Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Wednesday, August 27, 2014
Russia countermoves against US and Eu sanctions ( August 27 , 2014 ) -- The Nail In The Petrodollar Coffin: Gazprom Begins Accepting Payment For Oil In Ruble, Yuan ...... Russia may sell grain to Brazil, increase supplies to Egypt ( will sales be settled in rubles ? ) ......... Russian Central Bank prepares bill to create SWIFT analog in Russia ......... The SCO has informed New Delhi that it plans to approve documents making India a full member at a September 11-12 summit in Dushanbe, Tajikistan, senior officials have told The Telegraph. Iran, Pakistan and Mongolia will join India as new members of the grouping, now made up of Russia, China, Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan.
Several months ago, when Russia announced the much anticipated "Holy Grail" energy deal with China, some were disappointed that despite this symbolic agreement meant to break the petrodollar's stranglehold on the rest of the world, neither Russia nor China announced payment terms to be in anything but dollars. In doing so they admitted that while both nations are eager to move away from a US Dollar reserve currency, neither is yet able to provide an alternative.
This changed in late June when first Gazprom's CFO announced the gas giant was ready to settle China contracts in Yuan or Rubles, and at the same time the People's Bank of China announced that its Assistant Governor Jin Qi and Russian central bank Deputy Chairman Dmitry Skobelkin held a meeting in which they discussed cooperating on project and trade financing using local currencies. The meeting discussed cooperation in bank card, insurance and financial supervision sectors.
And yet, while both sides declared their operational readiness and eagerness to bypass the dollar entirely, such plans remained purely in the arena of monetary foreplay and the long awaited first shot across the Petrodollar bow was absent.
According to Russia's RIA Novosti, citing business daily Kommersant, Gazprom Neft has agreed to export 80,000 tons of oil from Novoportovskoye field in the Arctic; it will accept payment in rubles, and will also deliver oil via the Eastern Siberia-Pacific Ocean pipeline (ESPO), accepting payment in Chinese yuan for the transfers. Meaning Russia will export energy to either Europe or China, and receive payment in either Rubles or Yuan, in effect making the two currencies equivalent as far as the Eurasian axis is conerned, but most importantly, transact completely away from the US dollar thus, finally putin'(sic) in action the move for a Petrodollar-free world.
More on this long awaited first nail in the petrodollar coffin from RIA:
The Russian government and several of the country’s largest exporters have widely discussed the possibility of accepting payments in rubles for oil exports. Last week, Russia began to ship oil from the Novoportovskoye field to Europe by sea. Two oil tankers are expected to arrive in Europe in September.
According to Kommersant, the payment for these shipments will be received in rubles.
Gazprom Neft will not only accept payments in rubles; subsequent transfers via the ESPO may be paid for in yuan, the newspaper reported.
According to the newspaper, the change in currency was made because of the Western sanctions against Russia.
As a protective measure, Russia decided to avoid making its payments in US dollars, which can be tracked and controlled by the United States government, Kommersant reported.
"Protective measure" meaning that it was the US which managed to Plaxico itself by pushing Russia to transact away from the US Dollar, in the process showing the world it can be done, and slamming the first nail in the petrodollar's coffin.
This is not surprising to anyone who has been following our forecast of the next steps in the transition from the Petrodollar to the Gas-O-Yuan. Recall from April:
The New New Normal flow of funds:
Gazprom delivering gas to China.
China Gazprom paying in Yuan (convertible into Rubles)
Gazprom funding itself increasingly in Yuan.
Russia buying Chinese goods and services in Yuan (convertible into Rubles)
And all of this with the US banker cartel completely disintermediated courtesy of the glaring absence of the USD in any of the above listed steps, or as some may call it: from the Petrodollar to the Gas-o-yuan(something 40 central banks have already figured out... just not the Fed).
In conclusion we will merely say what we have said previously, and it touches on what will be the most remarkable aspect of Obama's legacy, because while the hypocrite "progressive" president who even his own people have accused of being a "brown-faced Clinton" after selling out to Wall Street and totally wrecking US foreign policy abroad, is already the worst president in a century of US history according to public polls, the fitting epitaph will come when the president's policies put an end to dollar hegemony and end the reserve currency status of the dollar once and for all, thereby starting the rapid, and uncontrolled, collapse of the US empire. To wit:
In retrospect it will be very fitting that the crowning legacy of Obama's disastrous reign, both domestically and certainly internationally, will be to force the world's key ascendent superpowers (we certainly don't envision broke, insolvent Europe among them) to drop the Petrodollar and end the reserve status of the US currency.
As of this moment, both Russia and China have shown not on that it can be done, but it is done. Expect everyone to jump onboard the new superpower axis bandwagon soon enough.
Russia may sell grain to Brazil, increase supplies to Egypt
MOSCOW, August 27. /ITAR-TASS/. Russian grain can be sold to the Brazilian market and restore its position in Egypt, Russian Grain Union’s President Arkady Zlochevsky said in a news conference Wednesday.
“Egypt has cut grain purchases from Russia due to the change of the government. Now, apparently, the purchasing volumes will be restored,” Zlochevsky said.
After Egypt cut the purchases, Turkey became the major Russian grain buyer for the first time in 2013-2014 agricultural year. Farmers expect growth of Egyptian buyers’ interest in September-November, when the country’s government fulfills the domestic purchasing program and starts buying grain abroad, he said.
The union also expects Russian grain to get an easier access to the Brazilian market. Russia has not supplied grain to Brazil due to its unfavorable duties, which it agreed to decrease if Brazil raises meat supplies to Russia. Now the meat supplies have already grown due to the western sanctions, and Zlochevky thinks Brazil will reciprocate by easing conditions for the Russian grain.
Given good weather conditions, the grain harvest can amount to 104 million tonnes, Russia’s second largest ever, translating into an export potential is no less than 30 million tonnes.
The Agriculture Ministry grain harvest forecast stands at about 100 million tonnes, while on Tuesday the ministry said the country’s grain exports in the 2014-2015 agricultural year can hit a record of 27.5-30.0 million tonnes.
Russian Central Bank prepares bill to create SWIFT analog in Russia
MOSCOW, August 27. /ITAR-TASS/. The Russian Central Bank and the government’s financial and economic departments have prepared a bill to create a Russian analog of the SWIFT international financial message system, Deputy Finance Minister Alexei Moiseyev said on Wednesday.
“We have prepared a bill. We have consulted with the banking industry and the Central Bank,” Moiseyev said.
Russia will go ahead with the bill as soon as it becomes clear that the Central Bank is technologically prepared “to transfer all operations to internal processing inside Russia.”
Central Bank First Deputy Chairman Georgy Luntovsky said in July that SWIFT was discussing a possibility with the Russian regulator to establish an operational center in Russia. SWIFT Director for Russia, CIS and Mongolia Matvei Gering confirmed this information at that time.
Moiseyev said in April that the Finance Ministry was going to initiate amendments to the legislation to transfer electronic settlements to Russia to ensure their reliable and uninterrupted nature. The system should be registered in Russia and comply with the requirements of the Russian Central Bank, Moiseyev told Rossiya-24 TV channel at the time.
The Society for Worldwide Interbank Financial Telecommunications (SWIFT) transmits 1.8 billion communications a year, remitting payment orders worth $6 trillion a day. The system comprises over 10,000 financial organizations from 210 countries.
Under the SWIFT charter, groups of members and users are set up in each country covered by the system. In Russia, these groups are united in the RosSWIFT association.
There will be a defining geopolitical event next month when India, Pakistan, Iran and Mongolia become full members of the Shanghai Cooperation Organisation (SCO). This will increase the population of SCO members to an estimated 3.05 billion. We should care about this because it is the intention of the SCO to do away with the US dollar for trade settlement.
The nations joining in September are currently designated as Observer States and the only one left will be Afghanistan, which will presumably join when it can untie itself from NATO. Dialog Partners, defined as states which share the goals and principals of the SCO and wish to develop mutually beneficial relations, include Belarus Sri Lanka and Turkey. Turkey is of special interest because it has been a long-standing NATO member. It had hoped to join the EU but it became clear that this was never going to happen. Instead under the leadership of Recep Erdoğan Turkey is moving towards the SCO.
We must also consider why Russia is aggressively driving the pace of the SCO's development, and it's not just to escape the west's economic sanctions as many observers think. Fundamentally the SCO is about resources and the production of goods: Russia controls Asia's resources and China turns them into goods.
The SCO is the greatest challenge yet mounted to American economic power, and Russia and China are clearly determined to ditch the dollar. We don't yet know what will replace it. However, the fact that the Central Bank of Russia and nearly all the other central banks and governments in the SCO have been increasing their gold reserves could be an important clue as to how the representatives of 3 billion Euro-Asians see the future of trans-Asian money.
India’s admission into the six-nation grouping could happen before Narendra Modi’s US trip
New Delhi, Aug. 5: India is preparing to join the influential Shanghai Cooperation Organisation (SCO) strategic grouping, currently led by China and Russia, just days ahead of the Prime Minister’s September visit to the US where his bonhomie with Moscow has already triggered unease.
The SCO has informed New Delhi that it plans to approve documents making India a full member at a September 11-12 summit in Dushanbe, Tajikistan, senior officials have told The Telegraph.
Iran, Pakistan and Mongolia will join India as new members of the grouping, now made up of Russia, China, Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan.
America views the SCO as a potential post-Cold War counter-balance to Nato, and Beijing and Moscow have accused Washington of trying to split the grouping. Unlike Nato, the SCO has so far not engaged in military action beyond joint exercises.
India and the three other nations on the cusp of joining are currently observer states at the SCO, and China had till now been ambivalent about offering full membership to India despite Russian backing for New Delhi.
However, keen not to alienate the new Indian Prime Minister, China joined the other members to back the expansion move at a meeting of the grouping’s foreign ministers on July 31.
Indian foreign minister Sushma Swaraj is expected to travel to Dushanbe for the September meeting where India’s membership will likely receive a formal stamp of approval.
If the new members’ formal induction is completed at Dushanbe, Modi may travel in December to Astana, Kazakhstan, where the heads of government of all the SCO’s member states will meet, officials said.
“China supports the SCO summit in Dushanbe to complete the legal preparation of the expansion of the SCO members, thus to open up new ways to absorb new members,” a senior Chinese diplomat quoted his country’s foreign minister, Wang Yi, as telling the July 31 meeting.
India has been keen to join the SCO since it first became an observer in 2005. However, tensions within the grouping’s members on the countries to be allowed entry under any expansion had so far prevented the absorption of any new full member.
Over the past two years, as Russia and the US have returned to near-Cold War brinkmanship, both have turned to India as a critical nation whose support could tilt the balance of opinion among the developing countries, which make up most of the world.
The stalemate at the SCO — with China cautious about India’s entry, Russia uncertain about Pakistan’s, and all the members concerned about the implications of fully embracing Iran — suited the US well.
But global fissures have only deepened over the past two years, frequently placing China, Russia and India together against the US — as in Syria and Ukraine, where New Delhi backed Moscow over Washington.
China is also convinced that it has a potential friend in Narendra Modi despite his election speeches critical of Beijing. China had welcomed Modi with open arms three times when he was Gujarat chief minister — at a time Washington treated him as a pariah and refused him a visa.
Chinese President Xi Jinping signalled his intent to pull India closer when he indicated to Modi that Beijing was willing to consider expanding the SCO. This was when the two met on the margins of the BRICS summit in Brazil last month. Xi is expected to visit India in September.
India’s entry into a strategic grouping that will include three nations that America wants to distance from its allies — Russia, China and Iran — will almost certainly upset fence-sitters in the US establishment, already unsure of the fruits of courting India over the past decade.
“New Delhi has given Russia’s aggression in Crimea implicit approval and strongly opposed sanctions on Moscow, calling Moscow’s interests in Crimea legitimate,” Steve Chabot, the Republican chairman of a key foreign affairs panel of the US House of Representatives, told senior members of the Obama administration last month.
The administration officials were deposing before the panel ahead of secretary of state John Kerry’s visit to India for the India-US strategic dialogue last week.
“Can the US trust India to be a reliable partner on significant geopolitical challenges if, for example, we can’t get India’s support on this growing crisis?” Chabot asked.
“And has the Malaysian airliner shoot-down changed India’s attitude at all in this particular area?”
Kerry and the US received the answer to where India would stand on sanctions against Russia during the strategic dialogue when Sushma bluntly said that India’s foreign policy was “not flexible”.
Kerry accepted that he was disappointed but appeared resigned to India’s decision.
“We would obviously welcome India joining in with us with respect to that (the sanctions),” Kerry said. “But it is up to them. It is India’s choice.”