elimination of the petro dollar

[SnowGlobe7]

http://www.golemxiv.co.uk/2014/01/from-petrodollar-to-petroyuan-the-coming-proxy-wars/

 

A wonderful friend of mine brought this to my attention this morning (she is the blame for me being in this investment....lol).....Hence my question earlier....If we go back to the gold standard what does this mean for the US, our Dinar holdings, what about China, and the Dollar. ( I have always said watch out for China).

 

 

From PetroDollar to PetroYuan – The Coming Proxy Wars

by Golem XIV on JANUARY 31, 2014 in LATEST

Why would the central bank of Nigeria decide to sell dollars and buy Yuan?

At first glance it might not seem the most interesting or pressing question for you to consider. But I think it is one of those little loose threads that if pulled upon carefully begins to unravel the hints and traces of a much larger story. But please be warned this is speculative.

Two days ago the Nigerian Central Bank announced it was going to increase the share of its foreign currency reserves held in Yuan from 2% at present, to up to 7%. To do this it was going to sell US Dollars. Now a 5% swing in anything financial is big. In our debt drunk times it’s difficult somethimes to remember that 2.15 billion dollars (which is what 5% comes to) is actually a great deal of money, even if it is less than a drop in America’s multi trillion dollar debt ocean. On the other hand even a 5% increase in Yuan would still leave 80% of Nigeria’s $43 billion worth of reserves in dollars.

BUT while it is small in raw financial terms I think it is significant in geopolitical terms.

Nigeria is Africa’s second largest oil and gas exporter. It holds as many dollars as it does because oil is sold in dollars. Nigeria gets paid in dollars which it then needs to recycle. This is the famous petrodollar in action. It is also a major reason the dollar is still the world’s major reserve currency and that in turn is why America can have such a monumental pile of debt and still (for now) be the  risk-off haven that institutional  investors run to when other currencies and markets become too risky and unstable.

What interest me is that prior to this announcement from Nigeria’s central bank, China has, for some years now, been working hard and succesully to buy exploitation rights in Nigeria’s oil fields. In 2009 The Wall Street Journal reported,

 Chinese companies have proposed investing $50 billion to buy 6 billion barrels of oil reserves in Nigeria, the African nation’s presidential adviser on energy said Tuesday.

A year later in 2010 the WSJ reported,

Nigeria and China have signed a tentative deal to build three oil refineries in the West African state at a cost of $23 billion, in a move to boost badly needed gasoline supply in Nigeria and to position China for more access to the country’s coveted high-quality oil reserves.

And just last year China extended a $1.1 billion loan in return for a reported agreement that oil exports to China would increase from around 20 000 barrels a day to 200 000 per day by 2015. This loan was on top of a range of development agreements betwen the two countries for various infrasctructure projects such a telecoms and railways.

Nigeria had, as of 2011, over 37 billion barrels of proven oil reserves. China is now one of its major trading partners. China wants Nigerian oil and my guess is that if it isn’t doing so already it is going to trade it entirely in Yuan. Such a move would mean Nigeria would need fewer dollars and more Yuan and the PetroYuan would begin to rise at the expense of the Petrodollar.

For some years now China has been making the Yuan a settlement currency. I have written about this a lot over the years. In 2012 I wrote a piece called “A new reserve currency to challenge the dollar – What’s really going on in the Straits of Hormuz.” China has created a series of bilateral settlement agreements with, among others, the EU, South Korea, Iran, India and Russia. All of these agreements by-pass the US dollar. If China now trades its oil in Yuan where will that leave the dollar?  Of course Saudi would never agree to such a thing, would it?

Now Its a long way from Nigeria’s 200 000 barerels a day to overthrowing the dollar as the premiere oil currency. But let’s face it the US has gone to war on more than one occasion recently in part because the country involved had been going to sell its oil in Euros. And the US is Europe’s friend, isn’t it?

The US hawks have always been afflicted with dominophobia – fear of falling dominoes. Somewhere in a room in the Pentagon or Langley, there is a huddle of spooks, military types, oil men and State department advisors all wondering how to prevent this new creeping menace. Because you cannot afford to be complacent you know. It starts in one country and if you don’t do something other’s will follow and before you know it the rich Western Africa oil bonanza is flowing into Yuan, to be followed by all those North African and Middle Eastern Arab Spring countries where the clean-cut boys are already having to ‘advise’ on the need to take a firm line with potentially anti-American Muslim Brotherhood types by  locking them up, shooting them and generally branding them as terrorists.

What would happen, someone will mention almost in a whisper, if Qatar were to triumph over Saudi and then cut a multi-lateral deal to sell its gas in Euros to Europe and in Yuan to China?

But to return from the overheated imaginations of the Virginia Hawks to some sort of reality, Nigeria is increasing its Yuan reserve at the expense of the dollar and is developing far closer ties to China than to the US. Which is why I think you will soon find the US dramatically increasing its involvement, both financial and military, in Angola.

Angola is going to be America’s answer to China’s Nigeria. And I think the signs are already there.

While in Nigeria Chinese companies are expanding, in Angola the big players are the Western Oil majors: Chevron/Texaco(US), Exxonmobil (US), BP (UK), ENI (Italy), Total (FR), Maersk (DK) and Statoil (NOR). There are others but these are the big players. Of these Total is probably the largest presence producing about a third of all Angola’s oil output. And Total has recently increased its presence. Of the others Chevron is one of the largest and is expanding aggressively.

Angola itself is busy selling off new concessions. 10 new blocks containing an estimated 7 billion barrels of oil, which is over half of all Angola’s proven reserves  are to be auctioned this year. Angola has recently edged ahead of Nigeria to be Africa’s largest oil exporter. If I’m correct I expect the Western nations/companies, led by the US and new best war-buddy, France to make sure the Chinese do not get a large share of the spoils.  One to watch.

As part of this new Western push, I expect to see China also restricted in any new oil fields around Sao Tome and Principe.  The big players to date are Chervon, Exxonmobil and Nigeria. The latter suggesting a way in for the Chinese that I think the Westerners will want to push shut.  To which end what I found interesting about recent events in Soa Tome and Principe is the visit there of Isabel dos Santos, the daughter of Angola’s President for life. I have written about her and her banking empire in The Eurofiscal Corruption Contest – The Portuguese entry.  Isobel is most often refered to as Africa’s or Angola’s most famous business woman or Africa’s richest woman (She’s a billionaire). Rarely does anyone from the press raise the question of how she became so vastly wealthy.

She made a visit to the islands and both she and Angola’s state companies have begun to invest heavily. Angolan companies now have a very commanding position in the island’s economy and Angola, even though its own people live in poverty, found the money to loan Sao Tome and Principe  $180 million which is half of the island’s GDP. Top that Beijing! The Islands are Portuguese speaking, the largest bank is Portuguese, and the islands also house a broadcast station for Voice of America.

I think taken together the signs are that the West, led by America, has in mind to try to contain or perhaps even confront Chinese expansion particularly as it concerns access to oil and gas in West and North Africa, and to rare earth minerals – but that’s another story. I don’t think there can be any doubt that America and Europe are looking at Chinese expansion and its hunger for resources and see a threat. The question is what will they do?  America is accustomed to being the hegemonic power and its hawks have proved over and over that they are are quite prepared for military confrontation. The question for them would be how? Invading countries who have – in reality – very little military or economic might is one thing, but directly confronting another superpower is another.  I think all sides would see direct and open military confrontation to be out of the question. Not just for military reasons but for global economic ones as well. They need to find ways of fighting that do not sink the world economy  - neither its flows of goods and trade , nor its flows of captail and debt. Which is why I wonder about the possibility of seeing an era of new proxy wars being fought out in ***-for-tat destabilization escalating up to protracted guerrilla/civil wars.

In West Africa the  front line seems to run between Angola and Nigeria.  So who would like to play a game of destabilize your neighbour? There is already unrest about Chinese goods flooding Nigeria. How tempting might it be to think about fanning flames of unrest in already unstable Nigeria espeicially in the delta?

In return what would you have to do to re-ignite the lines of mistrust and division which blighted Angola through decades of civil war? Dos Santos and the MPLA may have been the Soviet proxy but he’s a capitalist now. So, how about a nice cold-war style proxy war?  I cannot bring myself to believe that no one at the Pentagon has dusted off the old plans for such conflict and set some analysts to working up some new ones with China scribbled in, in place of Russia.

Something is, I suspect, already afoot. One last pull on that little thread, one last detail that makes me wonder. Just last April (2013) the Israeli billionaire, Dan Gertler sold back to the government of the Democratic Republic of Congo, one of the  oil companies/exploration blocks he had bought from it, but for 300% more than he paid. Anti-corruption campaigners have been up in arms.

Two facts interest me . One, that the purchase was actually financed by Sanangol, the Angolan state oil company (the company from which $32 billion had gone missing. Missing billions: billionaire dos Santos… No connection obviously). The DRC is to pay Sanangol back from oil revenue. Until that time, of course, Sanangol calls the tune.  Two, that this oil block lies between the DRC and Angola in what was contested territory but has since been decreed a zone of cooperation.

Now this sale by Gertler could just be a bog standard pillage-Africa deal. And I might well be seeing things that just aren’t there, but why now? This sort of big money, that is connected to the top of the DRC government (how do you think Gertler was able to buy the concession at the price he did? And who do you think might be the, so far, hidden second beneficiary of Gertler’s oil company? The government minister who sold the concession to him in the first place,  maybe?) moves when its contacts suggest this is a better time to lock in profit than times to come.

All in all, if I were a religious man, I would be saying a prayer for the children of Nigeria and Angola.

A note on all this speculation and non-financial stuff.  I don’t usually write this much speculation but recently I have become more convinced that we are in a watershed in which everything around us, all the rules we are used to, all the lines on the map, are up for grabs and are changing around us. For me, finance is not separate from politics so we have to understand how they rub against one another.  I hope you will bear with me.

 

 

[SnowGlobe7]

http://www.forbes.com/sites/steveforbes/2013/05/08/heres-what-a-new-gold-standard-could-look-like/

 

 

Here is a thought on the gold standard as well.......now let me say...I was a huge supporter of Steve Forbes and the flat tax issue.

 

 

 

 

 

Just as there are many variations on democracy, there are also various–and legitimate–types of gold standards. The U.S. political system is absolutely unique. Canada’s system is a hybrid of ours and Britain’s. Britain’s is very different from that of France, which, in turn, is very different from Germany’s. And so it goes, all around the democratic world. Yet the bedrock of all of these countries’ systems is consent of the governed.

There have been permutations of the gold standard. Some like the idea of having 100% gold coverage for currency. Others prefer something similar to the classical gold standard of the late 19th century, which was different from the bimetallic (a combination of gold and silver) systems that preceded it. With the gold-exchange standard of the 1920s and early 1930s countries could use the U.S. dollar and the British pound–both tied to gold–as well as gold itself, as reserves to back their currencies. Under the Bretton Woods monetary system, which emerged from World War II, all currencies were fixed to the dollar, and only the dollar could be converted to gold. Bretton Woods was another type of gold-exchange standard.

All of these previous standards collapsed, either because of war or because the systems’ rules weren’t adhered to.

The financial crisis that began in 2007 would never have happened had the Federal Reserve kept the value of the dollar stable. A housing bubble of the proportions that unfolded–not to mention bubbles in commodities and farmland–would not have been possible with a stable dollar. The Fed has also created a unique bubble this time: bonds. It hasn’t popped yet (nor has the farmland bubble), but it will.

The American dollar was linked to gold from the time of George Washington until the early 1970s. If the world’s people are to realize their full economic potential, relinking the dollar to gold is essential. Without it we will experience more debilitating financial disasters and economic stagnation.

What should a new gold standard look like? Representative Ted Poe (R-Tex.) has introduced an original and practical version. Unlike in days of old we don’t need piles of the yellow metal for a new standard to operate. Under Poe’s plan–an approach I have long favored–the dollar would be fixed to gold at a specific price. For argument’s sake let’s say the peg is $1,300. If the price of gold were to go above that, the Federal Reserve would sell bonds from its portfolio, thereby removing dollars from the economy to maintain the $1,300 level. Conversely, if the gold price were to drop below $1,300, the Fed would “print” new money by buying bonds, thereby injecting cash into the banking system.

An effective gold standard can be that simple. What gets lost in the discussion is that the yellow metal is merely a means of measuring the value of the dollar. The fact that a foot has 12 inches doesn’t restrict the number of square feet you can have in a house. The fact that a pound has 16 ounces doesn’t restrict your weight, alas–it’s simply a measurement.

The virtue of a properly constructed gold standard is that it’s both stable and flexible–stable in value and flexible in meeting the marketplace’s natural need for money. If an economy is growing rapidly such a gold-based system would allow for rapid expansion in the money supply. For example, in the 1950s and 1960s Japan’s economy grew 10% a year. The yen was fixed to the dollar, which, in effect, meant that it was fixed to gold. Yet the yen money supply mushroomed to fuel this boom.

The Poe bill’s basic operating gold-standard principle and its specifics provide plenty of grist for the discussion mill, which is all to the good. Monetary policy is a boring subject, but getting it right is absolutely crucial for our future prosperity and liberty.

 For more from this issue’s Fact and Comment see 

[easyrider]

A NEW age is coming.. out wit the old in with the NEW of course many will have to be restrained and die before the petro dollar completely goes away.

[Djorgie]

SG7,

 

Thanks... Yeah, I have always had the assumption that the dollar will eventually go down because if history has told us anything about fiat based currency... well, you get my meaning I'm sure.

 

Also China just dumped another I think it was 50 million. They are sick of us and they are no longer buying our debt plain and simple.

 

I just hope something goes with this RV SOON because as I have stated previously, if it doesn't we may never see it.

 

All we can do is pray that Iraq finally kicks it into gear and it happens SNAP! just like that!

[billy goat]

It seems global OPEC influence is weakening.  The Saudis just hate to see member countries exert development outside of club agreement.  It won't be long before Saudi Arabia stands virtually alone in their geopolitics.  I believe it will be severe enough for them to ally themselves with Israel for protection due to the lack of major middle east friends.  Look at a map of the middle east and think of all the despotic and theocratic enclaves surrounding the kingdom.  Of all the middle east monarchies...Saudi Arabia is the least stable.  Her majority population consists of under represented Shiites and coupled with the fact she is running out of oil - it is not hard to imagine a major decline in the near future.

[Djorgie]

Just wanted to correct myself... I said 50 million, but it should have been 50 billion and Japan also dumped 4 billion recently so, guess we'll see what happens.

[Rochester]

Liberal ass*holes like Bill Maher want to see America pull back from the world, and give up it's empire. China is trying to take over the world. If America pulls back, the US dollar will no longer be the reserve currency, interest rates will go up, and the American consumer will get screwed up the you know what, and American standards of living will plummet. Fork, liberals are stupid.