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Translated by Ollie Richardson & Angelina Siard

19:22:41
11/11/2017

regnum.ru

In Newtonian physics the force of action always causes a force of counter-reaction. Nothing disappears anywhere and, of course, appears out of nowhere. In geopolitics, a similar principle is compounded by the fact that the aggressive side always risks nudging the oppressed States towards a united alliance, towards responsive action, but against itself. This is precisely what now happens with the United States.

Dollar in exchange for oil

Everything began in 1967, when Tel Aviv struck blows on Egypt, Syria, and Jordan. Israel explained its military aggression by “a proactive desire to protect its borders”, although in reality everything stemmed from the purest of impunity. An American military contingent was based in the Middle East at the time, the Israeli Army was pumped in-advance with money and Western weapons, and the results of the week-long massacre boded to almost quadruple Israel’s territory. Six days later it’s what happened: East Jerusalem, a part of the West Bank of the Jordan river, the Syrian Golan heights, and Egypt-owned Sinai Peninsula became the property of the aggressor.

From the point of view of the Israeli’s strategy, everything was more than good, however from the position of the American instigator such a result was clearly not enough. The US expected something different.

In 1973, Egypt and Syria, humiliated by the loss of national territories and having not withstood internal pressure, simultaneously struck a military blow on Israeli territory. A few more days later, Saudi Arabia, with the support of the Arab States of the Persian Gulf, announced a 70% increase in oil prices and the introduction of an energy embargo against the main accomplice of the conflict (US). This is precisely what America wanted the most.

Thanks to the embargo – presented by the world media as direct aggression – US representatives, who were preparing for a trip to Saudi Arabia, had a completely free hand for blackmail. The country with the largest oil reserves, the leader of OPEC, and the most corrupt in the Middle East Saudi regime soon would await an offer that was impossible to refuse.

In 1974, having received an ultimatum from Kissinger, Shultz, and Cheney, accusing them of staging an anti-American escalation and realizing the ratio of military capabilities of both countries and their own resources, the Saudis meekly agreed to all conditions from the outside. Following the deal, the leader of OPEC pledged to sell its oil exclusively in US dollars, to invest a significant portion of its oil superprofits in the debt securities of the Federal Reserve, and also to maintain prices at a level suitable for Washington. In exchange the White house not only guaranteed non-aggression and to defend the Saudi oilfields, but also promised to personally support the power of the Royal family ruling the throne. A year later, in 1975, all the countries belonging to the union of OPEC agreed to accept payments for oil in US currency. Thus in the world the modern petrodollar “market” was born, and with it the world’s reserve currency — the US dollar.

Since this time the USSR could not compete with America, after all, the game was already played already not by its own forces, but with the help of long “credits”, which the dollar was receiving from all other countries for the direct benefit of the United States. The only issue was why didn’t the elites of the Soviet Union – three years before, while the American currency still wasn’t backed by anything – do anything to stop Washington in its most vulnerable period. What did these party nomenklatura members receive, and isn’t this a betrayal that determined all further future standoffs with the United States?

One way or another, during the next 40 years the petrodollar rested in its rightful place. It rested up to the moment when the temptations of absolute power erased the last reasonable limits from the foreign policy of Washington. The anchor, removed from the “wild capitalism”, always had to push the United States towards the moment when the country begins to impose transactional trade restrictions on all world regimes potentially objectionable to it, depriving the banks of “undemocratic” States from lending and liquidity, and to mercilessly fine in court the Western financial institutions cooperating with them. And it happened exactly in this way.

The strategic triangle

In 1989, after the events in Tiananmen square, China was subjected to the first “unlimited” sanctions imposed by the autocratic Washington. The pressure caused a responsive reaction, and Beijing was obliged to create its own Yuan payment system. Iran was the second in the queue. It was also subjected to sanctions obstructions because of its ongoing nuclear programme, which the Israeli lobby objects to. And the pressure from outside once again led only to the fact that in 2012 Tehran also switched to the Yuan payment system.

Two years later it was the turn of our State [Russia – ed]. Having fallen under sanctions pressure in 2014, Russia proposed to China and Japan to pay for Russian hydrocarbons in Yen and Yuan. And as the Bolotnaya square (the last attempt of a “color revolution”) at that moment had been successfully defeated, Crimea returned to its Motherland, and Moscow adequately repelled consolidated Western pressure, China immediately grasped at the proposal of the Kremlin. The tandem of Beijing and Moscow was formed, the Power of Siberia contract – delayed for years – was immediately concluded, and the strategic union for the first time began its real development.

By 2016, the partnership triangle “China-Iran” and “China-Russia” was finally concluded, and to completely close the circuit consisting of four units, only one strategic line was missing – the economic Union “Tehran-Moscow” and the involvement of the Saudis.

In November, 2017, the first contact took place at a personal meeting between Vladimir Putin and Iran’s Ayatollah Ali Khamenei. Khamenei personally proposed to unite the efforts of both States to ignore the dollar in bilateral international trade, to isolate the American currency in relations between the two States, and replace it with national currency in deals between the parties. But still a year ago, when the US had not yet put into question the crucial nuclear deal, had not launched the bringing to responsibility of third parties, and had not yet worsened the prospects for Iranian development, the weighing scales of the establishment of Tehran largely titled towards the United States.

And now – just in 2016 the volume of trade between Iran and the Russian Federation increased by 70% – the Russian side plans to supply gas to Northern Iran via the pipeline of Azerbaijan, and the head of “Rosneft” Igor Sechin on the sidelines of the Russian-Iranian summit announced plans for cooperation with the National Iranian Oil Company (NIOC), with a total investment of $30 billion. On top of all this, the Russian-Iranian deal “oil in exchange for goods” was concluded, in which Russia buys from Iran 100,000 barrels of oil per day, half of which can be paid in cash and half in goods from Russia worth up to $45 billion (railway equipment, large trucks, buses, equipment for airports, aircrafts). Now the details of this deal is being finalized.

So, if the new Russian-Iranian projects, as is proposed, will be financed in national currencies, it can become a painful blow for the US. As a result, the tandem of two existing great States in its exit from the petrodollar – China and Russia – and the triple alliance of the two largest world exporters of energy and its largest consumer – Tehran, Moscow, and China – gained significant ground already today. And all outside observers of this process, at a time when the policy of the United States becomes increasingly unpredictable, show a growing interest in this union.

Not so long ago, Venezuela also joined after the announcement of sanctions by Washington in favor of “quelling the opposition in Caracas” for selling oil for the Yuan. But the main prize of our union can become Saudi Arabia, which, by turning to Moscow and Beijing, already makes the first tentative steps.

Three plus one

Saudi Arabia is the foundation of the petrodollar, but also a Middle Eastern country with a mentality that is “flexible” enough for this. This means that the loyalty of the Saudis towards the US for all these years was fuelled not only by direct threats, but also, more importantly, by the personal benefit for the ruling dynasty of the country. Right up to 2017 it is precisely the US that remained the largest importer of oil on the planet, and it means that it is they and their satellites that were the uncontested markets for Saudi products. Now the situation has cardinally changed.

Today Saudi Arabia supplies China with oil for about $16 billion dollars per year, and exports this product to the United States for almost the same amount. The main rival of the Saudis in the Chinese market is Russia, which sold last year to China oil for $17 billion — i.e., we have approximately comparable volumes of import in China, and the Saudis perfectly understand why. Not so long ago the Saudis topped the list of the leaders in sales of energy commodities in China, but as soon as Russia switched to concluding deals in the Yuan, their attitude immediately changed. China and Russia directly demonstrated what must be done in order to remain “in the family” in an acceptable position.

Russia and China are in strategic union and in the next few months are firmly committed to begin a switch to the mutual trade of oil in their own non-petrodollar equivalent. To do this, Beijing already introduced a new oil benchmark denominated in Yuan, instead of the two existing dollar contracts — WTI and Brent. And soon China will start the mechanism in which any oil exporter that accepts the Yuan for these raw materials will be able to convert them into gold at the Shanghai gold exchange and to hedge the currency value of gold on the Shanghai futures.

All oil exporters will benefit from this separation, especially those that have bad political relations with Washington, because any decrease in the influence of the dollar seriously weakens the ability of Washington to conduct economic warfare against us. In addition, the appearance of oil futures denominated in Yuan will enable such exporters as Russia, Iran, Saudi Arabia, and Venezuela, if necessary, to circumvent sanctions on the trade of oil.

Russia is the main exporter of oil to China, China is the primary global consumer. Iran, Venezuela, and a number of other player-exporters are already in tandem with us, but without the market leader Saudi Arabia the revolution will not happen in the end. Fortunately, to drag the Saudis on their side, the Russian-Chinese union has all the necessary prerequisites.

Firstly, Beijing and Moscow did not simply propose to abandon the dollar in the oil market and to switch to gold and the Yuan, Beijing guarantees the compensation of losses, and Russia — the protection of its undertakings. Secondly, if Saudi Arabia will lose some part of the US market at the moment by accepting the Russian-Chinese conditions, the presence of an additional new oil exchange in China will become a significant counterweight for it. And thirdly, Washington already now threatens to punish Riyadh for its disobedience, and the present king Salman bin Abdul-Aziz al-Saud possesses enough intelligence to understand how the US behaves towards their recent allies, even if they agree to their terms. But if there will be someone to defend Saudi Arabia like how Syria is defended today, then the situation can be quite different.

And nevertheless, it is the US itself that helps us the most in this process. As soon as the Saudi King made his historic visit to Moscow, the American and British financial market regulators immediately worried about the close relationships between the largest oil company of Saudi Arabia “Saudi Aramco” and the direct Saudi authorities. I.e. what was earlier not a problem for them, after the visit suddenly became an insurmountable wall. The stock exchanges of New York and London, literally fighting for the right to host the company with an estimated capitalization of two trillion dollars, suddenly actively began to spread rumors: that “in reality” its capitalization isn’t even one trillion.

The reason for this is rather clear: the involvement of Russia in the “oil deal” with OPEC actually disrupted Washington’s plan to stifle the Russian economy, the decision by the Saudis to buy Russian S-400 air defense systems changed the rule of the game in the Middle East and created the grounds for Riyadh’s departure from under the US’ “military umbrella”. But Washington simply got used to solving all emerging problems exactly in this way, and to anticipate the departure of an ally in the direction of the alternative side. Just that, as was mentioned earlier, the situation changed radically.

Russia proposes to neutralise military threats, but in terms of financial ones, Riyadh decided to sell a 5% stake in “Saudi Aramco” at $100 billion, and it is China that proposed to buy it. And taken together, our countries propose to neutralize the military and financial efforts of Washington to put pressure on Saudi Arabia, and if the Saudis will agree to such an arrangement, the scheme of the 3+1 in the union against the petrodollar will be able to change a lot. If it is succeeded to convince the Saudis to trade in Yuan, South Korea and Japan – as two countries long seeking to break away from the US dollar – will be able to follow this same example, and then the others will follow.

Of course, the US has response levers to coerce Saudi Arabia. For example, Washington could impede the placing of Saudi bonds, which are now used for financing the budget deficit, to expropriate many of the assets of Riyadh in the US in the framework of consideration by American courts of the lawsuits initiated by the victims of 9/11. The option to use political technologies of the “orange revolution” against Riyadh can’t be dismissed, but the fact that China also is close to launching a dual exchange system, through which exporters of black gold will be able to sell oil for Yuan in Shanghai, and immediately exchange them for gold in Hong Kong.

The scheme of “oil-Yuan-gold” will liberate oil exporters from dollar dependence and American financial threats. And Russia, in turn, will be able to defend this process, bringing the petrodollar’s end closer by accelerating the pace of the development of the oil trade in Yuan and Rubles on the Saint Petersburg international commodity exchange and futures contracts on the Russian oil brand “Urals”.

The deal “Russia + OPEC” already showed that cooperation between Moscow and Riyadh can have a serious impact on the global energy market, and a joint and simultaneous departure from the dollar-denominated oil trade by all our countries — Russia, Saudi Arabia, Iran, China, Venezuela, and others, moreover can produce a real revolution in the global financial sphere, for the benefit of all our countries.

For now the trust of the international community in the Federal Reserve as the factor that defines and guarantees the stability of the US currency is higher than it is in the Chinese regulator. Only 17.3% of total world oil imports belongs to China, compared to 27% in the EU, 16% in the US, and 25% in other countries, and the share of the Yuan in international payments in June 2017 with difficulty reached 2%, compared to 40.47% in dollars, but all of this isn’t eternal at all.

At the time of the American dollar system’s first difficulties, and in the presence of alternatives that the world never had before, the petrodollar will lose its positions. The crisis caused by this fact will weaken the US, but this time the financial and energy alternative will not allow America to solve its own problems at the expense of others. But a duplicate financial world and its barriers are being created by our country precisely to protect itself from the exporting of American problems, instability, chaos, and limitations of national sovereignty.

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  • Vtran

    Saudi Wells are nearly Dry …. However the West still promote Saudi as a Major Player .. and so if they “flip” the West have to either admit they Lied or Say Bye Bye to Petro Dollar

  • Tommy Jensen

    Splendid article. One of the few positive on the times we are living in :-).

  • Ollie Richardson

    I’m glad you enjoyed it. Whilst in the short term things may look gloomy, long term there is only one winner. And it’s not the West.