Iran Sanctions Will Help China's Petro-Yuan

Authored by Nick Cunningham via OilPrice.com,

In a few days, U.S. President Trump may try to re-impose sanctions on Iran, a dramatic step that could heighten tensions between the two countries. Some analysts believe the move could contribute to a much broader global economic power shift from the U.S. to China.

The connection between the issues may not be obvious at first glance, but by seeking to isolate Iran from the international market, Iran could look elsewhere.

 

https://www.zerohedge.com/sites/default/files/inline-images/20180108_yuan.png

Because the global oil trade is conducted in greenbacks, the U.S Treasury was able to restrict Iran’s ability to access the global financial system in the past. That made it extremely difficult for Iran to sell its oil prior to the thaw in relations in 2015, which kept millions of barrels of daily oil production on the sidelines.

This time around, however, the U.S. will likely go it alone. The Trump administration won’t have the backing of the international community in its campaign to resurrect sanctions against Iran, which will make isolation much more difficult. A few months ago, Goldman Sachs predicted that unilateral sanctions from the U.S. could affect a few hundred thousand barrels per day from Iran, but without help from the rest of the world, the effort would not curtail nearly the same amount of oil as the last time around.

Moreover, some analysts argue that the Washington crackdown could merely push Iran to begin selling oil under contracts denominated in yuan rather than dollars.

“Potential consequent reactivation of sanctions may cause Iran to export oil using the Chinese Yuan denominated contract, which launches on 18 January,” Bjarne Schieldrop, Chief Commodities Analyst at SEB, said in a statement.

This may spark a move away from the present long-established U.S. Dollar (USD) denominated oil trading regime.”

For a while, China has worked to launch a yuan-denominated oil futures contract—a move that would symbolize, as well as contribute to, the ascendance of the Chinese economy as a rival to long-held U.S. hegemony. Reports suggest China is planning to allow trading in the oil futures contract on the Shanghai Futures Exchange on January 18.

“The increased threat of renewed U.S. banking/USD sanctions on Iran alone is likely to boost Iran’s interest in the new Yuan oil contract,” said Bjarne Schieldrop of SEB. “China will benefit considerably from such developments.” Schieldrop argues that the more that the oil trade is conducted in yuan, the more the Chinese currency will be recognized as a major, or even a central, global currency.

“While the USD will not be replaced overnight as the world’s reserve currency nor as the one most commonly used for crude oil trading, it will be negative for the greenback, which will cease to be the crude oil market’s only ruling currency,” Schieldrop added.

The implications aren’t just a concern for national security types sitting in Washington. The weakening of the dollar could result in higher oil prices. “A potentially significantly weaker dollar would mean a much higher Brent crude oil price in nominal terms making today’s longer-term nominal prices a bargain,” Schieldrop said.

China has had some false starts in its quest to launch its yuan-denominated futures contract, but the official launch appears to be only days away. The contract will only be powerful to the extent that it becomes highly liquid and widely traded, which will only be achieved when more of the global oil trade is conducted in the currency. Meanwhile, Russia recently announced that it would sell $1 billion worth of yuan-denominated bonds in 2018—another move that will bolster the rise of the yuan as a top global currency.

But investors are unlikely to jump full on into the petro-yuan just yet; capital controls in China will deter some interest. Any transition from the U.S. dollar to the yuan will take years. But milestones such as an oil futures contract are one of the many building blocks needed to push the greenback off of its perch.

Washington could unwittingly accelerate the changeover. President Trump has sought to “make America great again,” but his effort to isolate Iran could have the side effect of pushing OPEC’s third-largest exporter onto the Chinese currency—giving a boost to China’s rise.

Comments

BritBob Tue, 01/09/2018 - 05:06 Permalink

Iran is a member of the UN C24 decolonisation committee and supports Argentina's mythical Malvinas' claim. So much for the human and democratic rights of the Falkland Islanders and so much for that so-called sovereignty claim.

How would a map of the world look today if all of the territory lost and gained over the past 180 years reverted to its 19th century status? Quite a ridiculous proposal.

Falklands – Acquisitive Prescription(1 pg): https://www.academia.edu/35552595/Falklands_-Acquisitive_Prescription

 

WTFUD HowdyDoody Tue, 01/09/2018 - 05:51 Permalink

Time Russia & China placed Sanctions on Vichy DC & Vassals who don't get with the Programme. China could begin with boycotting Saudi crude in favour of Iran's.

Easy to see why Vichy DC & MIC are being more belligerent than ever unlike their EU powerhouse vassals, who see the writing on the wall and look east for their Energy/Economic Security.

The remaining Vichy DC Eastern Europeon Piker Allies are almost totally dependent on Russia for their Energy and so finding diesel to fill their vehicles for their maneuvers on Russia's border could prove more difficult and expensive going forward.

In reply to by HowdyDoody

Arnold Tue, 01/09/2018 - 05:23 Permalink

I don't think the Chinese debt model is strong enough to sustain more speculation, much less opening its value to something beyond the closely regulated 'Market Basket'.

Yes, I have met both pot and kettle.

shitshitshit Tue, 01/09/2018 - 05:24 Permalink

The more US of A "sanctions" other countries, the more they are regrouping and de-dollarizing, effectively throwing USA out of the global economy.

Can't wait to see amerika begging its way back in the real economy in the future. They'll be welcomed with probably a few funny things happening...

 

Cashboy shitshitshit Tue, 01/09/2018 - 06:22 Permalink

You are right.

The USA inflicted sanctions against Russia have made Russia more independent.  The sanctions have damaged the trade of the EC countries; especially Germany with Russia.

Russia have made new allies such as Thailand that now supplies Russia with a lot of the food the EC no longer does.

Russia has also, as a result of the sanctions, upped its military.

 

In reply to by shitshitshit

zoghead Tue, 01/09/2018 - 05:24 Permalink

Psdt Trump, good man that he is...sadly is not getting his foreign policy right. What with North and South Korea chatting happily across the border, and now planning to play in the  Olympic games , Iran getting a clean chit from the UN. The word boomerang comes to mind.

DIGrif Tue, 01/09/2018 - 05:45 Permalink

Hard to export oil when it is raining bombs....These rag heads have been a problem since way back in the 70's (actually long before) and it is far past high time we make them a distant memory on the face of the earth.

Brazen Heist Tue, 01/09/2018 - 06:00 Permalink

The empire tards seem to be addressing problems with the same set of failed solutions. The empire tards aren't backing down from their imperialistic wet dreams, but this time around, they will be doing themselves a great disservice, and not everybody is on board their shit train.

De-dollarization for the win.

Lore Brazen Heist Tue, 01/09/2018 - 07:30 Permalink

It's an appropriate epithet, too. Listen to some of these people being interviewed, and they're completely narcissistic and single-minded, stuck in their pathological little world, infuriatingly oblivious to other perspectives or ways of thinking. For all their perceived power, truly, they're Tards.  It would be pathetic if they weren't so dangerous. 

In reply to by Brazen Heist

null Tue, 01/09/2018 - 06:10 Permalink

Cards on the table. They can all show their true colors. Seems a bit ungrateful about the sanctions, but fair enough.

Talking “around” the dollar will simply make it more competitively priced. Nobody believes the crap about imports becoming more expensive, we know the cost to market is mere cents for most stuff.

Cashboy Tue, 01/09/2018 - 06:16 Permalink

China must be laughing if there are sanctions on Iran.

Iran has been a major supplier of oil to China the whole time of the sanctions.

China wants oil cheap and Iran would only have China as a customer.

Iran needs western goods and of course the west has outsourced manufacturing those goods to China so China has the products to sell to Iran.

Any balance owing to Iran from China could be paid in the way of infrastructure build in Iran or Gold which China is the largest producer of.

And of course, North Korea can be a customer for Iran's oil.

To me it looks like the USA will screw themselves once again.

 

 

PrivetHedge Tue, 01/09/2018 - 06:26 Permalink

Market forces are inevitable, the more the regime steering the USA isolate the country the less relevant it becomes.

They can't fool everyone al of the time and they are fast running out of fools. Their sad little Israeli project of spite and war is now undoing them, Tent Cities are not the anomaly, they are the 1930s depression coming back.

kikk Tue, 01/09/2018 - 06:33 Permalink

The Iran nuclear deal that ended most sanctions was signed by the US, UK, Russia, France, China, and Germany. The US cannot end the agreement alone, they can only withdraw from it and apply sanctions themselves. It will be interesting to see the response if the US applies sanctions and then tries to tell the other 5 countries to do the same.

Neochrome Tue, 01/09/2018 - 07:22 Permalink

"Any transition from the U.S. dollar to the yuan will take years."

You'll be surprised how fast things can unravel once there is blood in the water...