Surging Russian-Chinese Trade Pressures Petrodollar

Authored by Tom Luongo,

The latest trade figures on Chinese/Russian trade should be further warning to the U.S. that economic sanctions do not work. In May 2017 Russian and China agreed to increase bilateral trade to $80 billion by the end of 2018.

Well, they’re a year ahead of schedule...

The official figures for 2017 came in at $84.07 billion.

https://www.zerohedge.com/sites/default/files/inline-images/20180113_russ.png

They did more than $8.1 billion in business in December alone. With the opening of the new ESPO oil pipeline connecting Siberia to China doubling the amount of oil China can import to 600,000 barrels per day we’ll see those numbers continue to accelerate.

And that’s the key. Remember, the massive $400 billion gas deal China made with Gazprom in 2014 hasn’t begun delivering gas. The first Power of Siberia pipeline isn’t due to be completed until 2019. The second Power of Siberia pipeline is on the table after this one.

And the two countries just agreed to a third pipeline to bring gas in from Russia’s far east last month.

So, despite back-biting from western media about the profitability of these projects, they are going forward and the two countries continue to strengthen fundamental ties to one another.

Power-of-Siberia

Greasing the Skids

We are now just a week away from trading yuan-denominated oil futures on the Shanghai International Energy Exchange(INE). Trading begins January 18th.

And while that won’t change the face of oil futures overnight, it will begin shifting price discovery away from U.S. dollar markets. It will also improve external yuan liquidity as well as visibility for Russian oil on the global market.

The Shanghai contract is for Medium Sour crude which is closer to the type of oil mainly produced by Russia. Russian Urals crude is considered Medium Sour. Saudi Arabia’s and most of OPEC is sour oil (higher in sulfur with a lower pH). With the OPEC production cuts which Russia agreed to emulate, mostly hit this market.

Both WTI and Brent crude are benchmarks for Light Sweet Crude like that of the U.S. shale producers, Venezuela, Nigeria and Libya. So, this contract is designed to properly price other grades of oil not tailored to U.S. refinery needs.

And for that reason alone it will be a major competitor in the long run. The current oil market is heavily fragmented because there is no direct futures market for Sour grades of crude.

Shanghai’s contract is changing that game. Between this and that profits from it can be converted to gold via the Shanghai Gold Exchange, gives this market immediate credibility.

The effects of this have been over-stated on the one hand by hard-money advocates and under-stated on the other by entrenched financial analysts.

The important takeaway is that China has created the first unassailable and above-ground challenge to the petro-dollar oil trade. To break the world’s use of the dollar as the sole settlement currency for oil required the right contract issued by a country the U.S. can’t immediately invade and conduct a regime change operation in – like in Iraq and Libya.

Russia wins here because now there is a path for its Urals grade to become an international benchmark like WTI and Brent. And since Gazprom prefers to price its long-term gas contracts based on underlying oil prices rather than the more volatile natural gas price, this is also a win in the long run for them.

Gold convertibility is a means to deepen China’s sovereign debt markets by making it less risky to hold Chinese bonds. The lack of true yuan convertibility is the big impediment to people holding them. So, gold convertibility creates a viable exit route.

A Means to an End

Increasing trade between Russia and China has to and will go far beyond energy for its partnership to thrive. The oil trade is simply a means to building the underlying capital flow between the two countries. It makes it easier for Russian businesses to get access to Chinese capital and vice versa.

And this rapid acceleration of bilateral trade is necessary in the face of more severe U.S. economic sanctions against Russia likely coming next month. The way to avoid sanctions is to build alternate means to do business.

We will continue to target Russian banks and financial oligarchs with the idea of curtailing economic growth by cutting out their ability to source overseas capital. And again, this is why China is so important to Russia.

Because the more we push them away the more they can turn to their Chinese partners for assistance and the U.S. doesn’t dare sanction China, no matter how much President Trump bloviates about it.

China announced last week that it would not longer be accumulating U.S. treasury assets. Presumably, this mean that it will no longer recycle its trade surplus with the U.S. to halt appreciation of the Yuan versus the dollar. [ZH: of course this was denied within 24hrs but the threat remains]

It’s had to over the past year with the dollar weakening like it has. But that wave is coming to an end with a reversal of Fed policy and Trump’s tax cut bill. Rising rates in the U.S. will allow China to divest its Treasury holdings at its leisure without overly affecting the Yuan while it also deepens Yuan liquidity through its now gold-convertible bond market.

Those trade dollars will be spent in pursuit of China’s One Belt, One Road initiative and overseas where it has business. I’m sure if Russia gets into another dollar-funding crisis with new sanctions China will be there to provide dollar liquidity, just like in 2015.

Both countries understand the stakes and continue to make the right moves to support the changing macroeconomic environment. With U.S. bonds on the verge of entering a bear market conditions are ripe for China to deploy its massive savings to resume remaking the Asian continent.

Comments

peddling-fiction Crazy Or Not Sat, 01/13/2018 - 19:13 Permalink

Musical chairs offered only to those who saved diligently their gold sovereigns...

18.1.2018 = 18+1+11=30

30 = Jupiter = Zeus = X = Lucifer = (G)

The three points of light.

The pyramid completed.

The Barcids should be proud.

For the PhoeniX is a royal PURPLE bird.

That will sit on the pyramid's capstone, the benben.

Things never are the way they seem.

Theirs has been a Herculean task.

Meet your hidden superior.

Not mine.

In reply to by Crazy Or Not

monk27 BokkeDavola Sun, 01/14/2018 - 13:37 Permalink

So true. Wanna see it with your own eyes ? Take a stroll through your Walmart of choice or a big mall, preferable in a poorer suburb. Enjoy the empty shelves, the shrinked aisles and/or the shoddy look and quality of the scraps masquerading as merchandise. In too many cases it looks more like the remains of a kids party than a serious store. Add here an avalanche of surrounding empty spaces and recently closed boutiques. Sure signs that people ran out of money a long time ago...

Same spaces looked totally different (for the better) 10 years ago, and like a beautiful fairy tale 20 years ago...

In reply to by BokkeDavola

FBaggins fattail Sun, 01/14/2018 - 15:31 Permalink

The problem is that those tax dollars are apt to be worth shit with the slide of the petrodollar. The only real hope to save it was lost by Trump when the international bankster, anti-Russian, US deep state boys and girls deliberately buggered up his chances of rapprochement with Russia over the course of 2017. These assholes in their Kissinger/Brzezinski lock-step march to conquer the Levant, and bankrupt and take over Russia have completely blown it. All they have accomplished is to set up a rival formidable and rapidly advancing world alliance and economic powerhouse in opposition, which will likely leave the entire West together with all its corruption, crime, exploitation, debt, propaganda, brainwashing, sham globalism, and its fiat currencies in the dust. These asses in their militaristic and economic arrogance and stupidity have literally driven Russia and China ever closer together into one gigantic powerhouse of influence and economic growth, while at the same time alienating themselves from any such future. If a war between these powers does occur, all people in the US and the rest of the West will be fighting for is the continued disintegration of our Western civilization by our corrupt establishments, and more evils and injustices inflicted on foreign nations.    

In reply to by fattail

Scipio Africanuz YUNOSELL Sun, 01/14/2018 - 10:12 Permalink

At this time, the breeze is gentle, the sheep feel cool, the wolves are preparing for a feast, the vultures are circling, knowing their will be more than enough carcasses to go round. The watchers are warning, the storm is gathering speed, western economies are in the eye of the cyclone, their managers know it, they're trapped, nno escape. They kick the can, they distract, they bullshit, they rub their necks in dread of what might happen to it.

The knowers prepare, they cut consumption, they divest into productive assets, they store resources in precious metals, they relocate, they make friends, they stay under the radar, they sharpen their knives, knowing the buffet will be rich.

The piper arrives, he stores his pipe, he readies his invoice, he tabulates his debtors, he has no creditors, he is the creditor. He stretches luxuriantly, he's in no hurry, the prey is caught, the net holds, he prepares for a king's banquet. he sends, the invoice, his customers tremble, the earth quakes beneath their feet, the legs go wobbly, the world spins as they experience vertigo.

The trumpet blows, the sky darkens, thunder emits its awful bellow, the electric flashes in the clouds, dread overwhelms the world as the piper in a terrifying voice demands, "pay me my dues!"

The cycle ends, the cycle begins, the foolish are consumed, the prudent consume.

In reply to by YUNOSELL

uhland62 directaction Sat, 01/13/2018 - 23:37 Permalink

The Russia/China alliance was cemented through the 2014 sanctions. I remember it well that they had negotiated about that gas pipeline but when Obama slapped those sanctions on them in 2014, Moscow saw the writing on the wall and made price concessions to get it going. What luck for the Chinese that Russia needed to have that contract. 

Quite a normal thing: Kick people out the tent, and you will discover there are so many outside that you inside the tent are now the outsider. But America does not grasp that. They are addicted to punishing others when they don't obey. The drop of Dollar value has been going on for a few years, but it is a very slow development. 

In reply to by directaction

SeaMonkeys directaction Sun, 01/14/2018 - 11:34 Permalink

You're right but the flip side is eventually the U.S. won't need its military to bully the world into the petrodollar stranglehold. This is the source of all our debt, federal and to a large degree personal debt as well. 

We will be able to manufacture again and create a healthy circular flow of income and spending, without as much (or any) debt.

Think of how much money we would all save and be able to save and generate. Both political parties want us to accumulate more debt, federal and personal. They both want us to feel grateful for the crumbs that the 1% give us. Real productivity and prosperity are not talked about in America. Just patriotism, fear, victimhood, and hate.

For a country that calls itself capitalist, the United States is deathly afraid to talk about economics.

In reply to by directaction

Scipio Africanuz SeaMonkeys Sun, 01/14/2018 - 14:21 Permalink

The problem with your rosy scenario, is that the old timer machinists are expiring. Their probable replacements are nowhere to be found. USA spine has been broken, she's now a has been cripple. At the very least, two generations must go through the crucible, assuming optimistically, that the USA survives as a single, united entity.
You know as well as I do, that's wishful thinking. Sing me a dirge for the USA, it is over...

In reply to by SeaMonkeys

Crazy Or Not peddling-fiction Sat, 01/13/2018 - 21:25 Permalink

18th is a launch (code-x) ..the fruition like vin nègre will spent time maturing. I warrant you the eclipses of 2024, 2026 and especially August 2027 will hail Craterellus cornucopioides and burn lighted fuse to trigger over their following days and weeks. My only superior is of my own self, and we discuss with frequency. True there are difficult times close by and a purging of sorts/souls. Real freedom is not here til for now, or even 7 realms up, true freedom is a stellar journey, I'm sure you've labored for that odyssey?

http://www.ianridpath.com/startales/hercules.htm 

In reply to by peddling-fiction

fattail Conscious Reviver Sun, 01/14/2018 - 09:39 Permalink

WTF is with all of the astrologers on ZH.  First ZH was overrun by bible thumpers, then the jew bashers, now astrologers.  Do you people feel that impotent that you have to find a bogey man to blame for all your problems.  You are the only person in control of your life.  You are the only one that cares about you.  No one is going to save you, and no one is to blame for your problems.  Take some personal initiative and stop wasting time and burning mental capital trying to find an easy answer to your problems.  The answer is not in the stars, it ain't jesus, and it ain't because the jews supposedly control every thing. 

The answer is almost always, try harder and stop making the same mistake over and over.

 

In reply to by Conscious Reviver

Uncoy fattail Sun, 01/14/2018 - 09:50 Permalink

Ayn Rand won't solve our problems either. Humanity is a collective. We're pack animals, much stronger together than as individuals.The Jews understood this which is how they have successfully colluded in so many areas of the economy like media and finance to dominate. Individualism is nothing in the face of collusion and corruption. Seth Rich was determined to make a difference. All he managed was to shorten his life (his murder was unnecessary in itself but useful as a lesson to others). Curiously enough Rich's murder is a case of gentile conspiracy.

All groups collude. Some more successfully than others.

In reply to by fattail

HopefulCynic peddling-fiction Sun, 01/14/2018 - 04:27 Permalink

Everytime I see a post of some delusional "arcane" or "occult" "theorist" or imbecile I have to laugh. All of that numerology and symbology is BS it is just some idiot thinking he has "magical" powers or understands "magic". There is no such thing. Thelema, rs, and all "arcane" / "occult" BS is pure idiocy, JUst a bunch of morons full of hubris thinking they hold some special knowledge reserved to few (which of course can be thoroghly found on the internet), but are just boring as hell. 

 

 

In reply to by peddling-fiction

JIMSJOE2 Crazy Or Not Sun, 01/14/2018 - 03:06 Permalink

Total nonsense. For one China is not going to allow the new futures contract to be convertible to gold or even to allow the yuan to be convertible. China has also denied all of of this. China has capital controls and that includes gold and does not allow it to be moved outside it borders. If you actually read the terms and conditions of trading the new contract there is nothing on the official website allowing this. Folks it is all fake news. This would in fact strengthen the yuan and collapse their exports and then their economy. They also realize that the US could convert the stronger dollar to the weaker yuan and drain gold reserves. China is not stupid. Now with this fake news why would anyone buy gold in a country if you cannot remove it?

      In fact the new futures contract will have no effect on the dollar. Chinese oil firms will use Chinese banks with trading desks to buy hedges using put options in case prices fall. To get speculators in the terms state that foreign currencies can be used to satisfy margin requirements.

      The petrodollar has become meaningless in the Middle East. The whole purpose was to flood the international system with dollars and treasuries and this was firmly accomplished decades ago. People just do not realize that countries do not like to hold large amounts of foreign currencies as these pay no interest and are forced to buy treasuries as this is the second most liquid market on the planet behind currencies. China is at least 10 years away from having a large and liquid enough bond market to compete. Europe has no federalized bonds backed by all member countries so that leaves treasuries as the only game in town. What else is there to buy? Italian and Spanish sovereign debt? Not a chance in hell!

      The net has become full of this nonsense where people read crap and simply repeat it. They fail to think critically or do any meaningful research. They are either totally clueless and/or are part of the pump and dump scheme that the net is full of.

In reply to by Crazy Or Not

Uncoy JIMSJOE2 Sun, 01/14/2018 - 10:11 Permalink

Well-reasoned.

Gold backed yuan and ruble will fail for the same reason the gold-backed dollar failed. There's no way that a sovereign country in this day and age (only about a half dozen nations enjoy both the political independence and military strength to claim real sovereignty, but Russia and China are among that small group) would allow an external group inclined to collusion (financial "industry" is a prime example) to manipulate the reference commodity price (gold in this case) and buy out gold at literally half its long term market value.

However none of that prevents Russia or China from accumulating large reserves which back their currency -- i.e. instead of holding treasuries, both nations hold huge gold reserves which function as a payment of last resort.

Sort of the same idea that my bank is willing to offer a mortgage at 2% interest to someone with a million dollars in their accounts while they offer normal punters 4.5% and higher right now.

In reply to by JIMSJOE2

Parrotile RawPawg Sat, 01/13/2018 - 20:15 Permalink

Notice how major developments in Russia always seem to be achieved / completed ahead of schedule (unlike the West, where missed schedules are the norm). The major 22km long bridge linking Russia with Crimea is but one recent example.

The West overstates (and overestimates) their capability, Russia prefers to continue to give "us" nasty little surprises where capability is concerned.

https://sputniknews.com/us/201510111028354019/

In reply to by RawPawg

MK ULTRA Alpha RawPawg Sat, 01/13/2018 - 20:26 Permalink

$84 billion trade between China and Russia is pathetic. The Chinese annual trade surplus with the USA is $400 billion, that's over $2 trillion in five years and is growing at a faster rate than the $84 billion China/Russia trade.

How is this small insignificant trade going to damage the US?

If China makes the mistake of a regional war with India, Taiwan and the countries of the South China sea, then the Chinese lose 18% of their export economy. The US would shut the trade off. If China loses 18% of it's global market, then the Chinese mercantile economy would contract, there would be no market to replace the US market.

China is deeply in debt and must grow at a rapid rate to service debt, both domestic and foreign debt. And China's debt is exponentially higher than it's reserves. Most economist clock Chinese debt between $20 trillion to $30 trillion, however, the state owned sector is excluded from all reporting. I've assessed $30 trillion to $40 trillion total Chinese private, state and state owned sector debt, because of excesses in the state owned sector.

The left wing media propaganda, the China apologist, the corporate lobby, all work for China, not America. The Chinese don't report accurate numbers and if something is bad or risk, they'll cover it up. The state owned sector is the greatest drag on China and there is no way to end the state owned sector.

A collapse of the Chinese economy means war for everybody because the CCP Chinese Communist Party must distract the masses from economic failure and starvation with war. India is a primary target, Taiwan invasion is a CCP political plank, the South China Sea claim is based on mystical spiritualism - Chinese ancestor worship and the potential hydrocarbon production. China's mercantile empire building economy must secure energy resources, because hydrocarbons and raw materials imports are essential for maintaining the drive for economic control of the world. It's a repeat of Great Britain's mercantile economic empire.

In conclusion I'm predicting a trade war followed by real war. This is why we're seeing a wide range of targets for China's war machine, it will be a move to appease the masses by blaming a foreign country for China's failure. Also, China has made it their official policy to drive the Americans out of Asia.

Once the Chinese lose of it's 18% US market and US investment in China ceases, expect 300 million Chinese will starve to death, Xi alluded to this reality because he lived it. The main reason China's population has expanded dramatically was because trade provided a better and continuous diet. When one leg of the Chinese giant collapses, watch as it all unravels and war is heard around the world.

 

 

 

 

In reply to by RawPawg