SOURCE / ECONOMY
India reportedly explores yuan in oil trade with Russia, as frustration grows over US sanctions
India is reportedly planning to buy Russian oil at discounted prices and even considering the Chinese yuan as a reference currency in an India-Russia payment settlement mechanism, a move that Chinese analysts say represents the growing frustration among world economies over the US-led sanctions against Russia that have rattled global markets.
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“The petrodollar is backed by Treasuries
so it can help fuel U.S. deficit spending. Take
that away and the U.S. economy will be in
trouble leading to a devaluation of the dollar.
Contrast this with a petro-yuan convertible to
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us-sanctions-kill-the-petrodollar /// China, India, Iran, Qatar, Russia, and Venezuela have all started to trade oil in other currencies than the dollar.
The US dollar has been reigning as the world’s reserve currency since the Bretton Woods agreement in 1944. The US then possessed the world’s largest gold reserves and were able to peg the dollar to gold. By 1971, the US gold reserves had significantly reduced and Washington was no longer able to guarantee the dollar convertibility into gold. A couple of years later, the US found a new way to ensure the supremacy of their currency. Following the Yom Kippur war, OPEC members stopped selling oil to the US. The American economy quickly started to feel the impact of skyrocketing oil prices, which led President Nixon to strike an agreement with Saudi Arabia. This agreement would set the rules of oil trade for the next forty years. In return for Washington’s military protection in case of an Israeli attack, the sale of weaponry, and the purchase of Saudi oil, Riyadh would impose the dollar as the trading currency for all OPEC oil trade in the world.
Since 1973, the petrodollar has faced little competition, with only Iraq, Syria, and Libya which made ill-fated attempts to stop trading oil in dollars. Today, US sanctions on some of the world’s top energy producers have changed the situation. It is no longer a single state trying to challenge the dollar supremacy but what increasingly looks like a club of outsiders, among which some of the world’s energy heavyweights. Together they represent 40 percent of the world’s population and hold 36 percent of the world’s oil proved reserves. China, India, Iran, Qatar, Russia, and Venezuela have all started to trade oil in other currencies than the dollar.
As it turns out -and despite Washington’s effort to provoke the opposite-, this club of outsiders, which counts some of the world’s largest energy consumers and producers, if it keeps showing solidarity, could be self-sufficient.
US sanctions have reduced or cut access to the dollar for some of these states and therefore increasingly led them to conduct bilateral oil trade in their national currencies, and their first attempts seem promising.
Breaking free of the US-Saudi Arabia pact
US sanctions have been preventing Iran from accessing dollar transactions. In order to avoid resorting to foreign bureaus, and thus reducing costs, in February 2018 the Iranian Ministry of Industry, Mine and Trade banned imports made in dollars. This new directive is actually likely to be welcomed by Iran’s biggest trade partners, among which are China, India and Turkey. In fact, since 2013, India has been paying 45 percent of its oil imports from Iran in Indian rupees. After the remaining 55 percent were blocked under US sanctions, the two partners started working on amendments to their agreement so as to allow oil payments to be fully made in rupees.
Iran has been a strong supporter of the de-dollarization of trade with its partners. In November 2017, during the Russian president’s visit to Iran, Ayatollah Khamenei urged his Russian counterpart to increase the use of national currencies for bilateral trade and declared Iran could support and use China’s petroyuan in future energy transactions.
Earlier this month, the Russian Energy Minister Alexander Novak declared Russia was working on adjustments in the financial, economic and banking sectors to replace the dollar with national currencies in oil transactions with Iran as well as Turkey. If Russia has been so quick to answer Tehran’s call, it is because it has already been successfully trading oil and gas in rouble and yuan with China since 2014.
The Asian dragon’s energy policy and economic moves to advance its national interests pushed another of its top energy suppliers and the world’s biggest LNG exporter, Qatar, to switch to yuan for payments of LNG deliveries.
The last member of the outsiders club to have defied the dollar, Venezuela, ordered the state oil company, Petróleos de Venezuela SA (PdVSA), to stop receiving or making payments in dollars and to switch to the euro instead. PdVSA told its partners “to open accounts in euros and to convert existing cash holdings into [euros],” as reported in the Wall Street Journal last September. The Venezuelan Vice President, Tareck El Aissami, declared his country, which sits on the world’s largest proven oil reserves, will be using a “basket of currencies to liberate [itself] from the dollar,” and to avoid being isolated by Washington’s sanctions.
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The Assault on the Petro-Dollar – Additional Information
video by President & CEO of RARE PETRO, Anthony D. McDaniels
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