Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China

Tyler Durden's picture

If it was the intent of the West to bring Russia and China together - one a natural resource (if "somewhat" corrupt) superpower and the other a fixed capital / labor output (if "somewhat" capital misallocating and credit bubbleicious) powerhouse - in the process marginalizing the dollar and encouraging Ruble and Renminbi bilateral trade, then things are surely "going according to plan."

For now there have been no major developments as a result of the shift in the geopolitical axis that has seen global US influence, away from the Group of 7 (most insolvent nations) of course, decline precipitously in the aftermath of the bungled Syrian intervention attempt and the bloodless Russian annexation of Crimea, but that will soon change. Because while the west is focused on day to day developments in Ukraine, and how to halt Russian expansion through appeasement (hardly a winning tactic as events in the 1930s demonstrated), Russia is once again thinking 3 steps ahead... and quite a few steps east.

While Europe is furiously scrambling to find alternative sources of energy should Gazprom pull the plug on natgas exports to Germany and Europe (the imminent surge in Ukraine gas prices by 40% is probably the best indication of what the outcome would be), Russia is preparing the announcement of the "Holy Grail" energy deal with none other than China, a move which would send geopolitical shockwaves around the world and bind the two nations in a commodity-backed axis. One which, as some especially on these pages, have suggested would lay the groundwork for a new joint, commodity-backed reserve currency that bypasses the dollar, something which Russia implied moments ago when its finance minister Siluanov said that Russia may refrain from foreign borrowing this year. Translated: bypass western purchases of Russian debt, funded by Chinese purchases of US Treasurys, and go straight to the source.

Here is what will likely happen next, as explained by Reuters:

Igor Sechin gathered media in Tokyo the next day to warn Western governments that more sanctions over Moscow's seizure of the Black Sea peninsula from Ukraine would be counter-productive.


The underlying message from the head of Russia's biggest oil company, Rosneft, was clear: If Europe and the United States isolate Russia, Moscow will look East for new business, energy deals, military contracts and political alliances. 


The Holy Grail for Moscow is a natural gas supply deal with China that is apparently now close after years of negotiations. If it can be signed when Putin visits China in May, he will be able to hold it up to show that global power has shifted eastwards and he does not need the West.

More details on the revelation of said "Holy Grail":

State-owned Russian gas firm Gazprom hopes to pump 38 billion cubic meters (bcm) of natural gas per year to China from 2018 via the first pipeline between the world's largest producer of conventional gas to the largest consumer.


"May is in our plans," a Gazprom spokesman said, when asked about the timing of an agreement. A company source said: "It would be logical to expect the deal during Putin's visit to China."

Summarizing what should be and is painfully obvious to all, but apparently to the White House, which keeps prodding at Russia, is the following:

"The worse Russia's relations are with the West, the closer Russia will want to be to China. If China supports you, no one can say you're isolated," said Vasily Kashin, a China expert at the Analysis of Strategies and Technologies (CAST) think thank.

Bingo. And now add bilateral trade denominated in either Rubles or Renminbi (or gold), add Iran, Iraq, India, and soon the Saudis (China's largest foreign source of crude, whose crown prince also happened to meet president Xi Jinping last week to expand trade further) and wave goodbye to the petrodollar.

As reported previoisly, China has already implicitly backed Putin without risking it relations with the West. "Last Saturday China abstained in a U.N. Security Council vote on a draft resolution declaring invalid the referendum in which Crimea went on to back union with Russia. Although China is nervous about referendums in restive regions of other countries which might serve as a precedent for Tibet and Taiwan, it has refused to criticize Moscow. The support of Beijing is vital for Putin. Not only is China a fellow permanent member of the U.N. Security Council with whom Russia thinks alike, it is also the world's second biggest economy and it opposes the spread of Western-style democracy."


This culminated yesterday, when as we reported last night, Putin thanked China for its "understanding over Ukraine." China hasn't exactly kept its feelings about closer relations with Russia under wraps either:

Chinese President Xi Jinping showed how much he values ties with Moscow, and Putin in particular, by making Russia his first foreign visit as China's leader last year and attending the opening of the Winter Olympics in Sochi last month.


Many Western leaders did not go to the Games after criticism of Russia's record on human rights. By contrast, when Putin and Xi discussed Ukraine by telephone on March 4, the Kremlin said their positions were "close".

The punchline: "A strong alliance would suit both countries as a counterbalance to the United States." An alliance that would merely be an extension of current trends in close bilateral relations, including not only infrastructure investment but also military supplies:

However, China overtook Germany as Russia's biggest buyer of crude oil this year thanks to Rosneft securing deals to boost eastward oil supplies via the East Siberia-Pacific Ocean pipeline and another crossing Kazakhstan.


If Russia is isolated by a new round of Western sanctions - those so far affect only a few officials' assets abroad and have not been aimed at companies - Russia and China could also step up cooperation in areas apart from energy. CAST's Kashin said the prospects of Russia delivering Sukhoi SU-35 fighter jets to China, which has been under discussion since 2010, would grow.


China is very interested in investing in infrastructure, energy and commodities in Russia, and a decline in business with the West could force Moscow to drop some of its reservations about Chinese investment in strategic industries. "With Western sanctions, the atmosphere could change quickly in favor of China," said Brian Zimbler Managing Partner of Morgan Lewis international law firm's Moscow office. 


Russia-China trade turnover grew by 8.2 percent in 2013 to $8.1 billion but Russia was still only China's seventh largest export partner in 2013, and was not in the top 10 countries for imported goods. The EU is Russia's biggest trade partner, accounting for almost half of all its trade turnover.

And as if pushing Russia into the warm embrace of the world's most populous nation was not enough, there is also the second most populated country in the world, India.

Putin did take time, however, to thank one other country apart from China for its understanding over Ukraine and Crimea - saying India had shown "restraint and objectivity".


He also called Indian Prime Minister Manmohan Singh to discuss the crisis on Tuesday, suggesting there is room for Russia's ties with traditionally non-aligned India to flourish.


Although India has become the largest export market for U.S. arms, Russia remains a key defense supplier and relations are friendly, even if lacking a strong business and trade dimension, due to a strategic partnership dating to the Soviet era.


Putin's moves to assert Russian control over Crimea were seen very favorably in the Indian establishment, N. Ram, publisher of The Hindu newspaper, told Reuters. "Russia has legitimate interests," he added.

To summarize: while the biggest geopolitical tectonic shift since the cold war accelerates with the inevitable firming of the "Asian axis", the west monetizes its debt, revels in the paper wealth created from an all time high manipulated stock market while at the same time trying to explain why 6.5% unemployment is really indicative of a weak economy, blames the weather for every disappointing economic data point, and every single person is transfixed with finding a missing airplane.

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Van Halen's picture


Obama prepares to announce HOLY GRAIL of golf games, vacations, and NCAA brackets!

Hope and Change!

Divided States of America's picture

Advice, maybe its time to get a Chinese or Russian gf....who cares if they are just in it for your greencard (its worthless in the future)...because youre in it for THEIR citizenship.

Gief Gold Plox's picture

I fully expect the gold price to nose-dive.

Occident Mortal's picture

Snap shot of inter-region global oil flows at present


From BP statistical review.

Looney's picture

And here comes Kerry’s announcement on re-re-liberating Syria – 3… 2… 1… ;-)


Occident Mortal's picture

Former USSR currently exports 6.5 million barrels a day into the Western Hemisphere and 2 million barrels a day into the Eastern Hemisphere.

If the former USSR flips it's pipeline export strategy East, then that is the moment when power turns.


Putin knows what he is doing. He is King maker.

TeamDepends's picture

We're going to need a bigger distraction....

SRSrocco's picture

As the U.S. & the WEST continue to play silly childish games with the EAST, the United States had record net gold exports in 2013.  And where did most of that gold probably end up?  China..

The Run On U.S. Gold Continues…

Occident Mortal's picture

Russia got Crimea, Russian got the Black Sea.


Obama’s “costs” are that 20 guys are banned from some place they never go?




The sanctions are a farce. Nothing but name dropping and faking jurisdiction. Obama is toothless.

Fortunate Fool's picture

"The worse Russia's relations are with the West, the closer Russia will want to be to China. If China supports you, no one can say you're isolated


Yeah, because that worked so well during the Soviet Union Era... And I wonder what would happen to China if, pissing off the West a bit too much, was kicked out of the WTO as a time it badly needs foreign exports to sustain its economy.

And by the way, it's not like Russia is the only place where you can buy oil & gas. Just sayin'

Gaius Frakkin' Baltar's picture

Yeah, and those +30 year old rotting / rusting factories in the US will be fired back up in no time.

Keep dreaming...

nope-1004's picture

The factories could conceivably be revived, but who could work in them?  When the gov't is in the mode of giving out everything, from phones to food, who the hell will get off their ass and work in any of them?

We've become a society of fat, lazy, Xbox idiots.  Our leaders are no different, engaging in all kinds of front running, white collar stealing, and backroom deals.  Harry Reid type of scum.

Putin will win this battle, hands down.

Fortunate Fool's picture

"Russia-China trade turnover grew by 8.2 percent in 2013 to $8.1 billion but Russia was still only China's seventh largest export partner in 2013, and was not in the top 10 countries for imported goods. The EU is Russia's biggest trade partner, accounting for almost half of all its trade turnover.


Everything you need to know to understand that it's all bullshit. The truth is, Russia needs Europe a lot more than Europe needs Russia. And at the little game of "screw-you-screw-me", I wouldn't put a dime on Russia. 

LawsofPhysics's picture

Really? I guess we will find out when all the fossil fuels stop flowing from Russia to those arrogant cunts in the E.U.


Enjoy the summer...

Manthong's picture

Hey, First Wooky Moochie is in China right now soaking in the sights your dime, with NO REPORTERS but with purported intent to (bring) “ the power of her own story, the power of American values.”


Maybe she can talk them out of it.



Fortunate Fool's picture

" I guess we will find out when all the fossil fuels stop flowing from Russia to those arrogant cunts in the E.U."


I guess Russia showed how humble it is by annexing part of a territory belonging to a foreign country... Your logic is lost on me.

Manthong's picture

They do not want “Western-style democracy”.  

See what you get after 100+ years of perverting the meaning of everything including “democracy”?

I don’t want modern “Western-style democracy” either as it is just a  “too big to fail, too big to jail” financial oligarchy and  kleptrocracy that mainstream economists and media continue to ignorantly refer to as operating under “capitalism".

James_Cole's picture

East still needs West more than West needs East, pretty simple. Look at any chart of trade relations / capital flows.

China has enough problems without dumping its largest trading partners. Maybe I'm the only person on Earth to see it this way, but Russia looks weak to me. 


This whole conflict has the feel of a massive distraction beneficial to all the key players involved. 


DoChenRollingBearing's picture

+ 1

My guess (guess!) is that you are right.

We have many problems, but THEIRS seem worse.

ThirdWorldDude's picture

Would be really cute if you could return in some 2000 years and re-read your comment.

kliguy38's picture

He's only saying this whole kabuki theater is not to be trusted.....these scumbags could be fighting for real.....but guess what wouldn't be the first distraction they were all in on

ThirdWorldDude's picture

Just to make myself clear: the comment above that "the East needs West more than the West needs East" is a total bullshit because its premise is the current Pax Americana Empire measuring units of global trade, GDP cock measuring and creating wealth out of nothing. You saw for yourselves how Russians (and Serbs some 15 years ago) take Imperial sanctions - turning it into the joke that it is.

The reason? Their societies have been around for a while and experienced much worse hardships including total social collapse. If that doesn't kill you as a nation, it only tends to strenghten your social fabric. When you are faced with extinction you define your values, then you stand behind them and do not bow to idiots imagining themselves to be masters of the Universe. 

Only after USA has collapsed as a society a couple of times (though I suspect USA will come out of its first collapse in the same form and size) can you make those comparisons between West and East...


btw kliguy, I didn't downvote you.

FEDbuster's picture

When the SHTF, do you really think Obama will do anything?  Hell he may throw in the towel and let the Chinese and Russians have a go at running things for awhile.  Meanwhile the FSA here in the States, will learn what life is like without the reserve currency providing them with all their wants and needs.  

Or maybe, as Randy Newman sang, they will "Drop the big one now."

old naughty's picture

No worries. We'll have Soros announcing ALL gas stations stopping serving Russian drivers abroad.

Mister Kitty's picture

Putin screwed up big time.  He'll rue the day.  Bitches.

CultiVader's picture

Because......? When will you and your multiple accounts be banned for that insipid blog link? Tylers?

ebear's picture

China needs energy and a new market for its manufactured goods.  Russia needs manufactured goods and a new market for its energy.  This looks like a no-brainer to me.

bobola's picture

riddle me this if you can

with Crimea bagged, according to plan

who is there to stop him

when Putin goes shoppin

for another, a neighboring stan..??

ebear's picture

and exactly what does that have to do with what I just said?  

You want to write doggeral, do it own your own dime.

bobola's picture

what does that have to do with what I just said?  

not a thing, mister bear head

i clicked your reply

to post it up high

in the order of stuff that is read

Independent's picture

Hey BooBoo you can click crap all you want that does not determine the hierarchy here, its based on temporospatial relationships, now that bag you are wearing its my jerk off bag and the slime running down ain't from your runny nose, so lick it and leave Mr eBear alone, he only eats honey, unlike you.

Fortunate Fool's picture

For mathematically challenged people, that would look like a no-brainer indeed.

ebear's picture

Well then, make your case professor.

James_Cole's picture


Here you are - 3 simple points:

-U.S. goods and services trade with China totaled $539 billion in 2011. 

-The EU is also China’s biggest export destination, with €289.7 billion in goods  in  2012. 

-Russia still exports more to China by amount of 21.23 billion US dollars in comparison to an import of 17.52 Billions in 2009.



Read on:



LawsofPhysics's picture

Logic?  You clearly don't have any.  People define their boarders, not the other way around.


You really are a moron aren't you?

Fortunate Fool's picture

yeah, insult me, that's a great way to debate, and that makes you look credible.

By the way, you haven't looked into the definition of boarder, have you?

LawsofPhysics's picture

It's a global marketplace now with a rentier class and an ownership (robber baron) class.

There are no more borders, only boarders who will or won't be able to afford your rent.

Wake up motherfucker, the rent in the E.U. is too damn high.

Not a very critical thinker are you?

Jack Napier's picture

Russia announced last year they have more diamonds in a Siberian crater than the entire global marketplace. They have vast forests. They have oil. They have platinum. They have gold. They have wodka!

What does the West have? Sure we've got ANWR and fracking, but otherwise the US + EU = debt based assetry.

The only reason anyone thinks they need us is because we are in a position to buy what they are selling. Once the petro-dollar shift is complete and our debt becomes wholly undesirable we will have no ability to pay, and they will have no need for us.

Stockpile resources while you can before the paper bond-fire kicks off.

Bunders's picture

"Russia announced last year they have more diamonds in a Siberian crater than the entire global marketplace" Source? I heard years ago that Russia had enough diamond to make the stuff practically worthless, but that was just hearsay.

James_Cole's picture

Why anyone cares about diamond mining is a mystery. Lab diamonds are already better than natural diamonds and soon will be cheap and easy to make big. 

unrulian's picture

The US has Canada which rivals Russia in commodities, of which, it will take as a matter of national security, and as a Canadian our dear leaders will say the same thing as 100 drunk Canadians in a pool who are asked to get out.

Independent's picture

Well the US better get Canada before the Chinese do, they already have Vancouver and are moving east, oh have you heard of referendums?

jovius's picture

A boarder is someone who gets food and lodgings for a payment.

Or someone who forces their way onto a vessel.

Or somone who partakes of a board sport eg snowboarding.

Or someone at a boarding school.


I can't see which one applies here.

LawsofPhysics's picture

Indeed.  It really has become a global marketplace.  Now think about that in the context of the following; "When fraud is the status quo" possession is the law."

Interesting times ahead.

Element's picture

LoP, can you keep this thread going and see what happens when it gets real small, does it collapse and create a bail-in blackhole? Don't you ever wonder about that?

LawsofPhysics's picture

LOL!  Bail-ins are already happening.

Do you have a point?  No?  That which cannot be sustained, won't be.

regardless of what anyone "thinks" or "believes".

same as it ever was.

Element's picture

Yes, but there will be a whole series of bail-ins. You can have an almost endless series of 50% bail-ins, right? :D