Is Putin Winning The War Of Attrition With The U.S.?

Authored by Tom Luongo,

The news that President Donald Trump offered to hold a meeting with his counterpart in the Kremlin, Vladimir Putin, has the political world in an uproar.

Furiously keyboards are chattering away as laptop bombardiers are worried that perpetual war for perpetual empire will end if Trump and Putin see eye to eye on anything.

From the bowels of MI-6 to the think tanks that line K Street schemes are hatched to make it politically unacceptable for Trump to do what he apparently did, if TASS is to be believed.

If true, the offer represents the biggest shift in U.S./Russian relations since Trump’s election and the subsequent hissy fit thrown by his political opposition in every corner of the political landscape.

Because they know what’s happening even though you could never get them to admit it in public, the U.S. is vulnerable.

We’re not vulnerable in any ultimate weapons sense. The U.S. can certainly lob enough nukes at Russia to wipe them out and vice versa.  No, we are vulnerable where our real power comes from: our dominance of the world’s capital markets backed up by both the political will to isolate anyone who doesn’t toe our line and/or the military might to put down any marginal challenges.

Real Might, Real Power

So, China finally launching an oil futures contract denominated in Yuan, the so-called petroyuan, and convertible to gold is a financial WMD which doesn’t dwarf Putin’s new hypersonic missiles today.  But, over time that weapon will grow in power and destructive capability.

China is the world’s largest importer of oil.  That makes it the source of marginal demand for oil in the world.  Russia is the world’s second largest oil exporter, that makes them one of the suppliers of the marginal barrel of oil on the world market.

While the Saudi Arabians export a lot more oil than Russia, they do so at a much higher all-in-sustaining-cost basis than Russia does (see volatility of the Saudi Budget relative to oil prices below).  At current oil prices Russia’s slowly growing economy is capable of meeting its social needs as measured by the government’s budget, which ran a very modest 1.5% of GDP in 2017 and should contract again this year.

On the other hand the Saudis ran an 8.9% budget deficit in 2017 and has zero hope of closing that much further without higher oil prices. The Saudis are simply at the mercy of the oil price.

Therefore, the Russians are, in my opinion, the producer of the marginal barrel of oil because of their greater economic diversity.

Economically speaking, the marginal supplier and marginal buyer set the price.  No one else does.

And when you are the marginal buyer you decide what currency you’ll pay in.  In the 1970’s when the U.S. was so “dependent on foreign oil” we were also the price setters.  This was the framework for the petrodollar deal.  Saudi Arabia got U.S. cover for its crimes against humanity and the U.S. got to export dollars around the world and build up confidence in our government bond markets.

Today China is where the U.S. was and it’s position is getting stronger by the day.  And that’s why this petroyuan contract can and will succeed where others have failed in the past.

At some point China will tell the Saudis they no longer are willing to subsidize the U.S. dollar and offer up only Yuan in payment.

And guess what folks?  The Saudis will play ball.  So will the U.S.

If they don’t China will continue to buy more and more oil from Russia who will be only too happy to accept Yuan in payment for services rendered.  The Saudis will see their power eroded over this.  The dollar will fall as a percentage of reserves.

The Waiting Game

And this brings me to Putin and his near infinite patience.  It is easy to have patience with your opponent when you know your opponent has no end-game strategy other than war.

Putin understands that the U.S. is living on borrowed time.  That moves like this ‘petroyuan’ contract are the beginning of a new landscape.

When Chinese banking giant ICBC bought a London Bullion Market Association vault, a seat on the fixing board and became one of thirteen market makers we all wondered what the end game was.  But, it should be plainly clear now.

The LBMA is the means by which China can make good on its promise to back its Shanghai Oil Futures contract with gold, allaying the fears of institutional investors and traders of an exit strategy for their profits.

China gets a way to deepen its yuan-denominated debt markets and expand the Yuan’s base via organic growth of demand for it as a trade settlement currency.  Investors are safe knowing they can hold yuan-denominated debt because it is convertible to gold as a hedge.

The Russians get a willing partner with tremendous capital reserves to invest in Russia and benefit from the growth of their relationship.  Russia gets to diversify its reserves and lessen the impact of an exchange rate shock between the ruble and the U.S. dollar.

Putin knew the Chinese were making the right moves to pull off what marginal players like Qaddafi in Libya and Saddam Hussein in Iraq could not do, defy the U.S.’s control over the pricing of oil.

The petrodollar is the U.S.’s Achilles’ heel.  Trade matters despite Martin Armstrong’s downplaying of it.  It is the basis on which an economy can or cannot sustain a virtuous credit cycle in our absurd fractional reserve banking system.

It is the M-zero of the international monetary system, as it were.  And if anything about central banking is to be believed, shrinking a particular currency’s portion of global M-zero means shrinking its multiplier through asset valuations, c.f. Exter’s Pyramid.

Because of this the petrodollar is one of the main conduits that allow us to finance our current spending habits.  If the U.S. only ran a trade deficit, then Triffin’s Paradox would be in play and the current system would be sustainable for a lot longer than it is today.

But with the fiscal and demographic nightmare unfolding in the U.S. and Europe all Russia has to do is deflect the worst of their aggressions while waiting for time to catch up with their profligacy.

And that time is catching up with us rapidly.

And that’s been Putin’s plan all along.  Simply win a hybrid war of attrition with the U.S. and Europe.  Trump, I think, understands this, though he’d never admit it in public and nor should he.

The very fact that he’s willing to meet Putin now after a deadly clash between U.S. forces and Russian mercenaries in the oil fields near Deir Ezzor and Putin’s unveiling weapons that render moot much of the U.S.’s current defense spending means he knows it’s time to begin pulling the world back from the brink of catastrophe.

That Trump made this offer despite the virulent protestations of the foreign policy wonks in his cabinet (many of whom he recently fired) and the chattering class in Congress and the Media speaks to how serious the situation truly is behind the scenes.

So, while I don’t believe this petroyuan contract will change the world now, it is another bit of leverage China has in its trade and geopolitical negotiations with Trump over Iran, North Korea, Syria and China’s One Belt, One Road project.

Putin’s very prudent means of getting Russia’s own house in order put her in the position to outlast the U.S. who will, over the next few years have to retreat or destroy the world.

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Comments

Hotapplebottoms beepbop Wed, 04/04/2018 - 23:27 Permalink

pop quiz: 

1. can we ask the great Exter the pharaoh of the pyramid, how the bank of sri lanka is doing currently?  where's barter at?  maybe this should be the exter CIRCLE instead?

2. let's ask xi if he would rather buy a satoshi bitcoin, or an etherum?  want to take bets vlad?

In reply to by beepbop

Adolph.H. Hotapplebottoms Thu, 04/05/2018 - 02:30 Permalink

Stating the obvious: how could Putin not win against an army of self appointed imbeciles? 

He was faithful to late general Aoun from Lebanon:

"the only thing a defeated person can do is to wait".

That's what he did for Russia after the Eltsin traitor died, and slowly proceeded to reconstruct his country bit by bit. 

Patience is a long forgotten virtue in our world, I believe that besides Putin, only Chinese know about it. That might be a good reason why they go so well together. 

 

In reply to by Hotapplebottoms

Teja Adolph.H. Thu, 04/05/2018 - 05:17 Permalink

"Putin understands that the U.S. is living on borrowed time."

Russia is also living on borrowed time.

On a site like ZH which always raises the spectre of the "Muslim hordes", it is a bit strange that it is ignored that Russia not only borders on a number of Muslim countries, but also has got a strong and growing Muslim minority. All problems and conflicts generated by the interaction of the Muslim world with modern society will impact Russia. The Chechen war which brought Putin to the helm was only the first example of this.

Another part of Russia's borrowed time is its neighbor China.

In reply to by Adolph.H.

Siberian Teja Thu, 04/05/2018 - 05:36 Permalink

Muslims are here since VIII century, right now we have about 10% of Muslims (like India have for example). Since 1773 Russia stopped forcible Christianization of the Muslim minorities, allowed the building of Mosques and so one ("On the Tolerance of All Believers" law by Ekaterina the Great). Since then we have a long history of the peaceful co-existence with Muslims, as well as Buddism and even some shamanistic believes of the northern minorities. The Chechen war was not about religion and was fuelled from abroad. Therefore, we do not have big problems with Muslims, but please do not be confused with Wahhabism promoted by Saudi Arabia - this is the absolutely different thing.

In reply to by Teja

Teja Siberian Thu, 04/05/2018 - 08:08 Permalink

All good things I do acknowledge, and proof that it is possible for "Christians" and "Muslims" (using quotes because of the very general, more cultural, less religious sense) to work and live together, if both sides are pointed towards tolerance by a benign but strict government. Not what the loud-mouthed populists would say, these days, though.

But still, the Muslim nations which are former Soviet Republics might create some surprises in the coming decades. Like the Arab and North African nations several decades earlier, they are mostly autocratic and corrupt regimes, with religion an obvious way of distancing oneself from the ruling circles. Money from such countries as Saudi Arabia can pour fuel on that too, of course.

Europe has failed to sustain democracy and social development in its neighbors and ex-colonies, we are now seeing the result of that. But Russia is not really doing better in regards to its own ex-colonies (as the Soviet Republics de facto are). Or what would you say?

In reply to by Siberian

Siberian Teja Thu, 04/05/2018 - 12:23 Permalink

I have not much to add to my previous words - we live together with Muslims longer than US exists. Soviet Republics were not colonies: USSR pushed enormous resources into their development, had built industry, schools, hospitals e.t.c. After USSR collapse we took all their debts (and paid them!). Yes, we are expecting and closely watching for possible provocations from this side - US evacuated a lot of ISIS personnel to Afghanistan from Syria for a purpose. But a) we have the corresponding service that should prevent any possible attack and b) have Kazakhstan as a buffer zone. 

In reply to by Teja

rtb61 Teja Thu, 04/05/2018 - 05:55 Permalink

Russia is spending one tenth what the US spends on defence spending and Russia is quite intelligently pushing the US to spend more, a one side arms race. So what Russia saves it will spend on infrastructure investments whilst the US continues to bleed infrastructure spending dry to feed endless growth in the military industrial complex.

I'll give you one guess as to who will win that race. The country that races to spend more on infrastructure or the country that races to spend more on guns and bullets it will either throw away or blow up. One of those generates more income the other is just a black hole sucking up money and lives.

Now Russia is inviting China to join it's game of stalemate, Russians love chess and the stalemate is actually counted as a win in Russia. So China reducing spending on the military to focus on infrastructure with Russia and people forget the announcement of the joint Russia China space program, building that infrastructure to get us out to the stars. Whilst the US blows its lead on staring into it's navel, the black hole military industrial complex.

In reply to by Teja

Teja rtb61 Thu, 04/05/2018 - 07:52 Permalink

One guess who will win the game, in the long term, the US or Russia?

China.

Although I would contradict you when you say that China is reducing its military spending. At least they are making threatening moves against most of their neighbors at the moment. There even might be a war in the area in the next few years.

But still, from what I see what is happening in China, how much real economic production is going on there and how their quality levels have gone up, both Russia and the US have no long term chance. Raw materials and agriculture against advanced industry - somehow the latter always won. Russia will be a kind of Asian Canada to China. So it will not be "Russia is inviting China", but the other way round...

Not the thing you would want to read on a RusPsyOps site, but hey, such is life.

In reply to by rtb61

doctor10 rtb61 Fri, 04/06/2018 - 07:21 Permalink

HRC and Obama colluded with their  business partner, Putin to interfere with the will and intent of the America State in the Ukraine and Syria.

The whole of the Trump Presidency harassment is about keeping that mess covered up.

A real, functional country has borders it defends, a functional, rational immigration policy, a reasonably "clean" voting system,  a tax system that meets the basic infrastructural needs of the country, and effective deterrents against sedition and treason.

Looks like we're about done

In reply to by rtb61

Rutalkingtome SMG Thu, 04/05/2018 - 16:26 Permalink

The petrodollar is the U.S.’s Achilles’ heel.  Trade matters despite Martin Armstrong’s downplaying of it.  It is the basis on which an economy can or cannot sustain a virtuous credit cycle in our absurd fractional reserve banking system". Very good article! M. Armstrong dissapointed me too in that one. Looking of how the US has "overreacted" before against f.exem Libya s efforts (trying to get rid of the dollar), shows how the US economy is so dependant on keeping the dollar as worlds reserve currency. Now the ongoing trade war with China is in part  for the same reason. Some say that trade wars evolve in time to real wars but China is no Libya indeed, hope the US "hawks" realize that. They are though not so brilliant I am afraid.

In reply to by SMG

TRM HRClinton Thu, 04/05/2018 - 00:32 Permalink

Only if they are willing to pay a premium. It is more of a leverage move. If they can store LNG when the price is low they can go without Russian gas longer (but not very long) and use it as a price stabiliser. 

Ask the Baltic states what they are paying compared to Russian gas. It is a hard sell to pay 25-40% more for the same BTUs. 

In reply to by HRClinton

Adolph.H. TRM Thu, 04/05/2018 - 02:55 Permalink

These terminals are meant for Americans to pick up Russian gas from turkey, to later sell it back with a premium to their dear English friends who seem picky about purchasing it directly and for a cheaper price from the hands of these Russian peasants. 

They so love being screwed by their pals. That's why most of them are either fags or pedophiles or both. This latest category is referred to as the cream of the cream, the royalty. 

In reply to by TRM

Jack Oliver HRClinton Thu, 04/05/2018 - 03:19 Permalink

Pipelines are the ONLY way to transport NG efficiently and cost effectively ! 

Russia has been building FUCKING pipelines for the last 25 years ! 

US has missed the FUCKING boat - both figuratively and literally !!!! 

And remember - Russia ( nor Iran) has to FRACK for NG !!! 

The SHIT just pours out as MOTHER RUSSIA intended !!! 

In reply to by HRClinton

deoldefarte HRClinton Thu, 04/05/2018 - 07:03 Permalink

For some reason, neither ZH nor RT report that Turkey is building 2 LNG ports, to receive gas from the... US.

logically, this will not happen, as ng is already compressed, so why

decompress/compress again.  In all likelihood, they will get ng. from

the fields in the middle east, compress it, and send it on it's way to far east.

In reply to by HRClinton

BandGap Wed, 04/04/2018 - 22:03 Permalink

The Russians know about how hard it is to fight on two fronts.

Russians and Chinese hate each other so they are dancing until they take out the US.

not dead yet BarkingCat Thu, 04/05/2018 - 00:10 Permalink

Didn't we fight wars against Vietnam, Japan, and Germany? They are now some of our best buds and trading partners. Times change and both Russia and China have emerged from nations full of uneducated dumb asses to highly educated, motivated, and growing countries. Both countries, especially China, have figured it's easier to conquer and influence countries with trade and assistance. Unlike the US that if you don't kiss our ass, our way or the bombed out highway, we set out to destroy you whether it be with bombs or economic nukes.

During the Korean war the Chinese soldiers were mostly uneducated peasants ill equipped in the weapons arena using human wave attacks to achieve their goals. The Soviets did their version of it in WW2. Things have changed and both militaries are well equipped and trained and won't be prone to stupid or mass sacrifice. It's now a whole new ballgame.

In reply to by BarkingCat

Demologos Scrot Thu, 04/05/2018 - 00:39 Permalink

You have been here a whole six months and still don't get it. Putin and Xi are pursuing war-avoidance strategies. The US/EU/NATO are trying their best to instigate war for the very reason the author indicates. To wit, their profligate spending policies are heading for the rocks and the only way the US/EU/NATO sees to avoid the loss of power, short of joining Russia and China in the new win-win economic paradigm, is war. So if you want to be incinerated in a thermonuclear war, keep rooting for the US/EU/NATO military-bankster criminal empire. If you don't want to be incinerated, Putin (and Xi). Simple shit Maynard.

And by the way, your avatar could use some work. If you wan't to be Scrot, how about using a picture of John McCain or George Soros.

In reply to by Scrot

blentus Scrot Thu, 04/05/2018 - 03:35 Permalink

If by "pro-Russian" you mean "don't want yet another fucking war/crisis that will make MIC even more rich" or "would rather be friends with culture/people that are not diametrically opposite" (aka "Saudi Arabia, best friends"), then yeah, ZH is very pro-Russian.

Apparently, if you are not violent or stupid enough these days, you are pro-Russian.

Muricca.

In reply to by Scrot

Deep Snorkeler Sy Kloine Bee Wed, 04/04/2018 - 22:15 Permalink

It's a Putinesque World

1. Gnome Putin controls Americans' feeble brains

2. Americans actually prefer Putin as their president

3. Russians have infected our entire infrastructure with American crippleware

4. the Russians were defeated in Afghanistan.  The Americans

were also defeated but it hasn't registered yet.  Americans have

a long series of earlier dumb wars yet to process.

In reply to by Sy Kloine Bee