In Historic Shift, Russia Overtakes Saudi Arabia As China's Number One Oil Supplier

Tyler Durden's picture

Over the course of the last seven months, we’ve painstakingly documented the quiet death of petrodollar mercantilism, the USD recycling system and fixture of the post-war global economic order that has served to underwrite decades of dollar dominance. 

As a reminder, the petrodollar system works like this: oil export countries recycle the dollars they receive in exchange for their oil exports by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one holds US-denominated assets and printed US currency) loop. 

The flow of petrodollar reserves into financial markets peaked in 2006 and turned negative for the first time last year when Saudi Arabia famously Plaxico’d itself (and the US) by glutting the world with crude, in an attempt to crush Putin, and subsequently, to take out the US crude cost-curve. 

And while the recent drawdown in oil exporters’ petrodollar reserves suggests Saudi Arabia’s actions were sufficient in and of themselves to catalyze the system’s demise, the US has accelerated the process by backing economic sanctions on Russia which, starting this year, began to settle oil and natural gas exports to China in yuan, marking what we have hailed as the  the intersection of two critically important themes that have far-reaching geopolitical and economic consequences: 1) the death of petrodollar mercantilism, and 2) the idea of yuan hegemony. 

In “The PetroYuan Is Born: Gazprom Now Settling All Crude Sales To China In Renminbi”, we argued that as economic ties between China and Russia deepen (thanks to billions in currency swap lines and the construction of the new Western gas line which will deliver an additional 30bcm/y to China on top of the 38bcm/y which will flow through the “Power of Siberia” line once operational) Beijing could increasingly look to Moscow to meet China’s energy needs. This would of course only serve to further de-dollarize the global energy trade, dealing yet another blow to the petrodollar system. Sure enough, Russia has, for the first time in history, overtaken Saudi Arabia as China’s top oil supplier. FT has more:

Russia was China’s largest supplier of crude oil for the first time on record in May, as Moscow looks beyond Europe for customers and grows its ties in the east.

 

The country leapfrogged Saudi Arabia, the world’s largest oil exporter, sending almost 930,000 barrels a day to China, up 21 per cent since April, according to customs data published on Tuesday.

 

Sino-Russian ties have warmed as sanctions over the conflict in Ukraine have strained Moscow’s relations with the west.

 

Analysts said the data were the result of a string of oil-for-loan deals that China, which is in the process of overtaking the US as the world’s biggest importer of crude, has signed with Russian oil companies including state-backed Rosneft.

 

“Russian imports are likely to stay high over the next several years as these long-term crude supply contracts kick in,” said Amrita Sen, head of oil research at Energy Aspects in London.

 

“By our records, which started in 2007, this is the first time Russia is China’s top crude supplier,” she added.

 

 

“This trend only depicts the inevitable problem that Middle Eastern producers are going to face in China,” said Ed Morse, Citigroup’s global head of commodities research.

 

Loan-for-oil deals with Russia, as well as other countries such as Brazil, will “make it more difficult for Saudi Arabia, Iraq and others to compete for market share in China”, he added. Additional oil from Iran if sanctions are lifted will only increase the struggle.

*  *  *

Make no mistake, Europe's move to extend economic sanctions on Russia into next year and the recent attempt by Belgium, France, and Austria to freeze Russian assets in an effort to enforce the unenforceable Yukos settlement, serve to drive Russia and its vast energy reserves further away and provide more incentives for Moscow and China to de-dollarize the global energy trade, facilitating both the demise of the petrodollar and the ascension of the yuan in the process.

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BI2's picture
BI2 (not verified) Jun 24, 2015 4:07 PM
Latina Lover's picture

But, but, but, Obama told us Russia was ISOLATED, ROTFL!

CrazyCooter's picture

Someone help me with what "oil-for-loan" means. I could try to parse that a couple ways and would probably still get it wrong.

Regards,

Cooter

WTFUD's picture

Maybe Mr c, the Russians sell their oil to china and borrow from their huge stack of T.bills to purchase or transact for other shit they need from EU/US.

American Sucker's picture

One guess: Russia sends China oil, Russia issues bonds denominated in yuan, China buys the Russian bonds for less than face value.  Russia gets the yuan and a foreign market for its bonds; China gets a claim on future Russian tax revenues.

If I'm right, Russia is in a very dangerous spot.  Here's one possibility: Russia's economy is not particularly stable or good, so China's bond holdings turn out to be worthless paper.  In turn, China offers Russia a "gracious" opportunity to hand over state assets, or send free oil and gas, in lieu of bond payments.  If Russia doesn't, well, China will divest to less "accommodating" bondholders and will gladly buy from Saudi Arabia again with its dollar reserve shitload.  Already in an economic pickle (which is why they can't service their bonds), Russia gets crunched between giving away assets and/or oil or needing to crank up ruble-printing to buy yuan.

WTFUD's picture

Maybe wishful thinking Bud, however, China and Russia are doing Mega-Deals in Energy & DEFENSE over DECADES. The latter is for the LONG HAUL to stave off the threat of a BANKRUPT and getting more desperate by the day US/EU.

Freddie's picture

Bud.  LOL! 

+100

Russia and China are doing their own thing and do not really give a shit about what the trannies in the USSA/EUSSR are doing or threatening.

samsara's picture

"... Russian Economy..."

Are you kidding?

They Export Energy. They actually still have raw material resources.

They just have to stay strong in one piece till the US bankrupts itself.
If they can do that without getting suckered into a fight, without WWIII breaking out...

It will be the 80's again in reverse.

indygo55's picture

“Russian imports are likely to stay high over the next several years"

 

Shouldn't that read China imports?

Carpenter1's picture

Russsia= The new Saudi Arabia, but far more powerful

China= The new USA

USA= The new Russia, circa 1985

Little Doll's picture

Follow guide we have for you and you can make 90 dollars every hour... Our agents earn around $12k a month... Join them... and start working from comfort of your home! All you need is a computer and a internet connection and you are ready to start. Learn how to make a steady income for yourself on following web adress... www.earnmore9.com

css1971's picture

Damn... We have some epically retarded "leaders".

antoninus wilson's picture
antoninus wilson (not verified) Jun 24, 2015 4:16 PM

the jewish house of saud have had a good run
what what.
invented by the tavistock and the mi6 donte you nose.
propped up by the sas who dares wins.

guided by united servuce institute,chatham house and brookings.
cia,pentagram,queen british mi tribute protection money paid.
cayman,jersey and isle of man.
the pink polish skins in tel aviv knesset do not like the wog oriental even if he be kosher so
the house of saud gotta go
mainly for london,usa and tel aviv stealing of gold and sovreign wealth funds
got be good
yes no
for a good couple of trillion

nuubee's picture

So, China doesn't need dollars anymore, and Russia doesn't need America as a customer anymore.

Atomizer's picture

Under TPP, Sandi Arabia can sell camel breast milk to corporate grocery outlets. 

 

 

nuubee's picture

I'm holding out for Camel Cheese.... wow that sounds disgusting.

Tinky's picture

Camelbert? A bit runny, but delicious.

gcjohns1971's picture

Russia and the Gulf States are head-to-head in competition for Chinese business.  To a lesser extent they are competing through proxies for European business, lest you misunderstand the motivations behind Libya, Syria, and the Ukraine.

Strange that people pump up the Russian side of that and fail to note the Chinese are intelligent enough to capitalize on the competition, playing one against the other, for China's benefit.

Just because the US has managed to wrangle the Euro's and Gulf States into outsourcing their security largely to the US doesn't mean that those regions' interests have been overrided. 

It is an important point that is more than just nit-picking.  It goes to show that the fate of the US is not the same as the fate of those interests, but only represents a change of the face pronouncing them.

Max Steel's picture

It benefits both the sides . since they are using yuan then it no longer helps usa where money  would flow in  new york for laundering .

Razor_Edge's picture

"Just because the US has managed to wrangle the Euro's and Gulf States into outsourcing their security largely to the US......."

 

Sorry GC, the Euro's outsourcing their security largely to the US? What exactly is it that we need this spurious security from? The only military threat to Europe is from the US. Pehaps not directly, but through their warmongering and prodding the Bear, a very real threat is growing. The US is the country wasting the most obscene sums of money on wars and weapons, profligately throwing money away, even into basket case systems such as the F-35.

Putin stated at the 2007 security conference in Munich that this is not what Russia wants, a new arms race.

“We did not initiate the withdrawal from the Anti-Ballistic Missile Treaty. But what response did we give when we discussed this issue with our American partners? We said that we do not have the resources and desire to establish such a system. But as professionals we both understand that a missile defense system for one side and no such a system for the other creates an illusion of security and increases the possibility of a nuclear conflict. The defense system WILL DESTROY THE STRATEGIC EQUILIBRIUM IN THE WORLD. In order to restore that balance without setting up a missile defense system we will have to create a system to overcome missile defense, which is what we are doing now.”

Putin: “AN ARMS RACE IS UNFOLDING. Was it we who withdrew from the ABM Treaty? We must react to what our partners do. We already told them two years ago, “don’t do this, you don’t need to do this. What are you doing? YOU ARE DESTROYING THE SYSTEM OF INTERNATIONAL SECURITY. You must understand that you are forcing us to take retaliatory steps.” …we warned them. No, they did not listen to us. Then we heard about them developing low-yield nuclear weapons and they are continuing to develop these weapons.” We told them that “it would be better to look for other ways to fight terrorism than create low-yield nuclear weapons and lower the threshold for using nuclear weapons, and thereby put humankind on the brink of nuclear catastrophe. But they don’t listen to us. They are not looking for compromise. Their entire point of view can be summed-up in one sentence: ‘Whoever is not with us is against us.’”

Putin asks, “So what should we do?” The present predicament has brought us “the brink of disaster”.

Putin: “Some people have the illusion that you can do everything just as you want, regardless of the interests of other people. Of course it is for precisely this reason that the international situation gets worse and eventually results in an arms race as you pointed out. But we are not the instigators. We do not want it. Why would we want to divert resources to this? And we are not jeopardizing our relations with anyone. But we must respond.

 

Civilised states would rather invest their capital in productive projects for wider benefit. The US invests in destruction and threats, the better to attempt to maintain it's bullying, blackmail, hegemony and slaughter.

We would have a lot more security if the US brought home it's military to where they belong and minded their own business instead of everyone else's.

HowdyDoody's picture

NATO has always been about forcing the Soviets and now Russians to target Europe rather than the US. However, the Russians have developed significant nuke missile technology land and sub that renders that moot.

 

MrPalladium's picture

"However, the Russians have developed significant nuke missile technology land and sub that renders that moot."

Very true unless Poland once again does something really stupid and embroils Europe in another world war.

Overestimating the productivity and innovation in the bloated, bureaucratic and oligarch driven U.S. defense budget is a first step toward stupid decisions on the part of our allies. The second step is the russophobia in several East European nations which might be lured into provoking the Bear in the expectation that  U.S. Elites are willing to risk certain death to defend them when the Bear responds.

qomolangma's picture

MrP --> Do you realize why they are called POLACK ?!

Consuelo's picture

Nothing that China does is of any surprise to Putin, and Xi understands this as well.  Everyone has something to offer in exchange and both parties benefit.   China gets oil, missiles and geo-strategic support, Russia gets funding, mfg'd goods and geo-strategic support in return.    What's not to like?

 

 

 

 

q99x2's picture

Banksters are fools. Arrest them.

ajkreider's picture

First time in history, if that means since 2005. Maybe Tyler shouldn't use that expression when the article referenced admits their data is only from 2007.

chunga's picture

message of hate/new avatar test

Consuelo's picture

Always liked the look of that flag  -- even before I found out from pop-culture history that I was rayciss all along.

samsara's picture

Each symbol means what it means to the people it means it to.

Take the US flag, it means a many of different things to many different people.

How "Pop Culture" defines it is controlled a great degree by the Media...

The Media is controlled by.....

SmedleyButlersGhost's picture

Well done in the spirit of the Southern States - hatred of Fed control.  Rebel Stars and Bars rise again

Freddie's picture

The Civil War was another Red Shield bankster war.  just like the ones in Europe where the best and bravest were murdered for profit.

The zio carpet baggers who flooded into the south after it was looted tells you all you need to know about the Civil War.

Dumbass Lincoln then thought he was going to go against central banks and ship the slaves the zio merchants imported back to Africa.   They always kill President who threaten Red Shield central banking.

 

samsara's picture

You mean like Garfield, McKinley, JFK, etc? (Spoiler, you're right)

I think Andrew Johnson was going to carry on that directive, but was stopped(ie the back to Africa thing)

reader2010's picture

The Message To Uncle Sam with Thanks or without Thsnks:

You're debauched,  castrated,  and nullified. 

onmail's picture

and screwed ,

(but BarackHomObamma likes it)

WTFUD's picture

Putin owes us a drink after taking our advise (apparently he's teetotal, explains the chess moves while Kerry plays pin the tail on the horse, drunk ).

Next to cut off those EU ingrates.

HowdyDoody's picture

What's the old saying? You can take a horse to a bicycle but you can't make it ride.

 

Winston Churchill's picture

Maybe a tendem with four pedals.

Joe Tierney's picture

"You can lead a person to knowledge but you can't make them think"

Yen Cross's picture

  Is that GAAP or non-GAAP?

kchrisc's picture

Slip, slip, slip sliding away.

Liberty is a demand. Tyranny is submission..

 

"Help, the Petrodollar has fallen, and can't get up."
"A war is on the way ma'am. Just stay where you are."

Joe Tierney's picture

Such anti-dollar developments are only going to terrify and infuriate the U.S. hegemon even more and make it act even more war-like toward Russia and China.

 

The fat's in the fire - and both sides fully know it.

 

Hot war cannot be far off now.....

Winston Churchill's picture

This year would be best for Pax Americana, but the logistics say next spring, unless it goes

for a first strike.

Tick tock.

Time is running out.

Thomas Aquinas's picture

The Perestroika Deception by Anatoliy Golitsyn
written by Andy Sloan , June 24, 2015

"Behind the mask of diplomatic and political cooperation and partnership with the United State and Europe, the current Russian leaders are following the strategy of their predecessors and working towards a 'New World Order.
When the right moment comes the mask will be dropped and the Russians with Chinese help will seek to impose their system on the West on their own terms..."

- Anatoliy Golitsyn's February 1993 'Memorandum to the CIA', entitled, THE IMPORTANCE OF THE STRATEGIC FACTOR IN ASSESSING DEVELOPMENTS IN RUSSIA AND COMMUNIST CHINA, from The Perestroika Deception (1995)

On the topic of religion, Golitsyn wrote to the CIA in 1990: "...greater apparent official tolerance of religion in the Soviet Union is accompanied by a secret drive to increase Party and KGB penetration of the Catholic and other churches and to use agents therein for political and strategic purposes inside and outside the Soviet Union. As part of the programme to destroy religion from within, the KGB, in the late 1950s, started sending dedicated young Communists to ecclesiastical academies and seminaries to train them as future church leaders. These young Communists joined the Church, not at the call of their consciences to serve God, but at the call of the Communist Party in order to serve that Party and to implement its general line in the struggle against religion." The author continues in saying that when these new "church leaders" have achieved their goals, that a mass withdrawal of these agents will occur to disrupt and destroy the churches. Golitsyn warns that "never in its history since Nero has Christianity faced such a threat of possible destruction." (pp. 116-117)

http://philologos.org/guide/books/golitsyn.anatoliy.1.htm

 

God bless all!

WTFUD's picture

Not just the church but the Fed Res also! s/c

JuliaS's picture

World's biggest landmass and world's largest population are isolated together. Oh, the horror!

Joe Tierney's picture

pope-a-dope will soon be telling us that the Russians can't call themselves "Christian"

 

because they are selling oil to godless commies.....

 

I'm losing sleep worrying about what the pope says.....

SmedleyButlersGhost's picture

He's the guy in a dress that the altar boys are kneeling in front of - look for the pointy hat.

Ventnor's picture

The one thing that unites all ZHers -- virulent anti-Catholic bigotry.