The Demise Of Dollar Hegemony: Russia Breaks Wall St's Oil-Price Monopoly
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?
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Currently the excess oil produced is approximately 2 mbpd, and the world, thanks to Saudi Arabia is pumping its heart out (in other words, there is precious little excess capacity available). Russia supplies about 10.5 mbpd. Even given the excess, Russia can be assured that its market will not suffer as something like 8.5 mbpd will be in demand - since the other producers are pumping to their max.
And just because its oil will be priced in rubles, does not mean it won't sell in euroes, yuan, dollars or whatever currency it agrees with its customers. It will simply be priced in rubles. Indeed, I expect other producers like Iraq and Iran and Venezuela might join their market eventually, as this move could ultimately break up OPEC.
What did I just say? That some sort of fx transaction will be necessary to make this scheme work.
What did you just say? That some sort of fx transaction will be necessary to make this scheme work.
Let's look at Europe as an easy example. 3.5 mm bpd at. say $30 a barrel equals 100 million dollars a day. Times 30 equals 3 billion a month.
Times 75 equals the current price in rubles, or 225 billion rubles. Since trade to and from Russia in anything other than oil is very limited, nobody has a collection of 225 billion rubles a month obtained from trade.
Ergo, some sort of fx transaction will be needed.
And the only party getting screwed on this will be Russia. It is the country with the collapsing currency. Oil bought on a Russian futures market at today's ruble price will be a serious loss to Russia when the contract strikes and delivery is taken in the future. Same for long-term gas delivery contracts.
Given Russian need for hard currency for its companies and citizens to service their hard currency-denominated debts, this move does its darndest to cut them off from their only real source of it.
Pure autarky move for the prideful purposes of the State that ignores the consequences to real people.
"fx transactions" exactly only china agreed on trading with russia in rouble and the rouble devalued
thats exacty the problem with a non reverse currency
now the chinese huan devalued too
if russia owned chinese yuan it would be a loss because they bought it on its peak, now will continue to devalue
all game is now turning into a trust game if individual corruption starts then both, russia and china lose
and we know humans nature
"Were that to end, the ability of the US military industrial complex to wage wars without end would be in deep trouble."
awwww,,, poor babies.
And exactly how would rebuilding infrastructure help a McDonalds / Walmart economy with part time employees? Bright new roads and bridges transporting all those Chinese goods?
A poster here said Russia was in deep trouble. That without Space and nuclear technology it would be a third world nation. That they have to import the majority of their food.
The USA has no heavy lift rocket engines (they literally threw the technology away),,, buys rocket engines from Russia and for all purposes has no peaceful space program. It's nuclear technology is years behind Russia and it also imports most of it's goods.
That would imply the USA and the West in general is much closer to third world status than Russia.
Russia has been ramping up production of farming machinery.
They came to the conclusion, a couple of years ago, that for Russia, climate change means an even shorter harvest period. And in order not to lose grain to unseaonal weather they next more machines and people to harvest faster. Russia now has, arguably, the world's largest wheat surplus (production less domestic consumption).
Why not just reset the Gold price ?? It's something I just have yet to understand. Seems like the smartest way to call their bluff.
Thats next stage, the petrodollar has to be disabled as an alternative first.
Not yet, they still have more cheap gold to buy with those cheap dollars.
I think that the Chinese must be asking the Russians not to drive up the price of gold by buying more and more physical. There are several possible motives for the Chinese doing that.
Should be a stunning success, like everything else the russian regime has done.
Russia and China are positioning themselves and the future of their people for the 21st century, all the while America is a drunken whore on the world stage. America isa bar fly economy, strip malls, gas stations and used car dealerships. Surrounded by suburban McMansions siyting in open fields that used to be precious forest and untarnished land. America is nothing more than a junkie that shits in own bed and then demands everyone to come sleep with them or theyll kill their whole family. North America used to be beautiful. America used to be beautiful filled with decent people. Well none of that applies anymore. Just a bunch of mentally crippled slaves.
The only growth i see in Amurikas Malls are the Charitable Status Nigerian Born Again Christian Prayer Outlets. The New 419 SCAMS. Praise the Lord.
America is nothing more than a junkie that shits in own bed and then demands everyone to come sleep with them or theyll kill their whole family.
LOL
Another Russian propaganda piece post on ZH? Yep. Don't get me wrong, I believe the petro-dollar is very real, that Kissinger negotiated it for the fuckstick Nixon to produce economic "growth." It's that I don't understand why Russian, let alone any state propaganda, is needed on a site that, by and large, argues that most of the shit put out is bullshit.
It is increasingly difficult to distinguish truth from fiction or wishful thinking.
But maybe that doesn't matter so much. If we believe in competition then slwoly abolishing the monopoly of the US Dollar must be a good thing. It should be a gradual but focussed process or it could cause shocks. All monopolies, closed off to scrutiny most of them, lead to abuse of power and a US Dollar monopoly is not an exception.
Ever think "All in the Family" was a hit against white America.
Here Nixon explains beautifully homosexuality and Archie Bunker
youtube.com/watch?v=TivVcfSBVSM
I always thought JFK was our last President, maybe it was Nixon..
Nixon adores Russia!
.
"That in effect has (allowed ) required Washington to create a record $18.6 trillion federal debt without major concern." (Replace allowed with required)
It is in fact a double edged sword, even has a name ... Triffin's dillema. If the country with the "reserve currency" doesn't run a deficit then the rest of the world would be starved of currency to trade/build up a buffer of reserves and of course in order to build up reserves the other countries need to have a surplus.
Would not write the Euro off. It is, by design, a gold friendly currency. It is not under the sole control of a single country. A few deals with Russia and China and the Saudis and a new oil currency could be born...and quickly.
So now instead of being fucked by Washington, London and Saudi Arabia; they would just be getting raped by London, Munich and Saudi Arabia? Wow what a great fucking deal!$!
lasvegaspersona, frankly I prefer them to write the EUR off
yes, it is a gold friendly currency. yes, it is not under the sole control of a single country. though note the number of countries is limited to club membership
no, it is not meant for global use. the very name implies it is meant for europe's needs. in an environment that is a currency war... among others
europe has no oil to speak of, and that little is anyway mostly in Scotland. for us, oil is a strategic import, for which we must produce something in exchange
so the EUR is not there to become a petro-eur. it's there for trade of real goods and services. for things that include oil and natgas. real trade
so no, it is not in our interest of people outside of the eurozone to develop an interest into the EUR. it is big enough for the job all for itself
my advice for anybody here outside the eurozone: gold might suit your needs way, way better then euros
my advice for anybody here inside the eurozone: have some gold, just in case
Forgive my ignorance buit if
"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,"
is true then why are they letting the price go so low as to risk defaults on the loans they've made to domestic frackers?
Or are we in the realms of gross simplification and overstatements?
What do the Kardashians have to say about this?
How much energy does it take to transgender someone?
How much energy does it take to transgender someone?
The ruble is under incredible pressure again. They have to do something to drive up demand for rubles. They should have started this a few years ago.
The "good for the US" statement was obviously a joke. Ha
China's probably letting Russia appear to be the main contender for oil pricing in rubles but I'm guessing their agenda is for USSR to do the dirty work in taking a porton of the US's oil/dollar monopoly, only to come in with the yuan as a tie breaker. But when it comes down to it, other countries will ultimately have to decide who to hitch their wagon to. And ultimately who's 'might makes the most right' and which currency is being devalued the 'least' will hold the reigns, so it'll still be the dollar no contest for some time. Unless the yuan somehow attained 100% gold backed status, while at the same time the dollar & euro were failing badly, it'd still be a hard sell. Even in those condtions, global change would still be economically very painful. It's dollars (not rubles) that Chineese are running out to buy as a hedge against their falling yuan.
I like how the title of this article portends that the petrodollar's demise is a foregone conclusion based on nothing more than a bit of side action between USSR and China. This isn't even up to the level of tin foil hat wearing wishful thinking.
If you like your petro-dollars, you will be able to keep your petro-dollars. Remember we are exceptional.
I'm afraid that an effective dedollarisation of the global economy would be as much a major cause of WWIII as an effective depetrolisation of the global energy sector.
The US has exhausted all its tools left. It must accept the Third World
The US has exhausted all its tools left. It must accept the Third World
Something is very fishy. US literally pushed Russia to do all this.
First cut of dollar funding. Pushing Russia to remove dependance on dollar based debts.
Second, cut of European markets for oil and gas thus pushing Russia towards China and negotiate price in Yuan.
Then, threatening to cut off SWIFT system to push Russia to create its own and combine with China system.
Then threatening to cut off Visa and Mastercards to push Russia to create its own money transfer system.
What the fucks wrong with US leaders?
Why are they encouraging the creation of a monster that could eventually destroy themselves?
Can't we all just get along?
"Can't we all just get along?"
Not if you insist on being exceptional, buddy! ;-)
It's a US tough love outreach program to help Russia by creating a petroruble.
oh, Im sure it's all part of the plan. oligarchs will have prepared anyway, moved into new whatever...
like locusts, they have exhausted this field, and moving to the next.
inevitable when oligarchs have already monopolized everything.
1) deregulate global financial markets
2) deregulate global trade
3) bankrupt and nullify nations
4) privatize everything.
very close to completing their long term goals for monopolizing global natural resources and infrastructure.
P < P + I
Globalists are transitioning their criminal empire to Asia and leaving the US for dead. The parasites have depleted the host. Nothing fishy here.
https://www.corbettreport.com/the-great-decoupling-how-the-west-is-engin...
Catherine Austin Fitts said that, too. She claimed all the "smart money" left the USA for Asia by the early 2000s.
This is what was done to the USSR, it isolates their economy and it will cause a collapse.
The Ruble is in the basement and is going lower as it becomes increasingly isolated.
Probably the most important news out today, if Russia can sell its oil for rubles, then the rest of the world will want to do the same. Kaboom goes the US dollar once the idiots on Wall St. figure out they're holding the bag now.
You know what they say,"If you look around the poker table and can't figure out who the patsy is, it's you."
Who wrote this garbage? John McCain's endless wars? Try the Council on Foreign Relations endless wars headed by Zionist Jews Kissinger, Haass, Kristol, Wolfowitz, Perle, Abrams, and the biggest Jew of them all Barack Obama.
You have got to be kidding me...I read the article on de-dollarization expecting to hear of the rammifications to our economy and instead we get a push for infrastructure spending...
It all leads to war, one way or the other.
That's the real fact, Vini. As the currency and proxy wars run their course, the many smoldering points of geopolitical tension will start lighting up. Then we'll see how the masters of our future are willing to liberate the living shit out of the planet.
There are no good guys in the global conflict. Only different groups of gangsters temporarily allying, backstabbing, and openly fighting for global control. Too many here with hardons and open mouths for Putin fail to see that. We have always been at war with Eurasia, Winston.
https://www.youtube.com/watch?v=1zqOYBabXmA
Nice BS article for both gullible Western paranoid junkies and propaganda-controlled Ruskies.
There will be neither 'benchmark' nor 'decoupling'. Mark my words - The Russian Empire of Lies is sinking and very fast so.
What you paranoids think Russia is and what it really is are two parallel universes. Just ask your 'ZH hero' Snowden)))
And yes, I'm Ukrainian, living 40 km from the Mordor border.
Five days WTF eat a cookie and crawl back into Porkyshenko s bung hole troll.
Lol @ typical ZH loser))
shut up you 5 days troll momentum 0
Your grandmom's basement is too deep and too solid - I can't hear what ya screamin', pal))