The Demise Of Dollar Hegemony: Russia Breaks Wall St's Oil-Price Monopoly

Tyler Durden's picture

Submitted by William Engdahl via New Eastern Outlook,

Russia has just taken significant steps that will break the present Wall Street oil price monopoly, at least for a huge part of the world oil market. The move is part of a longer-term strategy of decoupling Russia’s economy and especially its very significant export of oil, from the US dollar, today the Achilles Heel of the Russian economy.

Later in November the Russian Energy Ministry has announced that it will begin test-trading of a new Russian oil benchmark. While this might sound like small beer to many, it’s huge. If successful, and there is no reason why it won’t be, the Russian crude oil benchmark futures contract traded on Russian exchanges, will price oil in rubles and no longer in US dollars. It is part of a de-dollarization move that Russia, China and a growing number of other countries have quietly begun.

The setting of an oil benchmark price is at the heart of the method used by major Wall Street banks to control world oil prices. Oil is the world’s largest commodity in dollar terms. Today, the price of Russian crude oil is referenced to what is called the Brent price. The problem is that the Brent field, along with other major North Sea oil fields is in major decline, meaning that Wall Street can use a vanishing benchmark to leverage control over vastly larger oil volumes. The other problem is that the Brent contract is controlled essentially by Wall Street and the derivatives manipulations of banks like Goldman Sachs, Morgan Stanley, JP MorganChase and Citibank.

The ‘Petrodollar’ demise

The sale of oil denominated in dollars is essential for the support of the US dollar. In turn, maintaining demand for dollars by world central banks for their currency reserves to back foreign trade of countries like China, Japan or Germany, is essential if the United States dollar is to remain the leading world reserve currency. That status as world’s leading reserve currency is one of two pillars of American hegemony since the end of World War II. The second pillar is world military supremacy.

US wars financed with others’ dollars

Because all other nations need to acquire dollars to buy imports of oil and most other commodities, a country such as Russia or China typically invests the trade surplus dollars its companies earn in the form of US government bonds or similar US government securities. The only other candidate large enough, the Euro, since the 2010 Greek crisis, is seen as more risky.

That leading reserve role of the US dollar, since August 1971 when the dollar broke from gold-backing, has essentially allowed the US Government to run seemingly endless budget deficits without having to worry about rising interest rates, like having a permanent overdraft credit at your bank.

That in effect has allowed Washington to create a record $18.6 trillion federal debt without major concern. Today the ratio of US government debt to GDP is 111%. In 2001 when George W. Bush took office and before trillions were spent on the Afghan and Iraq “War on Terror,” US debt to GDP was just half, or 55%. The glib expression in Washington is that “debt doesn’t matter,” as the assumption is that the world—Russia, China, Japan, India, Germany–will always buy US debt with their trade surplus dollars. The ability of Washington to hold the lead reserve currency role, a strategic priority for Washington and Wall Street, is vitally tied to how world oil prices are determined.

In the period up until the end of the 1980’s world oil prices were determined largely by real daily supply and demand. It was the province of oil buyers and oil sellers. Then Goldman Sachs decided to buy the small Wall Street commodity brokerage, J. Aron in the 1980’s. They had their eye set on transforming how oil is traded in world markets.

It was the advent of “paper oil,” oil traded in futures, contracts independent of delivery of physical crude, easier for the large banks to manipulate based on rumors and derivative market skullduggery, as a handful of Wall Street banks dominated oil futures trades and knew just who held what positions, a convenient insider role that is rarely mentioned in polite company. It was the beginning of transforming oil trading into a casino where Goldman Sachs, Morgan Stanley, JP MorganChase and a few other giant Wall Street banks ran the crap tables.

In the aftermath of the 1973 rise in the price of OPEC oil by some 400% in a matter of months following the October, 1973 Yom Kippur war, the US Treasury sent a high-level emissary to Riyadh, Saudi Arabia. In 1975 US Treasury Assistant Secretary, Jack F. Bennett, was sent to Saudi Arabia to secure an agreement with the monarchy that Saudi and all OPEC oil will only be traded in US dollars, not Japanese Yen or German Marks or any other. Bennett then went to take a high job at Exxon. The Saudis got major military guarantees and equipment in return and from that point, despite major efforts of oil importing countries, oil to this day is sold on world markets in dollars and the price is set by Wall Street via control of the derivatives or futures exchanges such as Intercontinental Exchange or ICE in London, the NYMEX commodity exchange in New York, or the Dubai Mercantile Exchange which sets the benchmark for Arab crude prices. All are owned by a tight-knit group of Wall Street banks–Goldman Sachs, JP MorganChase, Citigroup and others. At the time Secretary of State Henry Kissinger reportedly stated, “If you control the oil, you control entire nations.” Oil has been at the heart of the Dollar System since 1945.

Russian benchmark importance

Today, prices for Russian oil exports are set according to the Brent price in as traded London and New York. With the launch of Russia’s benchmark trading, that is due to change, likely very dramatically. The new contract for Russian crude in rubles, not dollars, will trade on the St. Petersburg International Mercantile Exchange (SPIMEX).

The Brent benchmark contract are used presently to price not only Russian crude oil. It’s used to set the price for over two-thirds of all internationally traded oil. The problem is that the North Sea production of the Brent blend is declining to the point today only 1 million barrels Brent blend production sets the price for 67% of all international oil traded. The Russian ruble contract could make a major dent in the demand for oil dollars once it is accepted.

Russia is the world’s largest oil producer, so creation of a Russian oil benchmark independent from the dollar is significant, to put it mildly. In 2013 Russia produced 10.5 million barrels per day, slightly more than Saudi Arabia. Because natural gas is mainly used in Russia, fully 75% of their oil can be exported. Europe is by far Russia’s main oil customer, buying 3.5 million barrels a day or 80% of total Russian oil exports. The Urals Blend, a mixture of Russian oil varieties, is Russia’s main exported oil grade. The main European customers are Germany, the Netherlands and Poland. To put Russia’s benchmark move into perspective, the other large suppliers of crude oil to Europe – Saudi Arabia (890,000 bpd), Nigeria (810,000 bpd), Kazakhstan (580,000 bpd) and Libya (560,000 bpd) – lag far behind Russia. As well, domestic production of crude oil in Europe is declining quickly. Oil output from Europe fell just below 3 Mb/d in 2013, following steady declines in the North Sea which is the basis of the Brent benchmark.

End to dollar hegemony good for US

The Russian move to price in rubles its large oil exports to world markets, especially Western Europe, and increasingly to China and Asia via the ESPO pipeline and other routes, on the new Russian oil benchmark in the St. Petersburg International Mercantile Exchange is by no means the only move to lessen dependence of countries on the dollar for oil. Sometime early next year China, the world’s second-largest oil importer, plans to launch its own oil benchmark contract. Like the Russian, China’s benchmark will be denominated not in dollars but in Chinese Yuan. It will be traded on the Shanghai International Energy Exchange.

Step-by-step, Russia, China and other emerging economies are taking measures to lessen their dependency on the US dollar, to “de-dollarize.” Oil is the world’s largest traded commodity and it is almost entirely priced in dollars. Were that to end, the ability of the US military industrial complex to wage wars without end would be in deep trouble.

Perhaps that would open some doors to more peaceful ideas such as spending US taxpayer dollars on rebuilding the horrendous deterioration of basic USA economic infrastructure. The American Society of Civil Engineers in 2013 estimated $3.6 trillion of basic infrastructure investment is needed in the United States over the next five years. They report that one out of every 9 bridges in America, more than 70,000 across the country, are deficient. Almost one-third of the major roads in the US are in poor condition. Only 2 of 14 major ports on the eastern seaboard will be able to accommodate the super-sized cargo ships that will soon be coming through the newly expanded Panama Canal. There are more than 14,000 miles of high-speed rail operating around the world, but none in the United States.

That kind of basic infrastructure spending would be a far more economically beneficial source of real jobs and real tax revenue for the United States than more of John McCain’s endless wars. Investment in infrastructure, as I have noted in previous articles, has a multiplier effect in creating new markets. Infrastructure creates economic efficiencies and tax revenues of some 11 to 1 for every one dollar invested as the economy becomes more efficient.

A dramatic decline for the role of the dollar as world reserve currency, if coupled with a Russia-styled domestic refocus on rebuilding America’s domestic economy, rather than out-sourcing everything, could go a major way to rebalance a world gone mad with war. Paradoxically, the de-dollarization, by denying Washington the ability to finance future wars by the investment in US Treasury debt from Chinese, Russian and other foreign bond buyers, could be a valuable contribution to genuine world peace. Wouldn’t that be nice for a change?

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Flying Wombat's picture

...and they continue to be very busy on the billaterial trade front in a compatible strategy:

Engdahl doesn't mention Iran, and it's worth pointing out given recent developments.

Doña K's picture

I shall be watching this scenario developing. Hopefully, peacefully. 

LetThemEatRand's picture

Good luck with the peaceful thing.  If the dollar is under threat, the dogs of war will be unleashed.  It is the zionist hold on the world and if they can't have it by fiat, they will try to take it back in blood.

Stuck on Zero's picture

The only thing that matters to me is how many hours a month of MTV I can get priced in dollars.

gdogus erectus's picture

3.6 trillion dollars needed for infrastructure?? Oh my god! Where would that ever come from??

We are so blind. We let these fucks print up $17T for themselves and wait for it to "trickle down" yet would never consider just simply printing up 3.6T and rebuilding our infrastructure with it.

MrSteve's picture

They tried that with Build America Bonds but the program didn't juice enough outsiders so it went nowhere.

LowerSlowerDelaware_LSD's picture

"...and before trillions were spent on the Afghan and Iraq 'War on Terror,'"

Sad how people who claim to be semi-intelligent regularly "forget" that the "war" budget is less than 20% of the federal budget.  The "war on work" (EBT/wealfare/wealth transfers) budget is about 3 1/2 times the war budget and produces a worse byproduct - tens of millions of people who refuse to work for a living, demand that other people pay for their lives becasue they "deserve" it (EBTLivesMatter), and teach their heard of chill'ns without a father in the home the same thing.

Scooby Dooby Doo's picture

Scooby gets Social Security Disability benefits bitchez! He don't need no stinking job man!

LowerSlowerDelaware_LSD's picture

Where do I sign up?!?!  FSA, here I come..

Scooby Dooby Doo's picture

Scooby's got debilitating mental issues and as such cannot be a productive member of society BITCHEZ! RUFF RUFF!.

detached.amusement's picture

I loved scooby and all when I was a kid, but man, you're really just a poor unoriginal imitation of Boris.

Scooby Dooby Doo's picture

Those in the know acknowledge that I'm the 'Boris' prototype. But I had the original salt and vinegar edge originally designed not to tickle your desperate funny bone but rather to force you to chew your arm off trying to escape ME!

Eeyores Enigma's picture

If a barrel of oil is 100 rubles and you can get 100 rubles for $13 bucks USD how much is a barrel of oil BITCHES!!!!

jcdenton's picture

3.6 T is a drop in the bucket ..


When you have 32.8 T warchest ..

And that will be funds well invested ..

I'm going to perform some extrapolation here ..

In the above link, one related post is Dr. James' latest ..

In this article it speaks of a mystery adviser to Putin. I'll bet dollar's to donuts that adviser is Lee Wanta. Would not same adviser also have critical advise for Greece?

I mean, we are talking about that individual who did broker the peace agreement with the newly constituted Russian Federation. A younger Putin was looking on ..

BTW, extra credit today goes to the Tylers and ZH ..

The author of this parent article is William Engdahl of New Eastern Outlook

Which is also this Engdahl ..

  • Jeff Smith – Nuclear Physicist, is a former a nuclear weapons specialist with the Department of Energy and UN (IAEA) weapons inspector specialising in nuclear nonproliferation issues. He is now cryptographic curator and historian, preserving classified documents involving nuclear weapons research.
  • F. William Engdahl – Global Energy Policy Specialist, Strategic Risk Analyst and author
  • Lt. Col. Stephen Avery USAF (ret) – Airline security specialist, F111 pilot, USAF Special Operations pilot
  • Gwenyth Todd – Former Head, White House National Security Council, Middle East Desk, Chief Political Advisor, US Navy 5th Fleet
  • Leo Wanta – Former National Director of Intelligence under President Reagan and Inspector General, Department of Defense
  • Major Bobby Hanifin – US Air Force, Veterans Affairs Editor
  • Kadir A. Mohmand – Former commander with the Afghan Mujahideen, North American spokesman for Mujahideen veterans
joe90's picture

A while back I listened to many hours of Lee Wanta interviews and concluded that the story just didn't stack up, parts of it may be true but it smacked of disinfo and consequently the whole of VT is disinfo as well.  I did get a couple of Engdahl's books .... generally very good, but unless it carries on from where Smedley Butler finished, it's also disinfo.

msmith9962's picture

We need a war on infrastructure.

Normalcy Bias's picture

I wonder how many times they're going to try to con Americans with the Shovel Ready Jobs pitch.

Even if there were infrastructure reinvestment, our "Representative Govt" would likely grant the contracts to foreign firms staffed with illegals and H-2B workers.

Pabloallen's picture

Not with russia........   Like some fell and hit their heads.

Chief Kessler's picture

Good Morning ladies of ZeroHead,

Has anyone seen Ted Nugget? I mean really?

Rusty Shorts's picture

Yes I saw him, he shot the White Buffalo with a flaming arrow.

caconhma's picture

The discussions above are "Potemkin villages".

Following collapse of the SUSSR, a very steep deindustrialization took place in Russia. Outside of space and nuclear sectors, Russia is a 3rd-world country. 

Prior to the Ukrainian affair, Russian oligarchy was completely oriented on EU and US. For example, Russia Foreign minister Lavrov's family is living in New York. The same is true for almost all Russia oligarchy. The Putin's secret service has no slavic Russians fully relying of Chechens. The Russia Central Bank is under complete IMF control. Consequently, the present state of Russia economy is in a free fall. 80% of Russia agricultural products are coming from abroad.

Nothing less than a revolution will save Russia from a collapse and disintegration. 

Yes, Russia has nuclear might but how can Russia nuke EU or America if all Russia oligarchy assets and families are living in EU or the USA?

Personally, I am surprised that Putin is still alive.



Is anybody on this Board can read and/or speak Russian? People, you are getting your info from rumors and US, NATO, and Russia propaganda.

aurum4040's picture

you're out of your fucking mind, still stuck in 1998 LTCm style, you have no clue what you speak of, you think Russia would be running the show in Syria right now if any of that US propaganda you spew was true? You think a US Naval vessel didn't piss its pants a lil while back when a MIG EMP'd there asses? Russia's military, budget, and President are stronger, more intelligent, better equipped, and more prepared for the long haul then the US would ever hope to be right now. Get the fuck out of here you troll before you get S400'd

caconhma's picture

Russia operations in Syria are just ~50 of 1970s vintage USSR combat aircrafts.

For example, a single modern US air-carrier has more that 120  latest combat aircrafts. 

ISIS is a CIA project. With 20-25 B-52, using a carpet-bombing, US could easily flatten most of Syria including Damascus and Aleppo but the Pentagon does not do it. Why? The US geopolitical doctrine is deliberately creating Middle Eastern chaos with hordes of barbarian Muslims are being used to destroy EU, Russia, and most of the Middle East. There are too many people up there! 

Why did Putin go to Syria? Only God knows but it would not happen without US and Israel permission. At any moment, Turkey can cut off supply lines to the Russia expeditionary military group in Syria.

Miketheterrible's picture

Ahem.... Su-24M are not 1970. Those models are newer. Su-34 are mid 2000 and Su-30SM are newer....2013 - 2015.  That isnt their ownly assets either.  Learn a bit before typing away.

monk27's picture

Give the man a break, his brain hurts when used...

TruxtonSpangler's picture

Carpet bombing? Go back to 1940.

CuttingEdge's picture

A bit difficult cutting off supply lines to a country allied with Iran, Iraq and Syria. Buy a clue and look at a map.

Every American must be thanking God the Iranian Revolutionary Guard is more tolerant about foreign trespasses than the cunts (our supposed allies) in Turkey.

SoilMyselfRotten's picture

Excellent point CE and of course it would have been no provocation if 2 Iranian boats ventured into US waters.

caconhma's picture

Genius, look at a map. To get to Syria, Russia must go through Turkey or Iraq. The both are US vassals.

I know, Prostitutin has a very "smart" move nobody can even dream about. After all, the Earth is flat.

monk27's picture

They've been flying through northern Iraq for months now. Better wake up and smell the coffee...

Bay of Pigs's picture

You tell everyone here at ZH that you've been in America for 40 years (you came from Russia) and have been at ZH for over 6 years now and yet you just started posting here two weeks ago?

Okay, just what kind of bullshit are you peddling pal? What's your agenda?

Ms No's picture

Yeah, it started off good and then went downhill bigtime.  That seems to be a troll tactic.  Another thing they appear to do is periodically post meaningless things they know will be popular and then come out with aggressive anti-Russian pro-war stuff (or whatever issue they are trolling) periodically. 

They seem to try and blend in inbetween acts of trollery.  That's not to say that there are not people that legitimately dislike Russia or Putin because this country seems to be full of them.   

Miketheterrible's picture

I can.

I also have family living there.

Can you back up your claims to:

80% of food comes from outside of country

Russian Secret Service (Clearly you are not Russian cause there are no Russian Secret Service.  There is FSB, GRU, ALPHA, etc) are mostly Chechen?  I can tell you MVD sure isn't.

Most of the Oligarches family are in the west?


I hear a lot of this crap, but of course, none of it is true. 

Regarding food, here you are:

All news on agriculture:

As well, your little BS about disintegrating and what not is full of crap since 1) Putin as far more popularity than ever and Unity among the country is higher than ever and 2, let me give you a little insight to something:

In 2009, Russia's GDP Dropped over 7%, closing to 8% drop and that was no sanctions and oil at roughly $35 per barrel.  Russia's GDP drop in 2015 amounted to 3.8%, and that is with both sanctions, inflation, CBR increasing interest rates to 17% then dropping to current 11% and oil prices collapsing.  This drop isn't even close to the worst.  But let us take into consideration of 1998 and now.  In 1998:

You will see what the GDP was then in 2014

And here is a bit more news:

Russia wasn't even accounting various stuff to their GDP and you will notice a huge difference afterwards when they did their calculations to international norms.

Did you also know that after Inflation of 16%, Russia's GDP per capital is technically to the same levels of 2008?  Sucks that all the wage growth has been technically lost due to inflation from 2008 to now, but that means Russians are actually better off now than they were in 2009 when the last economic crisis hit.

Government needs you to pay taxes's picture

What would you suggest is the Russian view of multiculturalism?  Is Russia ready to accept 50 million Africans?

Miketheterrible's picture

No.  Russian's are accepting people to a degree.  Once you start getting overpopulation growth of a specific group they tend to get very uncomfortable.  There are blacks who live in Russia, plenty actually, much like various South Americans and such.  These are people who came to Russia during the 70's and onwards for education and military training who stayed behind.  Russians though are far more accepting people I find once you actually adapt to their way of life and culture. They have an Afro-Russian as a mayor:

Bemused Observer's picture

Why should ANYONE be willing to accept 50 million Africans? Or 50 million ANYBODIES?

What, did the continent sink under the ocean or something? Is there some reason they would all have to relocate?

Oh yeah, it sucks...but then they ought to stay there and FIX it. That would be the thing to do.

Refugees happen, but when the numbers are so large that it becomes obvious that entire POPULATIONS are trying to relocate, it's gonna be a problem. At some point, people have to be willing to stay put and fight for their homes. There are only so many PLACES on this planet, and they are all occupied.

aurum4040's picture

exactly Mike, thank you for putting everything out there so eloquently and true, it was everything I wanted to say while being too tired and too irritated at the blatant lies to do so. I can't stand untruth

Bemused Observer's picture

Well, the Russians have had some recent experience with economic collapse, so they might be able to weather it a little better than we will. We are a spoiled people, coming off an incredible run of luck, and about to run out of said luck.

To be honest, I have serious doubts we will handle our coming economic collapse nearly as well as the Russians dealt with theirs. Let's just hope and pray that they don't take advantage of us the way we did them...

Librarian's picture

There are many polyglots on this board.  However, just speaking any particular language doesn't automatically make anyone intelligent.  After all, there are lots of bilingual people in prison currently in the US.

First, all communication is propaganda.  Most of us internalized this lesson long ago the first time we  came home late without calling. 

When applying propaganda analysis to any communication or news story:

1.  Who/What is the source of the communication?

2.  What is the message of the communication?  What are the claims and subpoints of the message?

3.  Does the message rely on other established 'truths' or implied claims that the reader must accept in order to connect the message's internal points/subpoints?

4.  Can the message's claims or other assumed truths be independently verified through multiple unconnected sources?

5.  If the claims or assumed truths cannot be verified (many times absolute proof is not available), what value would the presenter gain if you were to believe that the message was completely true?

Many are quite good at this without evening knowing that they are continually going through these analytical steps.  Kindergarten teachers, small-claims court judges, doctors, theoretical scientists and George Carlin (RIP) usually have very finely tuned "bullshit meters" that are necessary for them to do their work.

There is lots of propaganda now going both ways.  Go to and translate the stories by cutting and pasting paragraphs if your technology isn't able to translate the entire page.  It's apparently big business now to form public opinion.  I believe this will only increase as the nation-state struggles to find meaning and to claim necessity through bullshit and fear as the nature of our day-to-day human work evolves beyond the need for support of nation-states.

Non-U's picture

I partially agree with your analysis. By applying your method I notice that you propagandize against the nation states. You are just a fucking globalist.

Librarian's picture

Well, well.  Another graduate of the Zero-Sum Academy.

I'll wager that you were also summa cum laude in false dichotomies?


dogismycopilot's picture

da. yo gavoru pa russki. ti? nyet? a tia bis te souka.

momentum24's picture

Kudos for this dose of reality injection.

Gosh, ZH has really turned into a lunatic asylum for nihilistic losers))

Vasilisk's picture

Yes. Chechens bodyguards... and so on.


 Furthermore, we here drink cold bears and fight with raging vodka everyday.


Matroshka, Kalashnikov, Balalaika!

Otrader's picture

It won't be their own blood.  That's where the sheep line up for the slaughter.  Support the Troops!

Nexus789's picture

The dollar will fall eventually. The russians are speeding things up. As for the blood thing a war will terminate the Washington thugs as well as it will go nuclear.

flyingpigg's picture

I'm not convinced if the move to start an oil futures exchange in ruble will have a significant impact.

As long as the main refinery products like gasoline, diesel, jet, fuel oil etc are priced in USD, the refiners will have a preference to buy the oil in USD as well to avoid introducing or increasing their currency risk. 

Allen_H's picture

That will change as well.