Escobar: China Taking The Long Road To Solve The Petro-Yuan Puzzle

Authored by Pepe Escobar via The Asia Times,

A number of pieces have to fall into place before the petrodollar moves into second place...

Few geoeconomic game-changers are more spectacular than yuan-denominated future crude oil contracts – especially when set up by the largest importer of crude on the planet.

And yet Beijing’s media strategy seems to have consisted in substantially play down the official launch of the petro-yuan at the Shanghai International Energy Exchange.

Still, some euphoria was in order. Brent Crude soared to $71 a barrel for the first time since 2015. West Texas Intermediate (WTI) reached the highest level in three years at $66.55 a barrel; then retreated to $65.53.

A series of petro-yuan “firsts” include the first time overseas investors are able to access a Chinese commodity market. Significantly, US dollars will be accepted as deposit and for settlement. In the near future, a basket of currencies will also be accepted as deposit.

Does the launch of the petro-yuan represent the ultimate deathblow to the petrodollar – and the birth of a completely new set of rules? Not so fast. That may take years, and depends on many variables, the most important of which will be China’s capacity to bend, tweak and ultimately rule the global oil market.

As the yuan progressively reaches full consolidation in trade settlement, the petro-yuan threat to the US dollar, inscribed in a complex, long-term process, will disseminate the Holy Grail: crude oil futures contracts priced in yuan fully convertible into gold.

That means China’s vast array of trade partners will be able to convert yuan into gold without having to keep funds in Chinese assets or turn them into US dollars. Exporters facing the wrath of Washington, such as Russia, Iran or Venezuela, may then avoid US sanctions by trading oil in yuan convertible to gold. Iran and Venezuela, for instance, would have no problems redirecting tankers to China in order to sell directly in the Chinese market – if that’s what it takes.

How to bypass the US dollar

In the short- to medium-term the petro-yuan will surely boost the appeal of the Belt and Road Initiative (BRI), especially when it comes to the House of Saud.

It’s still unclear in what capacity Beijing will be part of the Aramco IPO, but that will be a decisive step towards the fateful historic moment when Beijing will tell – or compel – Riyadh to start accepting payment for oil in yuan.

Only then the petrodollar may be at serious risk – along with the US dollar as the global reserve currency.

I have stressed before how, at the 2017 BRICS summit, Russian President Vladimir Putin went no holds barred supporting the petro-yuan, specifically challenging the “unfairness” of the US dollar’s unipolar dominance.

How to bypass the US dollar, as well as the petrodollar, has been discussed at BRICS summits for years now. Russia is now China’s largest crude oil supplier (1.32 million barrels a day last month, up 17.8% from a year earlier.) Moscow and Beijing have been forcefully bypassing the US dollar in bilateral trade. In October last year, China launched a payment system in both currencies – the yuan and the ruble. And that will apply to Russian oil bought by China.

Still, the whole petrodollar edifice lies on OPEC – and the House of Saud– pricing oil in US dollars; as everyone needs greenbacks to buy oil, everyone needs to buy (spiraling) US debt. Beijing is set to break the system – as long as it takes.

The petro-yuan as it stands does not provide access to Chinese oil markets. It starts as a great deal especially for Chinese companies who need to buy oil but would rather avoid the oscillations of foreign exchange. Nothing changes for the rest of the US dollar-dominated commodity planet – at least for now.

The game will really start to change when other nations realize they have found a real credible alternative to the petrodollar, and switching to the yuan en masse will certainly spark a US dollar crisis.

What the petro-yuan may be able to provoke in the short term is an acceleration of the next crises in treasuries and bond markets, which will inevitably spill out in the form of a crisis in global currency markets.

That pan-Eurasian resource basket

The game-changing aspect, for now, mostly has to do with the exquisite timing. Beijing has crafted an ultra-long-term plan and yet chose to launch the petro-yuan smack in the middle of a period of sharp deterioration in trade relations with Washington.

The answer to the geoeconomic riddle is bound to be The Golden Moment. Eventually gold will rise to a level where Beijing – by then totally in control over physical gold markets – feels ready to set a conversion rate.

The – Arabian – ‘petro’ side of the petrodollar equation should have been replaced long ago by a priceless, captured pan-Eurasian resource basket. That was what Dick Cheney dreamed of – centering his dreams on the energy wealth of Central Asia and Russia.

That did not happen. What we have instead is shrieking, manic Russophobia – more like a graphic indication of how precarious is the position of Western banking elites. On top of it, with the petro-yuan, China deploys the key weapon, incorporated into BRI, capable of accelerating the end of the unipolar moment.

Yet this is just the initial step in an ultra-high-stakes game. One should keep one’s eyes firmly focused on the interpolations between trade connectivity and technological breakthroughs. The petrodollar may be in danger but is far from finished.

Comments

Theosebes Goodfellow Theosebes Goodfellow Fri, 03/30/2018 - 12:11 Permalink

Back on Topic:

Señor Escobar is a week late and a yuan short to the petro-yuan fear-mongering. That story is sooo last week.

That's the problem with these economic apocalypses. 99% of the time they just do not materialize in a timely fashion. I mean really, who has time to wait for the damned thing to play out when what you want is quick action with gory details? [sigh]

In reply to by Theosebes Goodfellow

Shillinlikeavillan pc_babe Thu, 03/29/2018 - 22:07 Permalink

I have screamed for years how all that is needed to destroy the US economy is a click of a mouse in some office somewhere in Saudi Arabia that turns off trading oil in Dollars...

 

I have told this to many many people and either they don't get it, don't understand, don't believe, or are too gung ho "'merica!" 

 

At least one person gets it...

In reply to by pc_babe

just the tip Shillinlikeavillan Thu, 03/29/2018 - 22:13 Permalink

uh.  yeah.  uh, and they made a motion picture about it in 1981.  rollover.  kris kristofferson.  hanoi jane fonda.

the ending scene cinematography was cool, for the time/era.  as the camera swept 360 in the trading floor, the action went from hectic activity to trading machines covered by blankets.  symbolism.  and then kris took jane home a fucker her.

but feel free to keep screaming.

In reply to by Shillinlikeavillan

Jack Oliver Shillinlikeavillan Thu, 03/29/2018 - 22:28 Permalink

A lot of people get it ! 

Except maybe Pepe ! Russia has already made huge strides in bringing peace to the ME !

A major reason for the timely launch of the ‘Petro Yuan’ is to stop the war on Yemen !

As the KSA supplies nearly half of China’s oil demand - China has just bought themselves ‘leverage’ - the Kingdom doesn’t want to DIE ! 

China and Russia won’t be doing business with the barbaric KSA without CONCESSIONS ! 

It should be pretty obvious to all - what those ‘concessions’ will be !! 

 

 

In reply to by Shillinlikeavillan

Rubicon727 Shillinlikeavillan Fri, 03/30/2018 - 12:21 Permalink

'I have told this to many many people and either they don't get it, don't understand, don't believe, or are too gung ho "'merica!"'

Sure, but what's important to know is *who* does know this simple concept: the big banksters, Wall Street, some politicians, and the big corporations that sell goods on an international basis.

The average American either believes in the pro-US propoganda, or shrugs off such vital info. In all, probably 85% of Americans are The Walking Dead. 

In reply to by Shillinlikeavillan

Yen Cross Thu, 03/29/2018 - 22:00 Permalink

  It's almost time to short the $usd again. The re-balancing is almost finished and, bonds[treasuries] are Wayyyyy overbought.

 I'm not in the bond arbitration business, but I'll bet the long end is going to be re-invested by the dealers and small central banks, sovereign funds, in the short end,[under 24 months] in q-2.

 The curve is way too flat, in the medium term.

cornflakesdisease Thu, 03/29/2018 - 22:01 Permalink

The Chinese have to add gold to the mix because their currency is crap.  It has collapsed three times in the last 100 years.  Gold?  Yeah like they will ever allow redemption.  Sorry, the US dollar is still the cleanest dirty shirt.

tion cornflakesdisease Thu, 03/29/2018 - 22:38 Permalink

There is this popular game of make believe that people like to play that involves ‘experts’ repeating something often enough that it magically turns into a fact..kind of like the quantification of current above ground gold. China could have an interesting time trying to tie up loose ends. JMO true multipolarity does not mean passing the torch from one nation to another nation or even a host of nations, from he who has the printing press to he who has the gold, but to transition to a robust multifaceted economic order with competing means of voluntary transactions. Voluntary not just for sovereign nations, but for the people of the nations as well. Will China insist on going to war to get their turn? Meet the new boss, just like the old boss?

In reply to by cornflakesdisease

Implied Violins tion Thu, 03/29/2018 - 23:27 Permalink

Yup, and this chart shows exactly what you just posted:

https://azizonomics.com/2012/01/04/a-history-of-reserve-currencies-in-one-graph/

If China wants to buck the trend of the "normal" reserve currency, it will have to ace out the (((owners))) of the currency schemes previously enacted by WOAR over the last - oh, say, at least 600 years.

If they can do that, then I'm on board!  As long as its gold-backed and not some nasty cryptocurrency under the auspices of the (((BIC/IMF)))...

 

In reply to by tion

just the tip Thu, 03/29/2018 - 22:04 Permalink

is pepe saying dick is not deep state?

The petro-yuan as it stands does not provide access to Chinese oil markets.

ahhhh, ha!  the mastadon in the room.

Goodsport 1945 Thu, 03/29/2018 - 22:06 Permalink

Chip, Chip, one step at a time.  Clearly the damage done to the dollar by the US congress has surpassed anything done by any other legislative body in the history of the world.  History will not look kindly on the fools who pissed away our wealth.  They have spit on the graves of every man and woman who gave their lives for the freedoms we once enjoyed.  May they all go to hell.

geno Thu, 03/29/2018 - 22:34 Permalink

You people in hear screaming death to America will be living in a far worse world if China were to ever take over the world order. You're worried by Authoritarianism now; wait until COMMUNIST China takes over. IDIOTS

InnVestuhrr Thu, 03/29/2018 - 22:37 Permalink

In spite of the numerous accelerated ways that the USA regime lords are destroying the American economy, society, government, it will be many years before the yuan displaces the USD, just simple fact.

Space Animatoltipap Thu, 03/29/2018 - 23:14 Permalink

Simply the mere but very serious threat the Chinese taking over the international oil trade is reason for HEAVY WAR. Remember the dark fate of the very small players Iraq and Libya? 

HurricaneBrasky Thu, 03/29/2018 - 23:16 Permalink

Im not sure the chinese launched petroyuan in the middle of recent flare of trade dispute. I think the long running trade dispute was intensified by US to create a market that would seek "risk free" USTs.

Also, if yuan becomes an international currency of wealth and thereby increases in relative value , it would put critical pressure on an economy still largely dependent on export.

It's an economic weapon meant to destabilize US alliances and bolster economic power\geopolitical influence of US enemies. Chinese through petroyuan and geopolitical inroads via OBOR into potentially emerging markets in asia and africa are a long game effort to position themselves in the future world centers of population growth. Granted, it's a stretch to see this potential in those regions currently, but it's there. The groundwork of empire expansion is being laid. Like most empires, expansion is its lifeblood...until it collapses under its own weight.