. And Total has recently increased its presence. Of the others Chevron is one of the largest and is expanding aggressively.

Angola itself is busy selling off new concessions. 10 new blocks containing an estimated 7 billion barrels of oil, which is over half of all Angola’s proven reserves  are to be auctioned this year. Angola has recently edged ahead of Nigeria to be Africa’s largest oil exporter. If I’m correct I expect the Western nations/companies, led by the US and new best war-buddy, France to make sure the Chinese do not get a large share of the spoils.  One to watch.

As part of this new Western push, I expect to see China also restricted in any new oil fields around Sao Tome and Principe.  The big players to date are Chervon, Exxonmobil and Nigeria. The latter suggesting a way in for the Chinese that I think the Westerners will want to push shut.  To which end what I found interesting about recent events in Soa Tome and Principe is the visit there of Isabel dos Santos, the daughter of Angola’s President for life. I have written about her and her banking empire in The Eurofiscal Corruption Contest – The Portuguese entry.  Isobel is most often refered to as Africa’s or Angola’s most famous business woman or Africa’s richest woman (She’s a billionaire). Rarely does anyone from the press raise the question of how she became so vastly wealthy.

She made a visit to the islands and both she and Angola’s state companies have begun to invest heavily. Angolan companies now have a very commanding position in the island’s economy and Angola, even though its own people live in poverty, found the money to loan Sao Tome and Principe  $180 million which is half of the island’s GDP. Top that Beijing! The Islands are Portuguese speaking, the largest bank is Portuguese, and the islands also house a broadcast station for Voice of America.

I think taken together the signs are that the West, led by America, has in mind to try to contain or perhaps even confront Chinese expansion particularly as it concerns access to oil and gas in West and North Africa, and to rare earth minerals – but that’s another story. I don’t think there can be any doubt that America and Europe are looking at Chinese expansion and its hunger for resources and see a threat. The question is what will they do?  America is accustomed to being the hegemonic power and its hawks have proved over and over that they are are quite prepared for military confrontation. The question for them would be how? Invading countries who have – in reality – very little military or economic might is one thing, but directly confronting another superpower is another.  I think all sides would see direct and open military confrontation to be out of the question. Not just for military reasons but for global economic ones as well. They need to find ways of fighting that do not sink the world economy  - neither its flows of goods and trade , nor its flows of captail and debt. Which is why I wonder about the possibility of seeing an era of new proxy wars being faught out in tit-for-tat destabilization escalating up to protracted gorilla/civil wars.

In West Africa the  front line seems to run between Angola and Nigeria.  So who would like to play a game of destabilize your neighbour? There is already unrest about Chinese goods flooding Nigeria. How tempting might it be to think about fanning flames of unrest in already unstable Nigeria espeicially in the delta?

In return what would you have to do to re-ignite the lines of mistrust and division which blighted Angola through decades of civil war? Dos Santos and the MPLA may have been the Soviet proxy but he’s a capitalist now. So, how about a nice cold-war style proxy war?  I cannot bring myself to believe that no one at the Pentagon has dusted off the old plans for such conflict and set some analysts to working up some new ones with China scribbled in, in place of Russia.

Something is, I suspect, already afoot. One last pull on that little thread, one last detail that makes me wonder. Just last April (2013) the Israeli billionaire, Dan Gertler sold back to the government of the Democratic Republic of Congo, one of the  oil companies/exploration blocks he had bought from it, but for 300% more than he paid. Anti-corruption campaigners have been up in arms.

Two facts interest me . One, that the purchase was actually financed by Sanangol, the Angolan state oil company (the company from which $32 billion had gone missing. Missing billions: billionaire dos Santos… No connection obviously). The DRC is to pay Sanangol back from oil revenue. Until that time, of course, Sanangol calls the tune.  Two, that this oil block lies between the DRC and Angola in what was contested territory but has since been decreed a zone of cooperation.

Now this sale by Gertler could just be a bog standard pillage-Africa deal. And I might well be seeing things that just aren’t there, but why now? This sort of big money, that is connected to the top of the DRC government (how do you think Gertler was able to buy the concession at the price he did? And who do you think might be the, so far, hidden second beneficiary of Gertler’s oil company? The government minister who sold the concession to him in the first place,  maybe?) moves when its contacts suggest this is a better time to lock in profit than times to come.

All in all, if I were a religious man, I would be saying a prayer for the children of Nigeria and Angola.

A note on all this speculation and non-financial stuff.  I don’t usually write this much speculation but recently I have become more convinced that we are in a watershed in which everything around us, all the rules we are used to, all the lines on the map, are up for grabs and are changing around us. For me, finance is not separate from politics so we have to understand how they rub against one another.  I hope you will bear with me.

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sixsigma cygnusatratus's picture

"And just last year China extended a $1.1 billion loan in return for a reported agreement [with Nigeria] that oil exports to China would increase from around 20 000 barrels a day to 200 000 per day by 2015."

Uh, yeah I got that email too, but I didn't fall for it...

National Blessing's picture

The dollar might suck.  But the yuan is even worse.  Out the frying pan and into the fire.  Balls.

satoshi911's picture



How many 'AAA' rated currency's?

SGD, CNY, NOK, CHF, ... not many I don't think CNY is 'AAA', but the other 3 are,...

Nobody is saying to put your wealth, in CNY(RMB), and you can't even if you wanted to.

The problem with RMB is its like BTC, you can enter, but can't exit, the CHINESE are terrified that if they let the RMB float and somebody does a naked short or massive SELL that they lose control, thus there are massive capital controls on RMB ( 20,000/day ... )


IMHO those that talk about RMB being useful are talking shit.


Live from Ukraine(tm).

OpenThePodBayDoorHAL's picture

Debt piles, all of them. The only one that is really AAA, where assets & liabilities ALWAYS match, is the cleanest CLEAN shirt: symbol XBT

q99x2's picture

Fuck all the wars. Trade oil in the PetroBitCoin.

BennyBoy's picture

We begin bombing in 3 2 1.....Just like in Iraq

LetThemEatRand's picture

Yuan dominos and containment, bitchez.  I hope we get a new Doors or other good band for the troops who will die for bankers.  Again.  

One of We's picture

Bullish MIC(USA congress), agent orange(DOW/MON), and body bags (

LetThemEatRand's picture

The good thing about Africa is that you don't need Agent Orange.  You can turn sand to glass.  With sufficient heat.  And then it won't mess up the sensitive electronics.  Definitely long body bags.

One of We's picture

Glass is for northern Africa, I'm thinking central/SE Africa is where the latest biggest USA-instigated mass atrocity will occur.  Expecting a few nuke plants to be built on both sides of the continent to more efficiently turn natgas into fertilizer and HO(Herbicide Orange) to first defoliate and then infest with GMO crops that the starving Africans(and probably everyone else by then) "need" so much.....if that doesn't kill off enough useless eaters then they Fukushima Africa....

satoshi911's picture

OVer 50% HIV in AFRICA, everyone is already dead.

Another problem in NORTH AFRICA, is water, ... and the NILE is already largely decimated.

But yes, 'maybe' somebody could make nuclear salt-water plants, but why africa, the entire mediterrean basin is a desert, .. why not foliate Israel? First?


robobbob's picture

water? like most resources, its availabilty owes as much to propaganda and ownership rights as it does to its actual existance.

Spastica Rex's picture

I knew there were no hard resource limits.

I wouldn't be surprised if there was a slick of light sweet crude floating on that underground aquifer, too.

DosZap's picture

The good thing about Africa is that you don't need Agent Orange.  You can turn sand to glass.  With sufficient heat.  And then it won't mess up the sensitive electronics.  Definitely long body bags.


With that kind of heat, no need for body bags, ashes are hell to sack bowin in the wind.

LetThemEatRand's picture

Russia is also a good existential threat that requires constant war posturing.  The MIC really misses the Soviet Union, but Russia will do.

Icewater Enema's picture


This is late but thanks for the link. Fascinating, gives some background to all the concern over Ukraine and Kiev riots lately. This is why I read ZH & comments.

ArrestBobRubin's picture

Oh Snap, someone wants out of the "Western" banking "system". I guess this means the next "Hitler" Who Must Be Stopped will be.... a Nigerian?

Atomizer's picture

Mr. Janet Yellon has been past the blaming economy baton.

CrashisOptimistic's picture

In general, what is wrong with this article is the fundamental fact that Shell, Exxon and Chevron are all in Nigeria -- and they can't hold their production up.  If there were huge oil opportunities in these "proven reserves", those three would have been all over them 5-10 years ago as their internal corporate peaks were manifesting themselves.

When you are inclined to think about things monetary, stop.  Think instead about what oil-relevant reality is underneath whatever matter you are observing, because oil is all the matters.

Flakmeister's picture

Moreover, they are fighting a loosing battle against crude pirates which also trashes the infrastructure... Very costly game of whack a mole...

The locals will prevail, they have nothing to lose....

Geopolitically, what may be playing a role is that US refining capacity for light sweet crude is satisfied by other means, US imports of Nigerian oil are now negligible and from a quality perspective have been replaced by Bakken flows. Therefore, allowing the Chinese a guarentee of some supply is at small real cost...

As you can see, the US only ever imported at most 2% of Nigerian production, or at most 40 mbpd. Imports are currently deminimus

DaveyJones's picture

just because your are crude pirate does not mean you are crude pirate

falak pema's picture

One aspect that escapes this writer is the emergence of local African Entrepreneurs who are now patriotic in mindset and not interested in being stooges to western plays organised around the Seven Sisters of Exxon and Shell and their french counterparts in Françafrique and Areva nuclear plays.

Take a look at this Nigerian Oligarch. He will have a say in things in the coming years and he may be representative of a Madiba/Mandela strain that started in Congo with Lumumba.

The age of local African voices not surrogate to Western interests, capable of playing off China/India vs Euro-America hegemony should also be considered. It is in its infant stage this awareness, from Somalia to Nigeria, but its coming.

A force to be reckoned with Africa rising as patriotic instincts not surrogates to "Allah Boko Haram or Commie Comrade slang".

 Aliko Dangote remember his name :   Aliko Dangote - Forbes

Does Warren Buffet OWN this guy???

My personal feeling is the Western Petro oligarchies will be playing a defensive game given their past scams all over the world.

The Age of Shell and Exxon may now be constrained more and more by National behemoths and by smaller companies and by local Oligarchs like this guy.

Just look at Shells FIRESALE to a tune of 30 billion $  that they now undertake to divest of "non strategic" assets. Total is also feeling the pinch, as its proven reserves diminish.

They are ALL desperate to maintain high profiles but are finding that the likes of Saud Aramco, Chineses national oil behemoths, Gazprom et al (now the emerging association between national oil companies of Iran/Iraq rapprochement) will constrain the ex-Seven Sisters to more dangerous and risky ROI plays.

Its a bitch when a Pax Americana reversal under debt and past moral hazard consequences AFFECT the fire power of these Oil dinosaurs, now on the defensive world wide. 

The more you itch the more you scratch! 

DaveyJones's picture

"One aspect that escapes this writer is the emergence of local African Entrepreneurs who are now patriotic in mindset and not interested in being stooges to western plays"

that disease seems to be spreading.


Rafferty's picture

African Entrepreneurs??  That's an oxymoron, like German comedians or Greek taxpayers.


Any African who attains any sort of power will loot and steal for himself first and then for his clan second. 

Seize Mars's picture

Sorry I stopped reading at "gorilla wars."



sixsigma cygnusatratus's picture

" proxy wars being faught..."

How much does it cost to hire a proofreader? 

Atomizer's picture

Did you mean Wall Street Urinal reporting? LOL


vulcanraven's picture

I see what the author did there...

TPTB_r_TBTF's picture

yeah, calling them "Jungle-Bunny Wars" would have caused an outrage.


But by labeling them "gorilla wars", the authour can claim it to be a slip up.

PN7's picture

The author got distacted.  Was thinking of the NBA.

RafterManFMJ's picture

The last gorilla war I fought in, I got poo in my hair.

Rafferty's picture

Well, he is talking about Africa after all.  But in all honesty, how can you take seriously a commentator who'd write something as gross as that?

Redhotfill's picture

I guess this would bring new meaning to the popular Nigerian phrase,  "I go chop your (petro) dollar!"

One of We's picture

Drill away but can we leave at least one continent free of nuclear paraphenalia just in case Fuku turns out to be the canary in the coal mine for the rest of the planet.

Atomizer's picture

Her mushroom cloud haircut will threaten global fuck sticks who don’t want participate in ObamaCare (ACA). Doesn’t make sense now, you’ll understand in future.

Smuckers's picture

You'll know it's real when those dead prince Nigerian email scams are being denominated in yuan.

Yen Cross's picture

  Billy!  Every piece of art you draw, Exemplifies personal freedom...

Yen Cross's picture

  Everyone's tempestuous<> Can't we all get along?

  MOAR part time jobs, and lower CPI says we're "XAU"...

satoshi911's picture

Africa is what we in this business call a 'LAB',  most of the fascism in the world and the police state business has been going on for 30+ years.

Micro-Payments have been doing well in Africa for 5+ years, ...going to a RMB based micro-payment system, tests well; also with the  dry run's are done in the most criminally corrupt place on earth, you know they'll be rock solid in the main-stream.


Africa is an IMF Laboratory for RMB micropayment settlement.

Well there be a panic when it expands outside of Africa? I think so, ... by that I mean the MSM will create a panic of interest so that every body wants to  jump in,... there just has to be a get rich quick aspect.

If I were a Nigerian hustler, I would be selling this as the 'next bitcoin' to morons in the west.


Rafferty's picture

"If I were a Nigerian hustler"


Is there any other kind of Nigerian?

Atomizer's picture

African silk road path to renewed nigger slave wages. They sit in Europe, Brussels.

Implicit simplicit's picture

Africa, the new middle east. The spies from the us and china are jockeying for position, and the loser is ... Africa after multple civil conflicts are started., and millions of poor people die. Business as usual.

satoshi911's picture

If you actually traveled in this country, you wouldn't say that.

Africa is the most rotten poor country on earth.

Long ago I summed up Africa on one of my many safari's.

"Africa is a nation of humans who live under rocks by day, where their only wealth is the dirt on their naked body's. At dusk and dawn they dig up roots and eat them. A mud pools they get on all fours like animals and slurp MUD-WATER".

Africa  is what it is, the poorest place on earth, and human beings by majority live worse than an ASIAN dog.


Toss in one further important note, over 50% have HIV infection, FT DETRICK long ago created the HIV virus, and infected Africa. I predict that all black men on the continent are extinct by 2030.



akak's picture

Apparently you have never looked at a globe nor a world map, as Africa is a continent, NOT a country.

Yen Cross's picture

  Hey AKAK I got this one!

akak's picture

Have at it Yen!

I just don't have the patience to do a proper job of it today.