De-Dollarization Spikes - Venezuela Stops Accepting Dollars For Oil Payments

Did the doomsday clock on the petrodollar (and implicitly US hegemony) just tick one more minute closer to midnight?

Source: The Burning Platform

Apparently confirming what President Maduro had warned following the recent US sanctions, The Wall Street Journal reports that Venezuela has officially stopped accepting US Dollars as payment for its crude oil exports.

As we previously noted, Venezuelan President Nicolas Maduro said last Thursday that Venezuela will be looking to “free” itself from the U.S. dollar next week. According to Reuters,

“Venezuela is going to implement a new system of international payments and will create a basket of currencies to free us from the dollar,” Maduro said in a multi-hour address to a new legislative “superbody.” He reportedly did not provide details of this new proposal.

Maduro hinted further that the South American country would look to using the yuan instead, among other currencies.

“If they pursue us with the dollar, we’ll use the Russian ruble, the yuan, yen, the Indian rupee, the euro,” Maduro also said.

*  *  *

And today, as The Wall Street Journal reports, in an effort to circumvent U.S. sanctions, Venezuela is telling oil traders that it will no longer receive or send payments in dollars, people familiar with the new policy said.

Oil traders who export Venezuelan crude or import oil products into the country have begun converting their invoices to euros.

 

The state oil company Petróleos de Venezuela SA, known as PdVSA, has told its private joint venture partners to open accounts in euros and to convert existing cash holdings into Europe’s main currency, said one project partner.

 

The new payment policy hasn’t been publicly announced, but Vice President Tareck El Aissami, who has been blacklisted by the U.S., said Friday, "To fight against the economic blockade there will be a basket of currencies to liberate us from the dollar."

There is no major market reaction for now - a modest bid to Bitcoin and some weakness in EUR and Gold (seems someone wants this to look like nothing).

However, as Nomura debt analyst Siobhan Morden warns:

“You can say whatever you want for your domestic propaganda and make it look like you’re retaliating against the U.S.... This political posturing will only be to their detriment.”

So what happens if Europe also sanctions Venezuela? Will Rubles or Yuan... or Gold be the only way to buy Venezuela's oil?

*  *  *

This decision by the nation with the world's largest proven oil reserves comes just days after China and Russia unveiled the latest Oil/Yuan/Gold triad at the latest BRICS conference.

It’s when President Putin starts talking that the BRICS reveal their true bombshell. Geopolitically and geo-economically, Putin’s emphasis is on a “fair multipolar world”, and “against protectionism and new barriers in global trade.” The message is straight to the point.

“Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.”

“To overcome the excessive domination of the limited number of reserve currencies” is the politest way of stating what the BRICS have been discussing for years now; how to bypass the US dollar, as well as the petrodollar.

Beijing is ready to step up the game. Soon China will launch a crude oil futures contract priced in yuan and convertible into gold.

This means that Russia – as well as Iran, the other key node of Eurasia integration – may bypass US sanctions by trading energy in their own currencies, or in yuan.

Inbuilt in the move is a true Chinese win-win; the yuan will be fully convertible into gold on both the Shanghai and Hong Kong exchanges.

The new triad of oil, yuan and gold is actually a win-win-win. No problem at all if energy providers prefer to be paid in physical gold instead of yuan. The key message is the US dollar being bypassed.

RC – via the Russian Central Bank and the People’s Bank of China – have been developing ruble-yuan swaps for quite a while now.

Once that moves beyond the BRICS to aspiring “BRICS Plus” members and then all across the Global South, Washington’s reaction is bound to be nuclear (hopefully, not literally).

Washington’s strategic doctrine rules RC should not be allowed by any means to be preponderant along the Eurasian landmass. Yet what the BRICS have in store geo-economically does not concern only Eurasia – but the whole Global South.

Sections of the War Party in Washington bent on instrumentalizing  India against China – or against RC – may be in for a rude awakening. As much as the BRICS may be currently facing varied waves of economic turmoil, the daring long-term road map, way beyond the Xiamen Declaration, is very much in place.

*  *  *

Having threatened China today with exclusion from SWIFT, we suspect Washington is rapidly running out of any great ally to sustain the petrodollar-driven hegemony (and implicitly its war machine). Cue the calls for a Venezuelan invasion in 3...2..1...!

Comments

besnook Sep 14, 2017 2:17 PM Permalink

i can't believe there is an entire thread on venezuela without mewn utterings about evil socialism. he must be sick. i hope he is feeling better.

besnook Sep 14, 2017 2:16 PM Permalink

this was done with the backing of china/russia. this is the shot across the bow of the usa dollar ship. they better not take the citgo sign hovering over the green monster down. it should be considered a national treasure and saved.

Benjamin123 Sep 14, 2017 2:42 PM Permalink

Venezuela is broke in any currency and they are practically trading in barter. The formula is the same as always: Oil goes out, everything else they dont produce goes in. Money plays barely no role (for Venezuelan trade) except as an unit of account. The money moves from their customers to their suppliers, in whatever currency the suppliers require.The thing about "ditching the dollar" is about selling USD reserves, for other assets such as gold or other currencies. The act of selling lowers the value of the dollar, and raises the value of whatever is being bought. This only matters in practice for countries with big trade surpluses and giant USD reserves (Japan, Russia, China, Germany, Saudi Arabia, Qatar, India, etc). Every country with USD reserves is propping up the dollar, the same way that every millionaire with a London apartment is propping up London real estate values.But Venezuela cannot pressure the dollar because it doesnt have significan reserves to sell It is down to 10 billion dollars of which 9 billions are in gold, so only 1 billion in dollars. They have to pay 3 billion in debt soon, which means they have to start selling gold, for USD, to pay. Any Rouble, Euro or Yuan they can get their hand into will be sold for USD to pay their debts and fund their imports. They will not dump the dollar no matter their rethoric, they are spending it all to pay debts and buy food.This is just a political gimmick for internal venezuelan propaganda.

gitano513 Sep 14, 2017 1:34 PM Permalink

I'm surprised Chavez and Maduro didn't do this before. I hope China or Russia setup shop in Venezuela soon to help against the US invasion.   

Benjamin123 gitano513 Sep 14, 2017 2:56 PM Permalink

The politics of a reserve currency do not matter for countries without reserves.This article would be 1000 times more important if it was about China or Saudi Arabia. Venezuela has no reserves to exchange. They are selling everything to pay debt and buy food (since they refuse to produce anything besides oil), have no surplus and no concerns about how to store their vanishing reserves.

In reply to by gitano513

Gobble D. Goop Sep 14, 2017 9:21 AM Permalink

Yep.  Look for an insurrection.  The Venezuelan Free RadicalsThey're gonna go into the country, open a bunch of McDonalds, promote unhealthy lifestyles, start a new hate group Incan Lives Matters, cast aspersions on Maduro, and make the news hour generally intolerable. They're insidious...

Anopheles Sep 14, 2017 8:34 AM Permalink

That's hilarious.   The traders will just make a quick conversation.  And then pass that conversation cost along to Venezuela.  I'm sure most of the things Venezuela imports are priced in US dollars.  Maybe they should stop importing too. 

brushhog Sep 14, 2017 8:31 AM Permalink

They're doing it because they are a crumbling, ruined nation who's currency is so devalued that they cant stay on a dollar system. This isnt a "blow to the dollar", its the desperate death gasp of a nation destroyed by socialism.

headhunt Sep 14, 2017 7:56 AM Permalink

Oh No! The Horrors! Venezuela won't accept the US Dollar - who gives a shit.Maduro is one of those people who becomes a little dumber with each waking hour.

Jack4952 Sep 14, 2017 7:39 AM Permalink

Venezuelan President Nicolas Maduro: How long will he remain in office? By COUP or ASSASSINATION?Time for the author of "Confessions of an Economic Hit Man" to come out of retirement ....

Money_for_Nothing Sep 14, 2017 7:27 AM Permalink

Who cares? Whoever he unloads the oil on will charge him a conversion fee. My understanding it is easier to convert a refinery to use light oil than heavy oil. Frakers thank him.

PS I doubt this is any truer than the official dollar conversion factor. Who wants this oil? Not Russia and if China takes it it will be at a big discount.

Old Poor Richard Sep 14, 2017 7:09 AM Permalink

If Obama was still prez the bombs would already be dropping on Caracas, with coward Maduro hiding in a ditch.  When is Trump going to flatten them for threatening petrodollar hegemony?

DjangoCat Old Poor Richard Sep 14, 2017 12:33 PM Permalink

You seem to think the USD hegemony is good for you and the world.  It is not.  It allows the US to print unlimited USD and not suffer inflation.  The rest of the world is paying for the people of the US to live beyond their means.  The longer this continues, the harder will be the inevitable fall from grace for the people in the US.  This needs to stop now.

In reply to by Old Poor Richard

The Alarmist Sep 14, 2017 6:54 AM Permalink

Actually, being out of the straight jacket of the USD gives them the currency they can trade for things like food and toilet paper. Assuming the US does not regime-change him or blockade the ports, this would be a winning move.

The Alarmist hoytmonger Sep 14, 2017 7:39 AM Permalink

It's the classic First-Mover problem: Everyone who has attempted to go first thus far has been whacked for starters, and if they hadn't been, they would have found it difficult to find trading partners. There is oil trading in parts of the world in things other than dollars: Ask our friends, the Turks, about their trade. The difference here is the willingness of bigger players to take the other side. Call it OPEC 2.0 (Russia, Iran & Venezuela) trading with the Alternative Developed World (China, etc.) ... the US has actually succeeded in creating critical mass in both supply and demand by imposing sanctions or threatening them against too many countries at the same time ... the reverse of divide and conquer. Mother of All Blowback

In reply to by hoytmonger

hoytmonger Sep 14, 2017 6:51 AM Permalink

Maduro won't be able to save his "socialist paradise", as in every case, socialism fails. The dancing bus driver has no more cards to play and in desperation is throwing this "hail Mary" pass.Maduro will be hanging from a lamppost before long.

DemandSider hoytmonger Sep 14, 2017 7:31 AM Permalink

You can't swing a cat without hitting socialism. It's everywhere, the NFL, Walmart, Social Security. Chavez and Maduro had too many eggs in the oil basket, but socialism didn't come out of nowhere in Venezuela. There were too many starving people, too many illiterates, too many homeless, so, unsurprisingly, they voted for Chavez. Were it not for increased American fossil fuel production, socialism would be as popular as ever down there. Come to think of it, our increased fossil fuel production negatively affected many socialist countries. What a coincidence.

In reply to by hoytmonger

Last of the Mi… Sep 14, 2017 6:37 AM Permalink

Yeah, yeah, basket of currencies. Quit chewing on your dead neighbor's leg, all is well now that we got the dollar out of the way. Desperate actions of a despot. Nothing more.

RedBaron616 Sep 14, 2017 6:33 AM Permalink

So what Maduro is saying is that he won't sell any oil to the U.S. refineries any more? Probably what he is saying is that the nationalized oil company is probably on the brink of collapse and this is his fig leave covering.Anyone who thinks Venezuela is going to do anything with the petrodollar doesn't understand what shape the Venezuelan economy is in. I laughed when I saw the first sentence. Anyone who believes this drivel will believe anything.

BritBob Sep 14, 2017 5:53 AM Permalink

What do you expect when an ex bus driver is in charge of a country? Maduro is a keen supporter of Argentina's mythical Malvinas claim even speaking at regional conference on behalf of Argentina (CELAC).If there is nothing to take to court the claim is illegitimate. Argentina's Illegitimate Sovereignty Claims: https://www.academia.edu/27599163/Argentinas_Illegitimate_Sovereignty_C… Still, why let a good old socialist distraction get in the way of the truth.

RedBaron616 BritBob Sep 14, 2017 6:44 AM Permalink

Hey, BritBob, no one cares about your Falkland Islands. Give up the last gasp of the extinguished British Empire. Get over it. There are more sheep there than people. So such it up and take your shepherds back to Britain. Not Great Britain, just Britain. You guys haven't been Great since prior to WWII. Then you went to war for Poland and in the end they still weren't free. Brilliant.

In reply to by BritBob

jharry Sep 14, 2017 5:40 AM Permalink

Because no one wants a war, agreements will be made to soften the economic effects in exchange for peace.  However, we will become less moneyed.