Home » Posts tagged 'petrodollar' (Page 5)

Tag Archives: petrodollar

Deals signed just over a week ago when Iranian President Hassan Rouhani met his French counterpart, Francois Hollande, in Paris included some 20 agreements and a $25-billion accord under which Iran will purchase 73 long-haul and 45 medium-haul Airbus passenger planes to update its ageing fleet. Carmaker Peugeot—which was forced to pull out of Iran in 2012–also agreed to return to the Iranian market in a five-year deal worth $436 million.

In the reverse flow of the new deal, Total has agreed to buy between 150,000 and 200,000 barrels of Iranian crude a day, with company officials also noting that Total would be looking at other opportunities as well in oil, gas, petrochemicals and marketing.

According to Iranian media, Total will start importing 160,000 barrels per day in line with a contract that takes effect already on 16 February.

Total never really left Iran, though. While it stopped all oil exploration and production activities there in 2010, making it one of the last to withdraw, it still maintained an office there.

Since 1990, Total has been a key investor in Iranian energy, playing a role in the development of Iran’s Sirri A&E oil and South Pars gas projects. Sanctions also halted its planned involvement in the LNG project linked to Iran’s South Pars Phase 11.

But Total’s work in Iran hasn’t been without its problems—even without sanctions.

In May 2013, Total agreed to pay $398.2 million to settle U.S. criminal and civil allegations that it paid bribes to win oil and gas contracts in Iran.

…click on the above link to read the rest of the article…

Oil Bust Could End Dollar Domination

January 15, 2016

Oil Bust Could End Dollar Domination

The US dollar survived the collapse of Bretton Woods in the ‘70s because its use in crude oil transactions made it the king of reserve currencies, but can it survive a collapse of petro dollars? Can the world survive the catastrophic geopolitical consquences that would follow?

There is an overriding belief that the U.S. dollar can hold onto its status as the world’s king reserve currency simply because of petro dollars. But in recent years, a serious threat to this system has developed—and the risk of the dollar being dethroned is very real.

The U.S. dollar has reigned supreme since the end of WWII, when the Bretton Woods system gave it is initial power. With Bretton Woods’collapse in 1971, oil became its new saviour and kingmaker as the U.S. dollar became the prime currency for crude oil transactions.

In 1973, the U.S. made a pact with the Saudi King to conduct all crude oil trades in U.S. dollars—in return for U.S. protection of its oil fields. Because of world hunger for crude, the demand for U.S. dollars experienced a similar, sustained hunger.

The major producers of crude oil had an abundance of dollars, which was recycled back into the system to purchase dollar-denominated assets. The consumers pay for crude oil in dollars; hence, they always have to keep a steady reserve of dollars, thereby maintaining a high demand for the the currency.

This is now under threat, and history risks being repeated.

The Bretton Woods system failed due to the over valuation of the dollar as spending increased over the war in Vietnam war and America’s Great Society programs.

…click on the above link to read the rest of the article…

Ron Paul Says to Watch the Petrodollar

January 14, 2016

Ron Paul Says to Watch the Petrodollar

The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better. – Ron Paul

Ron Paul is calling for the end of the petrodollar system. This system is one of the main reasons the U.S. dollar is the world’s premier reserve currency.

Essentially, Paul is saying that understanding the petrodollar system and the forces affecting it is the best way to predict when the U.S. dollar will collapse.

Paul and I discussed this extensively at one of the Casey Research Summits. He told me he stands by his assessment.

Nick Giambruno and Ron Paul

This is critically important. When the dollar loses its coveted status as the world’s reserve currency, the window of opportunity for Americans to protect their wealth from the U.S. government will definitively shut.

At that point, the U.S. government will implement the same destructive measures other desperate governments have used throughout history: overt capital controls, wealth confiscation, people controls, price and wage controls, pension nationalizations, etc.

The dollar’s demise will wipe out the wealth of a lot of people. But it will also trigger political and social consequences likely to be far more damaging than the financial fallout.

The two key takeaways are:

The U.S. dollar’s status as the premier reserve currency is tied to the petrodollar system.

The sustainability of the petrodollar system relies on volatile geopolitics in the Middle East (where I lived and worked for several years).

From Bretton Woods to the Petrodollar

The Bretton Woods international monetary system, which the Allied powers created in 1944, turned the dollar into the world’s premier reserve currency.

…click on the above link to read the rest of the article…

It’s Just Not Saudi Arabia’s Year: First Oil Prices, Now This…

November 4, 2015

It’s Just Not Saudi Arabia’s Year: First Oil Prices, Now This…

Last week, in the latest sign of Saudi Arabia’s deteriorating financial condition, S&P downgraded the kingdom to AA- negative citing “lower for longer” crude and the attendant ballooning fiscal deficit.

To be sure, we’ve covered the story extensively and it was almost exactly one year ago that we flagged the quiet death of the petrodollar and explained the significance to a market that hadn’t yet woken up to just what it means when, thanks to plunging crude prices, producing nations cease to be net exporters of capital.

With more than $650 billion in SAMA reserves, Riyadh does have a sizeable cushion. However, there are a number of factors (in addition to low oil prices) that are weighing heavily including, i) financing the war in Yemen, ii) maintaining the lifestyle of everyday Saudis, and iii) preserving the riyal peg. Here’s a look at the breakdown of government expenditures:

When you mix heavy outlays with declining revenue, it means dipping into the warchest…

Here’s a bit of color from Deutsche Bank which helps to explain what we mean by “the cost of preserving the societal status quo”:

The largest energy subsidy beneficiary is the end-consumer in the form of fuel (petrol) subsidies. Bringing up the price of petrol to levels in the UAE, which earlier this year eliminated the petrol subsidy, could provide the government with USD27bn incremental revenues, or 20% of the budget deficit. However, this is a highly unlikely scenario given the demographic differential between KSA and UAE and the socio-economic impact that such an outcome (blended prices rising from USD0.11/l to USD0.5/l) could have within the country.

The Saudi government could look to increase electricity tariffs. This would be a challenge for residential consumption (51% of aggregate consumption) given the political/social impact, though it would present the highest incremental revenue benefit.

…click on the above link to read the rest of the article…

Dying Petrodollar Ripples Through Markets As Asset Managers Bemoan Loss Of Saudi Bid

September 28, 2015

Dying Petrodollar Ripples Through Markets As Asset Managers Bemoan Loss Of Saudi Bid

One of the key things to understand about China’s liquidation of hundreds of billions in US paper is that far from being a country-specific phenomenon, it actually marks the continuation of something that’s been taking place in other emerging markets for some time.

As we outlined in “Why It Really All Comes Down To The Death Of The Petrodollar,” the forced sale of Beijing’s UST reserves is simply the most dramatic example of what Deutsche Bank has called “quantitative tightening.” For years, reserve managers in the world’s emerging economies worked to accumulate war chests of USD-denominated paper in an effort to ensure that in a crisis, they would have sufficient firepower to guard against speculative attacks on their currencies and/or accelerating capital outflows. Slumping commodity prices and the threat of a supposedly imminent Fed hike have conspired to put pressure on these reserves and outside of China, nowhere is this dynamic more apparent than in Saudi Arabia. Indeed it was the Saudis who dealt the deathblow to the great EM reserve accumulation.

By intentionally killing the petrodollar, Riyadh effectively ensured that the pressure on commodity currencies would continue unabated, but as we’ve documented exhaustively, that was and still is considered an acceptable outcome if it means bankrupting the US shale complex and securing market share. But for Saudi Arabia, this is all complicated by three things: 1) the necessity of preserving the lifestyle of everyday citizens, 2) spending associated with the proxy war in Yemen, and 3) defense of the riyal’s dollar peg. All of those factors have served to weigh heavily on the county’s already depleted petrodollar reserves, and if the “lower for longer” crude thesis plays out, Riyadh may see further pressure on its current and fiscal accounts which are now both squarely in the red.

…click on the above link to read the rest of the article…

The Petroyuan Cometh: Launch Of Renminbi-Denominated Oil Futures Contract Imminent

September 11, 2015

The Petroyuan Cometh: Launch Of Renminbi-Denominated Oil Futures Contract Imminent

Whenever one talks about the death of the petrodollar, the unspoken question lurking just beneath the surface is this: is the rise of the petroyuan just around the corner?

This year, we’ve gotten quite a bit of evidence to suggest that the answer to that question may indeed be a resounding “yes.” In May for instance, Russia surpassed Saudi Arabia as the largest oil supplier to China and what’s especially notable there is that beginning in 2015, Gazprom began settling all of its crude sales to China in yuan meaning that, at least partly, the petrodollar was supplanted just as soon as its death became inevitable.

Now, just as China has moved to play a greater role in determining the price of gold by participating in the LBMA auction and by establishing a yuan-denominated fix, it’s moving quickly to create a yuan-denominated oil futures contract. Here’s Reuters:

China’s push to establish a crude derivatives contract has been met with early scepticism, but oil executives say the country’s growing economic influence means a third global crude benchmark is inevitable.

A derivatives contract would give the Shanghai International Energy Exchange, known as INE, a slice of an oil futures market worth trillions of dollars, offering a rival to London’s Brent and U.S. West Texas Intermediate (WTI).

And while others have tried and failed, China brings its might as the world’s biggest oil buyer, a strong dose of political will and the alignment of its financial and banking system for a yuan-denominated contract.

“The energy industry is still manned, literally, by people from the West. But the world moves on, and there’s a change of guard,” said a senior market executive, speaking on the sidelines of a major industry gathering in Singapore this week, at which delegates spoke on condition of anonymity.

“China has become the world’s biggest oil trader, and that means that an oil price will be set there, like it or not.”

…click on the above link to read the rest of the article…

Europe’s Biggest Bank Dares To Ask: Is The Fed Preparing For A “Controlled Demolition”

September 6, 2015

Europe’s Biggest Bank Dares To Ask: Is The Fed Preparing For A “Controlled Demolition”

Why did we focus so much attention yesterday on a post in which the IMF confirmed what we had said since last October, namely that the BOJ’s days of ravenous debt monetization are coming to a tapering end as soon as 2017 (as willing sellers simply run out of product)? Simple: because in the global fiat regime, asset prices are nothing more than an indication of central bank generosity. Or, as Deutsche Bank puts it: “Ultimately in a fiat money system asset prices reflect “outside” i.e. central bank money and the extent to which it multiplied through the banking system.”

The problem is that the BOJ and the ECB are the only two remaining central banks in a world in which Reverse QE aka “Quantitative Tightening” in China, and the Fed’s tightening in the form of an upcoming rate hike (unless the Fed loses all credibility and reverts its pro-rate hike bias), are now actively involved in reducing global liquidity. It is only a matter of time before the market starts pricing in that the Bank of Japan’s open-ended QE has begun its tapering (followed by a QE-ending) countdown, which will lead to devastating risk-asset consequences. The ECB, which is also greatly supply constrained as Ewald Nowotny admitted yesterday, will follow closely.

But while we expanded on the Japanese problem to come in detail yesterday, here are some key observations on what is going on in both the US and China as of this moment – the two places which all now admit are the culprit for the recent equity selloff, and which the market has finally realized are actively soaking up global liquidity.

Here the problem, as we initially discussed last November in “How The Petrodollar Quietly Died, And Nobody Noticed“, is that as a result of the soaring US dollar and collapse in oil prices, Petrodollar recycling has crashed, leading to an outright liquidation of FX reserves, read US Treasurys by emerging market nations.

…click on the above link to read the rest of the article…

Fallout From Petrodollar Demise Continues As Qatar Borrows $4 Billion Amid Crude Slump

September 4, 2015

Fallout From Petrodollar Demise Continues As Qatar Borrows $4 Billion Amid Crude Slump

Early last month in “Cash-Strapped Saudi Arabia Hopes To Continue War Against Shale With Fed’s Blessing,” we noted the irony inherent in the fact that Saudi Arabia, whose effort to bankrupt the US shale space has blown a giant hole in the country’s fiscal account, was set to tap the debt market in an effort to offset a painful petrodollar reserve burn.

“Saudi Arabia is returning to the bond market with a plan to raise $27bn by the end of the year, in the starkest sign yet of the strain lower oil prices are putting on the finances of the world’s largest oil exporter,” FT reportedat the time.

The reason this is so ironic is that at various times, we’ve characterized persistently low crude prices as essentially a battle between the Fed and the Saudis. Many struggling US producers would likely have been out of business months ago were it not for the fact that ZIRP has kept capital markets wide open, allowing otherwise insolvent drillers to stay afloat. Obviously, that works at cross purposes with Riyadh’s efforts to “preserve market share”, and so ultimately, the Saudis are betting their FX reserves can outlast ZIRP.

There are other factors at play here that weigh on Saudi Arabia’s financial situation including two proxy wars and the defense of the riyal peg which is why turning to the bond market is an attractive option especially considering that capital markets are so favorable thanks to – and here’s the irony – the very same Fed policies that are keeping US shale producers in business.

But Saudi Arabia’s “war” with the US shale space isn’t unfolding in a vacuum and now Qatar is looking to borrow to alleviate the financial strain. Here’s more from Bloomberg:

…click on the above link to read the rest of the article…

ConocoPhillips Fires 10% Of Global Workforce, Warns Of “Dramatic Downturn” To Oil Industry

September 1, 2015

ConocoPhillips Fires 10% Of Global Workforce, Warns Of “Dramatic Downturn” To Oil Industry

Remember when the oil crash was supposed to be “unequivocally good” for the global economy and the US consumer, only for this to be disproven as the biggest macroeconomic lie since “QE is good for the people”? We do – quite vividly – which is why in December of last year we presented “150 Billion Reasons Why Low Oil Prices Are Not Good For The Global Economy” and countless other articles subsequently explaining why the great oil collapse of 2014 (and 2015) is actually “unambiguously bad.” It took the so-called experts the usual 6-8 months to catch up, and admit they were wrong or at least stay silent this time.

In fact, 10 months after our first exposition on the death of the Petrodollar, the massive upcoming reserve liquidation (read Treasury selling) that is about to be unleashed as a result of the soaring dollar and plunging price of oil, has finally become a topic du jour at such banks as Bank of America and Deutsche Bank, who have finally grasped that the great oil crash precipitated nothing short of the world’s first Reverse QE episode in history as some $10 trillion in accumulated reserves start being sold.

That, however, mostly impacts the uber-wealthy: those whose net worth is invested in financial assets which are about to be sold en masse by some of the world’s biggest central banks. Where it hits much closer to home is when firms such as Houston based ConocoPhillips announce that the E&P giant is about to terminate 10%, or 1,800 people, of its global workforce, in the next several weeks as it copes with low oil prices.

As the Houston Chroncile’s FuelFix blog writes, “Daren Beaudo, a company spokesman, confirmed that an internal communication was sent to employees earlier this week informing them of the upcoming staff reductions. Most of those affected workers will receive layoff notifications next month.”

…click on the above link to read the rest of the article…

Why The Great Petrodollar Unwind Could Be $2.5 Trillion Larger Than Anyone Thinks

August 29, 2015

Why The Great Petrodollar Unwind Could Be $2.5 Trillion Larger Than Anyone Thinks

Last weekend, we explained why it really all comes down to the death of the petrodollar.

China’s transition to a new currency regime was supposed to represent a move towards a greater role for the market in determining the exchange rate for the yuan. That’s not exactly what happened. As BNP’s Mole Hau hilariously described it last week, “whereas the daily fix was previously used to fix the spot rate, the PBoC now seemingly fixes the spot rate to determine the daily fix, [thus] the role of the market in determining the exchange rate has, if anything, been reduced in the short term.” Of course a reduced role for the market means a greater role for the PBoC and that, in turn, means FX reserve liquidation or, more simply, the sale ofUS Treasurys on a massive scale.

The liquidation of hundreds of billions in US paper made national headlines this week, as the world suddenly became aware of what it actually means when countries begin to draw down their FX reserves. But in order to truly comprehend what’s going on here, one needs to look at China’s UST liquidation in the context of the epochal shift that began to unfold 10 months ago. When it became clear late last year that Saudi Arabia was determined to use crude prices to bankrupt US shale producers and secure other “ancillary diplomatic benefits” (think leverage over Russia), it ushered in a new era for producing nations. Suddenly, the flow of petrodollars began to dry up as prices plummeted. These were dollars that for years had been recycled into USD assets in a virtuous loop for everyone involved. The demise of that system meant that the flow of exported petrodollar capital (i.e. USD recycling) suddenly turned negative for the first time in decades, as countries like Saudi Arabia looked to their stash of FX reserves to shore up their finances in the face of plunging crude.

…click on the above link to read the rest of the article…

PetroYuan Proliferation: Russia, China To Settle “Holy Grail” Pipeline Sales In Renminbi

June 18, 2015

PetroYuan Proliferation: Russia, China To Settle “Holy Grail” Pipeline Sales In Renminbi

Last week, in “The PetroYuan Is Born: Gazprom Now Settling All Crude Sales To China In Renminbi,” we discussed the intersection of two critically important themes which have far-reaching geopolitical and economic consequences. The first is the death of petrodollar mercantilism, the USD recycling system that has helped to buttress decades of dollar dominance and the second is the idea of yuan hegemony, a new, post-Bretton Woods world economic order characterized by the ascendancy of China-led supranational institutions.

These themes came together recently when it became apparent that Gazprom has begun settling all crude sales to China in yuan. Here’s a summary of the prevailing dynamics: Western economic sanctions on Russia have pushed domestic oil producers to settle crude exports to China in yuan just as Russian oil is rising as a percentage of total Chinese crude imports. Meanwhile, the collapse in crude prices led to the first net outflow of petrodollars from financial markets in 18 years, and if Goldman’s projections prove correct, the net supply of petrodollars could fall by nearly $900 billion over the next three years. All of this comes as China is making a concerted push to settle loans from its newly-created infrastructure funds in renminbi.

Now, it appears Russia and China will de-dollarize natural gas settlements as well.

First, a bit of history is in order.

Last month, Chinese President Xi Jinping visited Moscow, where Gazprom Chief Executive Alexei Miller and China National Petroleum Corp Vice President Wang Dongjin signed a gas export deal which paves the way for 30 bcm/y to China via a new “Western Route.”

(the Altai line)

As a reminder, the two countries ratified a “Holy Grail” gas deal last May for the delivery of up to 38 bcm/y over 30 years via an “Eastern Route.” Also known as the “Power of Siberia” pipeline, the Eastern route was billed as the largest fuel network in the world with a total contract value of around $400 billion.

(mapping the Western and Eastern routes)

…click on the above link to read the rest of the article…

The Collapse Of The Petrodollar: Oil Exporters Are Dumping US Assets At A Record Pace

April 16, 2015

The Collapse Of The Petrodollar: Oil Exporters Are Dumping US Assets At A Record Pace

Back in November we chronicled the (quiet) death of the Petrodollar, the system that has buttressed USD hegemony for decades by ensuring that oil producers recycled their dollar proceeds into still more USD assets creating a very convenient (if your printing press mints dollars) self-fulfilling prophecy that has effectively underwritten the dollar’s reserve status in the post WWII era. Here’s what we said last year:

Two years ago, in hushed tones at first, then ever louder, the financial world began discussing that which shall never be discussed in polite company – the end of the system that according to many has framed and facilitated the US Dollar’s reserve currency status: the Petrodollar, or the world in which oil export countries would recycle the dollars they received in exchange for their oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop…

Few would have believed that the Petrodollar did indeed quietly die, although ironically, without much input from either Russia or China, and paradoxically, mostly as a result of the actions of none other than the Fed itself, with its strong dollar policy, and to a lesser extent Saudi Arabia too, which by glutting the world with crude, first intended to crush Putin, and subsequently, to take out the US crude cost-curve, may have Plaxico’ed both itself, and its closest Petrodollar trading partner, the US of A.

As Reuters reports, for the first time in almost two decades, energy-exporting countries are set to pull their “petrodollars” out of world markets this year.

…click on the above link to read the rest of the article…

Petrodollar Mercantilism Explained In One Chart

March 4, 2015

Petrodollar Mercantilism Explained In One Chart

Over the past several months, with the price of crude plummeting to half where it was compared to a year ago, we have written much about the monetary reality of the Petrodollar (and more importantly, its recent disappearance), the socioeconomic implications for oil/commodity exporters, the liquidity considerations for the those who create the “recycled” currency in question, and the resultant demand for assets created by public and private entities sold by the currency creator, in the process boosting the “value” of both the commodity, the demand for the currency (usually the world’s reserve at any given moment), and the assets of the currency host.

We have explained this cycle and more importantly, what happens when this cycle goes into reverse, in “How The Petrodollar Quietly Died, And Nobody Noticed” and “The Death Of The Petrodollar Was Finally Noticed” (not to mention “Russia Just Pulled Itself Out Of The Petrodollar“).

Still, the underlying concept of how Petrodollar recycling, or as some call it, petrocurrency mercantilism works, leaves some confusion. So in order to alleviate that, here courtesy of Cult State, is a quick and simple primer that should hopefully answer all questions.

…click on the above link to read the rest of the article…

The Death Of The Petrodollar Was Finally Noticed

February 7, 2015

The Death Of The Petrodollar Was Finally Noticed

Three months ago, we wrote “How The Petrodollar Quietly Died, And Nobody Noticed“, in which we explained in painful detail why far from the simple macroeconomic dogma which immediately prompted the macro tourists to scream that “oil prices dropping are good for US consumers“, the collapse in the price of crude is not only a disaster for oil exporting nations – one which will lead to a series of violent “Arab Springs” across the oil-producing developed world – but far more importantly, have a massive impact on capital markets as a result of the plunge in the most financialized commodity in history.

On the death of the Petrodollar we commented that unlike previously, when petrodollar recycling funneled the proceeds from oil-exports into financial markets, helping to boost asset prices and keep the cost of borrowing down, henceforth “oil producers will effectively import capital amounting to $7.6 billion.” We added that “oil exporters are now pulling liquidity out of financial markets rather than putting money in. That could result in higher borrowing costs for governments, companies, and ultimately, consumers as money becomes scarcer.”

The conclusion was simple: “net capital flows will be negative for EM, representing the first net inflow of capital (USD8bn) for the first time in eighteen years. This compares with USD60bn last year, which itself was down from USD248bn in 2012. At its peak, recycled EM petro dollars amounted to USD511bn back in 2006. The declines seen since 2006 not only reflect the changed global environment, but also the propensity of underlying exporters to begin investing the money domestically rather than save. The implications for financial markets liquidity – not to mention related downward pressure on US Treasury yields – is negative.”

…click on the above link to read the rest of the article…

Failing Stimulus And The IMF’s New ‘Multilateral’ World Order

January 28, 2015

Failing Stimulus And The IMF’s New ‘Multilateral’ World Order

My theme for 2015 has been the assertion that this will be a year of shattered illusions; social, political, as well as economic. As I have noted in recent articles, 2014 set the stage for multiple engineered conflicts, including the false conflict between Eastern and Western financial and political powers, as well as the growing conflict between OPEC nations, shale producers, as well as conflicting notions on the security of the dollar’s petro-status and the security and stability of the European Union.

Since the derivatives and credit crisis of 2008, central banks have claimed their efforts revolve around intervention against the snowball effect of classical deflationary market trends. The REAL purpose of central bank stimulus actions, however, has been to create an illusory global financial environment in which traditional economic fundamentals are either ignored, or no longer reflect the concrete truths they are meant to convey. That is to say, the international banking cult has NO INTEREST whatsoever in saving the current system, despite the assumptions of many market analysts. They know full well that fiat printing, bond buying, and even manipulation of stocks will not change the nature of the underlying crisis.

Their only goal has been to stave off the visible effects of the crisis until a new system is ready (psychologically justified in the public consciousness) to be put into place. I wrote extensively about the admitted plan for a disastrous “economic reset” benefiting only the global elites in my article ‘The Economic End Game Explained’.

We are beginning to see the holes in the veil placed over the eyes of the general populace, most notably in the EU, where the elites are now implementing what I believe to be the final stages of the disruption of European markets.

…click on the above link to read the rest of the article…

Tag Archives: petrodollar

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

Post navigation

Latest Posts