Lies And Distractions Surrounding The Diminishing Petrodollar

Tyler Durden's picture

Authored by Brandon Smith via Alt-Market.com,

There are a few important rules you have to follow if you want to join the consortium of mainstream economic con-men/analysts. Take special note if you plan on becoming one of these very "special" people:

1) Never discuss the reality that government fiscal statistics are not the true picture of the health of the economy. Just present the stats at face value to the public and quickly move on.

 

2) Almost always focus on false positives. Give the masses a delusional sense of recovery by pointing desperately at the few indicators that paint a rosier picture.  Always mention a higher stock market as a symbol of an improving economy even though the stock market is irrelevant to the fundamentals of the economy. In fact, pretend the stock market is the ONLY thing that matters. Period.

 

3) Never talk about falling demand. Avoid mention of this at all costs. Instead, bring up "rising supply" and pretend as if demand is not a factor even worth considering.

 

4) Call any article that discusses the numerous and substantial negatives in the economy "doom porn." Ask "where is the collapse?" a lot, when the collapse in fundamentals is right in front of your face.

 

5)  Avoid debate on the health of the economy when you can, but if cornered, misrepresent the data whenever possible. Muddle the discussion with minutia and circular logic.

 

6) When a crash occurs, act like you had been the one warning about the danger all along. For good measure, make sure alternative economic analysts do not get credit for correct examinations of the fiscal system.

 

7) Argue that there was nothing special about their warnings and predictions and that "everyone else saw it coming too;" otherwise you might be out of a job.

Now, if you follow these rules most of the time, or religiously, then you have a good shot at becoming the next Paul Krugman or one of the many hucksters at Forbes, Bloomberg or Reuters. A cushy job and comfortable salary await you. Good luck and Godspeed!

However, say you are one of those weird people cursed with a conscience; becoming a vapid mouthpiece for the establishment may not sound very appealing. Or, maybe you just have OCD and you can't stand the idea of "creative math" when it comes to economic data. Whatever the case may be, you want to outline the deeper facts of the economy because the economy is life — it is the structure which holds together our civilization, and if we lie about it in the short term, then we only set ourselves up for catastrophe in the long run. Welcome to another dimension. Welcome to the world of alternative economics.

Every aspect of the U.S. economy or the global economy can be presented two very different ways depending on whether you "interpret" the data to fit a preconceived conclusion, or simply relay it to the public as it really is.

Let's use oil and the petrodollar as an example...

To illustrate the mainstream establishment reaction to legitimate economic concerns on oil, I highly suggest going back and reading an article by Foreign Policy, the official magazine of the Council On Foreign Relations, titled "Debunking The Dumping-The-Dollar Conspiracy," published in 2009. The idiocy of this article was truly bewildering at the time it was released, but even more so now in retrospect.

First, it is important to note that Foreign Policy refused to even acknowledge the issue of the dollar losing petro-currency status until Robert Fisk of The Independent, someone closer to mainstream exposure, dared to broach the topic, warning that a trend was in play to dump the dollar as the petro-currency by 2018. The alternative economic community had been warning about the world moving away from U.S. oil dominance for some time beforehand.

Second, the CFR uses a typical circular fallacy when confronting the potential end of the dollar's world reserve status; the fallacy that the dollar is the world reserve currency because "the U.S. is the preeminent world economic power." Actually, the reverse is true — the U.S. is the world's preeminent economic power only because the dollar has world reserve status. It was also once an industrial powerhouse after WWII, but this was ONLY because the U.S. was one of the few manufacturing hubs in the world that wasn't demolished by years of kinetic destruction. When you are the only game in town, of course you reap huge economic benefits including massive international investment, but not forever.

Today, obviously, the U.S. is far surpassed by other nations in the area of manufacturing and production, and has also been surpassed as the largest global importer and exporter. The "preeminence" argument is unmitigated garbage.

Third, almost every danger Foreign Policy dismissed as "conspiracy" back in 2009 is now coming true. Just as Robert Fisk warned, and just as the alternative economic community warned long before him, numerous shifts in the world of oil as well as geopolitical relationships have created a spiraling nexus of anti-dollar sentiment. Is it possible that the dollar will lose petro-status by 2018? Absolutely, and here is why...

While the U.S. remains the world's largest oil consumer according to the Energy Information Administration (EIA), American consumption of petroleum products has greatly diminished over the past few years; falling demand by increasingly destitute U.S. consumers has left oil producers searching for buyers elsewhere. The World Economic Forum noted in 2015 the drastic fall in U.S. demand since the 2008 debt crisis, but this admission went largely unnoticed in the mainstream media. Interestingly, while demand was crashing, the price per barrel continued to skyrocket because of the Federal Reserve's inflationary QE policies. Almost immediately after the Fed began tapering QE, oil prices drastically declined in line with the lack of existing demand.

In 2017, the EIA claims there has been a rise in global demand since the second quarter.  And has "projected" increasing demand including higher U.S. demand going into 2018, outpacing supply.

Yet, at the same time the EIA admits a frustrating stagnation in global oil demand, with the U.S. being the primary drag on consumption since 2010.

So, which trend are we supposed to believe? The one that is right in front of us, or the one that is optimistically projected? It is clear, even according to "official" statistics on crude oil imports, that the U.S. market began sinking in 2009 to levels not seen since the 1990's and has not recovered since. Everyone knows that each new year is supposed to bring exponential demand, like clockwork. But this has not been the case at all in the U.S.

Meanwhile, China has recently surpassed the U.S. as the world's largest oil importer, even though the EIA lists the U.S. as the world's largest oil "consumer."

The argument mainstream analysts would probably make here is that imports of oil are diminishing because U.S. shale oil is filling demand domestically. This argument overlooks the overall process of declining demand, though.  The US is the largest consumer of oil NOW, but will that pace continue?  According to the data, the answer is no.   Americans are buying less petroleum products since the 2008 credit crisis, regardless of where they come from, and oil producers are seeking to diversify into other markets, and other currencies.

On top of that, even if it were true that imported oil is crumbling because US domestic oil is filling rising demand, this still begs the question - Why would oil producing nations stick with the dollar as the petrocurrency when the US has decided to take its ball and go home? 

The US has now become a COMPETITOR in the oil market with shale, so why would OPEC nations and others also continue to give the US the enormous advantage of owning petrocurrency status?

In the meantime, the geopolitical situation grows more unstable. I believe the Iranian sanctions issue has gone ignored far too long, and this has direct repercussions on the dollar's petro-status. How? Well, consider this — Europe continues its appetite for Iranian oil, with 40 percent of Iran's oil exports going to the EU. With the very oddly timed U.S.-led effort by the Trump administration to renew sanctions, Europe has been caught in a catch-22; either defy sanctions and upset relations with the U.S. or lose a significant source of petroleum imports. For now it appears that the EU will support sanctions, but this time solidarity on the issue is nowhere near as strong as it was back in 2012.

With Iran as a major supplier for Europe as well as China, and overtaking Saudi Arabia as the top oil supplier for India, Trump's latest call to put economic pressure on the nation may add more fuel to the accelerating rationale against the dollar as the primary trade mechanism for oil. The question becomes, who benefits from American influence in oil, and who suffers? The more countries that suffer because of a world reserve dollar, the more likely they will be to look for an alternative.

China has deepened ties to Russia for this exact reason. With Russia supplanting Saudi Arabia as China's largest petroleum source, and bilateral trade between Russia and China cutting out the dollar as world reserve, this is just the beginning of the shift.  In the past week it has been hinted that China will be shifting in the next two months into using its OWN currency, the Yuan, to price oil instead of using the dollar.

Saudi Arabia, America's longtime partner in the oil dominance chain, is now moving away from the old relationship. Tensions between the Saudis and the U.S. State Department over the rather surreal Qatar embargo are just part of a series of divisions. With China's influence in the region increasing, the mainstream has finally begun to acknowledge that Saudi Arabia may be "compelled" to trade oil in currencies other than the dollar.

Why is oil so important? Because energy, along with currency, is the key to understanding the state of the economy. When demand for energy goes stagnant, this usually means the economy is stagnant. When a nation has maintained a monopoly on global energy trade by coupling its currency to oil, an addiction can be formed and its financial structure becomes dependent in that addiction being continuously satiated.

Foreign Policy argued in 2009 that oil trade in dollars is "nothing more than a convention." I would actually agree with that in part; it is indeed a convention that can change dramatically at any given moment. But, Foreign Policy asserts that there would be no consequences for the U.S. if and when the change takes place and the dollar loses petrostatus. This is absurd. Trillions in dollars are held overseas and the singular function of those dollars is to fulfill international trade based on the "convention" of the dollar's world reserve status. What purpose do those dollar's serve if world reserve status is abandoned? The answer is none.

All of those dollars would come flooding back into the U.S. through various channels. Market psychology would immediately trigger a massive loss in the dollar's international value, not to mention incredible inflation would be spiking here at home. This process has already begun, and it is looking more and more like the next couple of years will bring a vast "reset" (as the IMF likes to call it) in the hegemony of certain currencies.

Some people believe this will be a wellspring, a change for the better. They think the death of the dollar will lead to "decentralization" of the global economy and a "multipolar world," but the situation is far more complex than it seems. I will go into greater detail in my next article as to why the dollar and the U.S. economy in general has actually been slated for deliberate demolition and how this will likely come about.

As far as oil and petro-status are concerned, the mainstream media is perfectly willing to report on the developments I have mentioned here in a fleeting manner, but at the same time they are completely unwilling to account for the effects that will result or the deeper meaning behind these events.  They will report on the smaller stories, but refuse to acknowledge the bigger story. It is quite a contradiction, but a contradiction with a purpose.

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Obsidian Samctum's picture

Housing market up. Employment up. Stocks up. Dollar up. Wages up. People standard of living up.

What are you complaining about? There are so many jobs and not enough people to fill them. Enough of this nonsense.

abyssinian's picture

And people have so much freaking money, they are buying fraud investments like bitcoins and cryptos....

stacking12321's picture

and people have so much time on their hands, they're willing to opine about things they have no understanding about

in4mayshun's picture

Guilty as charged. I don't understand how a make believe money backed by absolutely nothing came to be worth $6,000 per unit. We truly are living in crazy times.

runningman18's picture

Because a handful of banks and billionaires are buying them up and blowing up the price. 

Five Star's picture

Let's take a look at the second chart in this article. The one that says 'Global oil demand (EIA) and percent change'

Who here thinks that global oil demand is only 1.5 million barrels a day knowing that Canada alone produces some 3.8 million barrels a day and global production is over 80 million a day?

That is not a chart of global oil demand, it is a chart of global oil demand GROWTH, which coincidently is positive every year on the chart. As in the demand and the rate of growth in demand has increased every year since 2011 and is projected to grow again in 2018

runningman18's picture

The article doesn't make any statement that global oil demand is 1.5 million barrels per day; so what's your point?  Stagnation in growth translates to stagnation in demand over time.  You have to take into account population growth and manufacturing growth versus energy demand.  An additional 1.5 million bpd is negligible given that back in 2011 growth was over double that and we haven't recovered since.  If energy demand isn't setting pace with overall growth each year and years past, then there's a problem with demand decline.  This is really obvious stuff.        

Five Star's picture

The point is that the article is arguing that oil demand is falling when the article's own incorrectly titled graph shows that global oil demand has increased every year and is increasing at an increasing rate every year since 2011. 2010 was one of the highest growth years on record, so starting the graph there is misleading

runningman18's picture

It looks to me to be an EIA graph, so you should complain to them about the title I suppose.  Also the article made the point that demand is "stagnant" meaning, not growing on pace with the previous trend.  It doesn't make the claim that there was zero growth.  The author says it pretty clearly -

"...the U.S. market began sinking in 2009 to levels not seen since the 1990's and has not recovered since. Everyone knows that each new year is supposed to bring exponential demand, like clockwork. But this has not been the case at all in the U.S."

The key word is "exponential", which means greater and greater or more rapid increases over time.  If you're arguing that the article is misrepresenting the data, then you don't really have an argument.   The World Economic Forum info linked in the article lays out the case profoundly -

https://www.weforum.org/agenda/2015/07/the-surprising-decline-in-us-petr...

Five Star's picture

The graph is from seeking alpha. 

everyone doesn't expect oil demand growth to be exponetial. And stagnating means that it is not growing. Global oil demand is growing and the rate of growth has been growing for the last 7 years.

I remember when the US was using too much oil and it was the end of the world and now that the US is using less oil, it's the end of the world.

runningman18's picture

No, stagnation means a lack of positive change, not necessarily zero net growth.  Also, who is "everyone"?  It doesn't really matter who expects exponential growth.  What matters is that exponential growth was the trend, and now it's not.  Obviously there's been negative effects since the change was, uh, negative.  It's clear that oil demand has declined in comparison to the trend previous to 2010, when it should be climbing according to population.  So again, what's your point? 

If the US is using less oil the past 7 years, this indicates a long term pattern in lack of economic recovery, which was the article's point.  Again, this is obvious stuff.

Five Star's picture

Stagnation literally means "lack of activity, growth, or development" Demand for oil is higher every year.

2010 is not representative of the trend in the rate of growth in oil demand. Starting the graph in 2010 and mislabeling it creates the impression that oil demand used to be the levels seen in 2010 and is now much lower.

Oil demand growth has averaged about 1.5% per year since 1997. It is currently at 1.5%

runningman18's picture

I beleive lack of "development" certainly applies here.  Demand is growing at less than half the pace that it was during the previous trend.  Back in 2006/2007 growth was around 4%.  Same as in 1986 to around 1990.  Oil demand growth stagnated in 1997 due to the Asian economic crisis.  What about this is so difficult for you to grasp?   Maybe I should link to the World Economic Forum article again to make it more clear -

https://www.weforum.org/agenda/2015/07/the-surprising-decline-in-us-petr...

The only times in which stagnation in demand has occured in the past is during recessionary conditions or major economic downturns.    Meaning, we're still in a recessionary environment today according to oil demand growth.  Lack of increasing oil demand growth indicates negative effects in the economy.  Very simple.   

sleigher's picture

"Because a handful of banks and billionaires are buying them up and blowing up the price. "

Or because it is outside the system it is exposing inflation as gold should be without the manipulation.

Twee Surgeon's picture

Yeah, right ! On Banker produced paper, everything is coming up roses, just as it has been for 9 years now.

Oh! And it's Sanctum not Samctum, so good luck with the name edit. You seem like a pretty fart smeller. https://en.wiktionary.org/wiki/sanctum

Obsidian Samctum's picture

Not my fault the n is next to the m.

OverTheHedge's picture

You should claim it as ironic, and an in-joke for the initiated. If he is too stupid to understand the joke, then that is his fault. It's not a fuck-up, it's a design feature.

Admitting to having fat fingers is tantamount to admitting you can't spell. Never explain, never apologise might be another way to go. Unfortunately, you are stuck with it now. Welcome to the inner samctum. We're all friendly folks here (except Oswald Mosely, with his "Rivers of Bitcoin" speeches).

Atomizer's picture

OK Sally, off of Israel low DNA reproduction offspring. Now onto sand niggers scamming United States of America. Piss off cunt. 

Scammer Pretends To Be President Donald Trump - The Hoax Hotel ...

runningman18's picture

What data are you looking at, Obsidian?  US home ownership at 50 year lows:

https://www.prnewswire.com/news-releases/homeownership-hits-50-year-reco...

Stocks rigged by Federal Reserve through QE and low interest rates, creating a historic bubble.  Dollar has lost 98% of its purchasing power since being removed completely from gold standard.  US economic mobility cut in half since the 1940's:

https://www.seattletimes.com/business/economy/the-shocking-decline-in-am...

US middle class contracted over the past two decades:

https://www.nytimes.com/2017/04/24/business/economy/middle-class-united-...

Wage stagnation in the US for years:

https://www.washingtonpost.com/news/wonk/wp/2017/05/08/researchers-have-...

Unemployment figures are fraudulent and do not include U-6 measurments.  Not to mention the houshold survey by the BLS is a joke. Most new jobs today are in the service sector and are low wage.  Maybe you are on the wrong site?  MSNBC seems to be more your speed, i.e. very slow.  

bidaskspread's picture

Give him a break man... he's probably reading all the initial data releases before they downward correct 20 plus percent in the next release.

illuminatus's picture

No one as blind as he who just won't see.

Parrotile's picture

Whilst the Petrodollar continues to reign supreme, the "demand' for dollars remains.

It will be "interesting" to see what happens in a few months, once China starts what is in essence a "Yen for Oil" programme. Not expecting anything sudden, mind you, but the "medium to long term effects" might be predictive of future trends.

What WILL happen when the US Dollar is no longer 'essential" for trade? Will they all return to the coop quickly, or in a more controlled manner?

Will the Administration accept these changes graciously, or are we all in for a spot of "Kinetic Diplomacy", mmaybe this time on a Global scale?

Slippery Slope's picture

The Chinese are basically promising oil for gold, yuan that can immediately be exchanged for gold.

What countries will prefer gold?

The petro-dollar promises oil for paper. Paper is a promise.

DEMIZEN's picture

i wouldnt buy that. Oil for gold is nonsense, just an old goldmonger's wet dream. no oil producing country will agree/insist on it.

OverTheHedge's picture

Lots of people dreaming of it, though - especially here.

However, if all those unwanted dollars come rushing home, and the dollar inflates, then the initial knee-jerk will be fore everyone else to inflate too, especially if they have lots of debt. We all watch the race to the bottom, but it might just intensify. If that is the case, I can see gold being a preferred method of exchange, just because it doesn't evaporate overnight.

Feel free to show me I am wrong.

OpTwoMistic's picture

Charmin is a promise to wipe your ass and that is what the dollar will become in a few months.

It is over.

Justin Case's picture

If the US continues the Roman play book, woar will break out. This is already in play with the two they cannot control, China and Russia. Continuous slander and sanctions, fake news, blocking RT, Embassy closures and keeping the Russian property etc.

Volkodav's picture

         Quintile Vare, legiones redde!

Implied Violins's picture

China and Russia *are* controlled; they are playing the role of "good cop" to the west's "bad cop".

(((Those at the top))) of the heap are choreographing this whole shit show. They own both sides. Not that this won't result in war, it always does, and the globalists giving the orders will reap the rewards. But China and Russia are both pawns in this game, as much as the west is.

Proof? Here's a direct quote from George Soros on China's involvement:

>>> I think this would be the time, because you really need to bring China into the creation of a new world order — financial world order. They are kind of reluctant members of the IMF. They play along, but they don’t make much of a contribution because it’s not their institution. Their share is not commeasurate — their voting rights are not commeasurate — to their weight. So I think you need a New World Order that China has to be part of the process of creating it, and they have to buy in. They have to own it the same way as I said the United States owns… the Washington consensus… the current order, and I think this would be a more stable one where you would have a coordinated policies. <<<

(at the 9:26 mark in this video on You-Tube: https://www.youtube.com/watch?v=YlG_zYgG05o&t=9m26s )

Justin Case's picture

India and Russia like that for sure. Accepted and recognised all around the globe. They aren't selling it in gold, it's backed by gold not paper promises. Remember the USD was backed by gold, you could trade it in for gold. Problem was that there was moar paper than gold. So rather than letting gold rise to cover the printing they defaulted and severed the convertability. That screwed every dollar holder on the planet.

buttmint's picture

Mark Knopfler sung about it the best---"...MONEY FOR NOTHING AND CHICKS FOR FREE!"

olibur's picture

Not that I'm rooting for petrodollar but it was posted on ZH earlier.
'The Gold-Backed-Oil-Yuan Futures Contract Myth'
https://www.bullionstar.com/blogs/koos-jansen/the-gold-backed-oil-yuan-f...

Winston Churchill's picture

Scary when these respected supposed "exspurts" reveal themselves to be as ignorant  as you.

Its a de facto petrogoldyuan ,just as the dollars was a de facto petrogolddollar before Nixon closed the gold window.

I won't always be around to do your guys thinking for you,about time you started using your own brain.

RafterManFMJ's picture

I really in no way believe China will let its precious leave the country - no matter what.

How long would it take gold to be emptied from it’s treasury vs. the volume price of oil it burns? Not long.

Now, if gold was suddenly revalued to perhaps 100K per ounce ... maybe. As it stands, you’ll not see any oil producer selling 10 billion in oil and being able to swap it for Chinese gold.

Ain’t gonna happen.

illuminatus's picture

The petro-dollar promises oil for paper" It's more like the petro dollar promises paper for oil. 

 

Laughing.Man's picture

If there's going to be any "Kinetic Diplomacy", it'll likely occur on the home front.  IMO, that little outing in Africa won't last long.

Justin Case's picture

The Japanese have a Yen for oil. China has Renminbi/Yuan

Atomizer's picture

Remember the United Nations oil for food program? That was a disaster. 

Justin Case's picture

UN is just an arm of the empire with it's vassels sitting, voting what they are told by the empire. Farce.

uhland62's picture

It was meant to be that, or Albright wouldn't have said 500,000 dead Iraqi children were worth it. Worth what - never mind.

thefinn's picture

What's that saying "it happens slowly at first, and then all at once" ?

uhland62's picture

Yen for oil??? Mightn't you mean Yuan for oil? Quite some difference.

But there's nothing to see here anyway. Just get the draft going for women as the Pentagon has floated. All in order, potential of about 11 million more in uniform. Fixed!!!

aurum4040's picture

It will not be merely accepted. De-dollarization is akin to war drums. There are two reasons why the dollar is still around. One, the US military and two China isnt economically and militarily prepared to make the switch. Not yet. So the dollar will continue for the foreseeable future. 2018 is pure nonsense. If or when the de-dollarization happens in earnest, we will not go quietly. There will be war. The question is does the US move to hedge the future sooner rather then later by destroying the countries heavily involved in DD. The longer the wait the more of chance the US 

Winston Churchill's picture

I predicted an iminent war as soon as the Sino Russian pipelines contract were signed.

Thankfully I was wrong, but not on the timing.The USA has missed  its window of opportunity

to stop DD.

illuminatus's picture

As far as I can tell the US has always protected it's exorbitant priviledge with its military as last resort. It remains to be seen if the US is willing to go up against a China-Russia-Iran-Turkey ( did I leave out any significant sovereign) alliance. I think it would be hard to argue that nations around the world with maybe the exception of one or two are tired of the US's bullying, and once chincks in the armor appear, the floodgates of resentment and pent up anger will descend on US.

Posa's picture

Hard to see how the US bombs its way out of a petrodollar break.

Yen Cross's picture

 Here's a couple of pieces for the peanut gallery.

  Country insights - China - bp-energy-outlook-2017-country-insight-china.pdf

  World Power consumption | Electricity consumption | Enerdata

  Remember the inefficiencies of China. Why would China want a full commodity/yuan peg, when they can just use the TSY/yuan benchmark to maintain the price?

 The author makes some very good points, but this article should've been posted at a different time in the daily trading cycle.

  Shibor link

 

Justin Case's picture

China’s central bank signaled its intention to change the way it manages the yuan’s value by potentially loosening its peg to the U.S. dollar and instead letting it track the currencies of its broader trading partners. It will also have gold as a floor. USD had one at one time.

Yen Cross's picture

  You haven't been trading very long.

Justin Case's picture

Ya just 40 yrs. You don't read much huh? Trading keeps ya bizy

 

In an editorial posted on its website Friday night, the People’s Bank of China said it makes more sense to measure the yuan’s USDCNY, +0.1069%   exchange rate against a basket of currencies rather than the dollar alone.

The foreign-exchange trading system run by the central bank will start calculating a yuan exchange-rate index Friday to provide a reference against a basket of currencies, the PBOC said.

The central bank didn’t offer additional details on the makeup of the basket or a timetable for when it actually would change the way it manages the yuan.