China Intensifies Efforts to Topple U.S. Dollar

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‘The pace of expansion has been explosive’ for China’s new yuan-denominated oil futures contract.

Less than a year after China launched an oil futures contract denominated in the Chinese currency, the contract is beginning to be embraced by global commodities traders.

The Chinese Communist Party has long desired to see the United States dollar sidelined and the Chinese currency, the yuan, take on a more central role in global finance. The latest major push toward that goal came on March 26 when China launched a new oil futures contract on the Shanghai International Energy Exchange denominated in yuan. Now the contract is finding increasing acceptance among multinational commodity traders, which could threaten the dollar’s position. Continue reading

Russia Just Pulled Itself Out Of The Petrodollar

Back in November, before most grasped just how serious the collapse in crude was (and would become, as well as its massive implications), we wrote “How The Petrodollar Quietly Died, And Nobody Noticed“, because for the first time in almost two decades, energy-exporting countries would pull their “petrodollars” out of world markets in 2015.

We added that in 2014 “the oil producers will effectively import capital amounting to $7.6 billion. By comparison, they exported $60 billion in 2013 and $248 billion in 2012, according to the following graphic based on BNP Paribas calculations.”

The problem was compounded by its own positive feedback loop: as the last few weeks vividly demonstrated, plunging oil would lead to a further liquidation in foreign  reserves for the oil exporters who rushed to preserve their currencies, leading to even greater drops in oil as the viable producers rushed to pump out as much crude out of the ground as possible in a scramble to put the weakest producers out of business, and to crush marginal production. Call it Game Theory gone mad and on steroids. Continue reading

Preparing for War Against the US on All Fronts—A Net Assessment of Russia’s Defense and Foreign Policy Since the Start of 2014

In a series of recently published interviews, President Vladimir Putin (kremlin.ru, October 15), Prime Minister Dmitry Medvedev (Interfax, October 15) and national security council secretary Nikolai Patrushev (Rossiyskaya Gazeta, October 15) have outlined Moscow’s strategic vision of the world after the Ukrainian crisis, Russia’s annexation of Crimea, the Moscow-inspired proxy war in the southeastern Donbas region of Ukraine, and resulting punitive sanctions imposed by the West. The view from Moscow is uninviting—A new cold war with the West is in the making; Russia is under attack and will use all means at its disposal to resist, including the nuclear option. Putin accused Washington of deliberately provoking the Ukraine crisis by supporting extreme nationalists in Kyiv, which in turn ignited a civil war. “Now they [the United States] accuse us of causing this crisis,” exclaimed Putin, “It is madness to blackmail Russia; let them remember, a discord between major nuclear powers may undermine strategic stability” (kremlin.ru, October 15).

Under mounting Western pressure this year, Russian leaders have been repeatedly and unambiguously reminding the West of the ultimate weapon at Moscow’s disposal—nuclear mutual assured destruction. The Russian military is also rearming and conducting massive exercises, preparing for a possible global war. The consensus view in Moscow within the political, military and intelligence community is that relations with the United States are beyond repair and, quoting Medvedev, there is no possibility of any new US-Russian “reset.” Moscow has come to believe that there is no possibility of any genuine détente with Washington until 2020 at the earliest. Indeed, National Security Council Secretary Patrushev’s interview in the official government-published Rossiyskaya Gazeta newspaper has the title: “Second Cold War.” Patrushev openly describes the US as Russia’s eternal foe and accuses Washington of planning for many decades to fully isolate Moscow and deprive it of any influence in its former dominions in the post-Soviet space. Patrushev announced (which seems to be an officially held policy opinion) that the US is today fulfilling a strategic plan to marginalize and destroy Russia—a strategy that he says was initiated in the 1970s by Zbigniew Brzezinski, the then–United States National Security Advisor to President Jimmy Carter. Continue reading