Towards the end of the petro-dollar

If the Empire's weakness is revealed for all to see we could be heading for a hot World War 3.

Russia Holds "De-Dollarization Meeting": China, Iran Willing To Drop USD From Bilateral Trade

Zero Hedge,

13 May, 2014

That Russia has been pushing for trade arrangements that minimize the participation (and influence) of the US dollar ever since the onset of the Ukraine crisis (and before) is no secret: this has been covered extensively on these pages before (see Gazprom Prepares "Symbolic" Bond Issue In Chinese Yuan; Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China; Russia And China About To Sign "Holy Grail" Gas Deal;  40 Central Banks Are Betting This Will Be The Next Reserve Currency; From the Petrodollar to the Gas-o-yuan and so on).

But until now much of this was in the realm of hearsay and general wishful thinking. After all, surely it is "ridiculous" that a country can seriously contemplate to exist outside the ideological and religious confines of the Petrodollar... because if one can do it, all can do it, and next thing you know the US has hyperinflation, social collapse, civil war and all those other features prominently featured in other socialist banana republics like Venezuela which alas do not have a global reserve currency to kick around.

Or so the Keynesian economists, aka tenured priests of said Petrodollar religion, would demand that the world believe.

However, as much as it may trouble the statists to read, Russia is actively pushing on with plans to put the US dollar in the rearview mirror and replace it with a dollar-free system. Or, as it is called in Russia, a "de-dollarized" world.

Voice of Russia reports citing Russian press sources that the country's Ministry of Finance is ready to greenlight a plan to radically increase the role of the Russian ruble in export operations while reducing the share of dollar-denominated transactions. Governmental sources believe that the Russian banking sector is "ready to handle the increased number of ruble-denominated transactions".

According to the Prime news agency, on April 24th the government organized a special meeting dedicated to finding a solution for getting rid of the US dollar in Russian export operations. Top level experts from the energy sector, banks and governmental agencies were summoned and a number of measures were proposed as a response for American sanctions against Russia.

Well, if the west wanted Russia's response to ever escalating sanctions against the country, it is about to get it.

The "de-dollarization meeting” was chaired by First Deputy Prime Minister of the Russian Federation Igor Shuvalov, proving that Moscow is very serious in its intention to stop using the dollar. A subsequent meeting was chaired by Deputy Finance Minister Alexey Moiseev who later told the Rossia 24 channel that "the amount of ruble-denominated contracts will be increased”, adding that none of the polled experts and bank representatives found any problems with the government's plan to increase the share of ruble payments.

For the benefit of our Russian-speaking readers, the interview with Moiseev is below and the transcript can be found here:

Further, if you thought that only Obama can reign supreme by executive order alone, you were wrong - the Russians can do it just as effectively. Enter the "currency switch executive order":

It is interesting that in his interview, Moiseev mentioned a legal mechanism that can be described as "currency switch executive order”, telling that the government has the legal power to force Russian companies to trade a percentage of certain goods in rubles. Referring to the case when this level may be set to 100%, the Russian official said that "it's an extreme option and it is hard for me to tell right now how the government will use these powers".

Well, as long as the options exists.

But more importantly, none of what Russia is contemplating would have any practical chance of implementation if it weren't for other nations who would engage in USD-free bilateral trade relations. Such countries, however, do exist and it should come as a surprise to nobody that the two which have already stepped up are none other than China and Iran.

Of course, the success of Moscow's campaign to switch its trading to rubles or other regional currencies will depend on the willingness of its trading partners to get rid of the dollar. Sources cited by Politonline.ru mentioned two countries who would be willing to support Russia: Iran and China. Given that Vladimir Putin will visit Beijing on May 20, it can be speculated that the gas and oil contracts that are going to be signed between Russia and China will be denominated in rubles and yuan, not dollars.

In other words, in one week's time look for not only the announcement of the Russia-China "holy grail" gas agreement described previously here, but its financial terms, which now appears virtually certain will be settled exclusively in RUB and CNY. Not USD.

And as we have explained repeatedly in the past, the further the west antagonizes Russia, and the more economic sanctions it lobs at it, the more Russia will be forced away from a USD-denominated trading system and into one which faces China and India. Which is why next week's announcement, as groundbreaking as it most certainly will be, is just the beginning.

Russian-led 'gas OPEC' may emerge soon
Valentin Mândrăşescu

Voice of Russia,

7 May, 2014

John McCain, channeling America's inner Mr. Hyde, has repeatedly stated that “the strategy of the US must be built in opposition to Russia's gas strategy, as this will be the end of Putin and his empire". Barack Obama promised to kick Gazprom out of Europe with American shale gas exports. However, there are hints that Russia may be silently preparing a countermove against the US with the help of a former American ally.

Qatar is generally considered a staunch supporter of Washington's foreign policy but America's plans to flood the global energy market with cheap LNG is a direct threat to the vital interests of Doha. Without the profits from gas exports, Qatar will have to give up on its plans for regional dominance and will even have a hard time surviving in the bitter struggle against its eternal rival, the Saudi Arabia. 

Willingly or not, Washington is now threatening to destroy the fundamental premise of Doha's prosperity and influence. Guided by the principles of realpolitik, Qatar's leaders are looking to forge new alliances in order to preserve its gas empire. There is no better reason for a strong friendship than having a strong common foe. After Washington shot itself in the foot by alienating both Moscow and Beijing, thus helping forge a strong alliance between Russia and China, Obama is now on the verge of unwittingly creating a global natural gas cartel. 

On May 6th, Russian Foreign Ministry said on its website that Deputy Foreign Minister Mikhail Bogdanov visited Doha. The results of the unannounced visit are quite interesting. First of all, “the Emir of Qatar praised the compelling and consistent policy of the Russian Federation in international and regional affairs”. Such opinion clearly shows that Doha is not going to play according to State Department's playbook that requires every US ally to condemn and isolate Russia. It may be speculated that the ruthlessly efficient rulers of the Emirate appreciate the uncompromising style of Moscow's foreign policy.

However, the main result of the visit is not about diplomacy, it is about natural gas. According to Russia's Foreign Ministry, “at the same time, emphasis was put on the need to accelerate the establishment of coordination within the Gas Exporting Countries Forum (GECF), as well as on the increase in investment cooperation” . This is a very serious move. The Gas Exporting Countries Forum was established in 2001 as an attempt to create an OPEC style organization for natural gas, but it has been dormant for years. Under the current circumstances, the main participants have very strong incentives to leave their conflicts aside and unite their efforts in influencing the global natural gas market. 

The three most important members of the GECF are Russia, Qatar and Iran. Given that Russia and Iran have recently achieved unprecedented levels of cooperation, including oil-for-goods and oil-for-electricity swap deals that will be worth more than 30 billion dollars, it is safe to assume that Moscow and Teheran will play on the same team in the global gas market. The recent statement of Iran's minister of industry who said that Iran is not interested in competing with Gazprom on the European market is a solid proof for this theory.

If Russia and Qatar start coordinating their export policies, the two countries can exert tremendous influence on the global natural gas flows and prices, given that both countries are the top two biggest natural gas exporters in the world. Together with Iran, they control over 57% of the world's natural gas reserves and that is a very conservative estimate.

The next GECF summit will be held this year in Doha and it may become the most important event of the year.