Russia, China and the City of London against the US Dollar

What is behind the historic launch of crude oil futures denominated in yuan?

China has begun trading crude oil in yuan. On Monday, March 26, crude oil futures trading denominated in Chinese currency was officially launched at the Shanghai International Energy Exchange. The new crude oil index began with a powerful start. On only its first day on Shanghai’s Stock Exchange, there were nearly 63,000 transactions for more than 62 million barrels of oil valued at 27 billion yuan ($4 billion). The breaking news comes after decades of preparation on Beijing’s part. There are growing possibilities for the Celestial Empire to influence pricing, a practice which Washington nearly monopolizes. The petro-yuan is already a fact. The countdown to the collapse of the global hegemony of the U.S. dollar has begun. The broad coalition led by China, Russia and influential circles among the Western elite, have crossed the Rubicon in their offensive against the green currency’s dominance in global trade and finance.

Futures contracts are the main mechanism for oil pricing. Thanks to them, prices are determined at the time a deal is closed, but for a later date. Consumers use them to protect themselves from the risks of price fluctuations, and speculators, to build up profit. Crude oil is being traded in dollars through two futures indexes, the West Texas Intermediate on the New York Stock Exchange, and the Brent crude of the U.S. trading company ICE from its London branch. After March 26, the world’s first global mechanism for crude oil sale that is free of the U.S. dollar denomination takes effect in Shanghai. The initiative makes a great deal of sense due to one simple fact: last year China overtook the United States as the leading oil importer and is now a key market.

The Celestial Empire has turned into the largest black gold importer, but not without Moscow’s help. Beijing imports the bulk of the oil via the “Eastern Siberia-Pacific Ocean” pipeline system launched for the first time by the former oil company Yukos owned by businessman Mikhail Khodorovsky. As a result of decade-long efforts, Russia has become the leading oil exporter to Beijing. In only a year, China has increased the volume of oil sold by Moscow by more than 17 percent, and thanks to the second China-Russia oil pipeline, which began operations on Jan. 1, 2018, it is expected that this volume will increase further. In October of last year, China launched a payment transaction system for yuan and Russian rubles through which Russian oil supplies of more than 60 million tons can be carried without the need to use the dollar. In this context, the start of crude oil trading in Shanghai is just the culmination of a consistent policy. After the first day of petroleum futures in yuan, it became clear that Russia and China will strengthen the mutual promotion of the futures in national currencies, according to RIA Novosti.

According to experts, contracts negotiated in yuan are of historic significance and will inflict a heavy blow on the dollar, which has weakened substantially in recent months, namely because the dollar is the dominant currency in the futures contracts. At the end of last year, analysts from Saxo Bank predicted the launching of the new crude oil index and described it as “a move with tremendous geopolitical and financial consequences.”

“This is the single biggest change in capital markets, maybe of all time,” said Hayden Briscoe, head of the international bank, UBS.

Beijing is declaring war on the dollar. The United States has been ready for armed intervention over the smallest things. This was the case with Saddam Hussein’s decision to sell Iraqi oil in euros and not in dollars, and as a result, the U.S. invaded Iraq and overthrew the government. U.S. dominance in the world is held together by the dollar, which is a major reserve currency. As is widely known, in 1971, President Richard Nixon took the historic decision to end the convertibility of the dollar into gold, announcing that the valuable metal no longer played any monetary role. Thanks to a deal with Saudi Arabia, Nixon ensured that oil, and as a consequence all other goods, would be valued only in dollars. The global demand for the green currency was ensured, and the U.S. was guaranteed the possibility of living as a parasite on the back of the world economy, as the Russian President Vladimir Putin has put it. The Federal Reserve produces green paper currency against which it receives goods and services from the rest of the world. Afterward, the dollars are recycled through credits and U.S. bonds. Thanks to the role of the petrodollar, Washington can support huge deficits, and takes enormous resources away from around the world. This was how the world looked in recent decades. However, everything is changing quickly now.

The dollar’s hegemony is directly disputed by China with the help of its Russian and Iranian allies, and behind the scenes, by influential Western circles. The dollar’s opponents have a powerful ally within the Western elite in financial groups around the City of London. Beijing can hardly knock the dollar out if it relies solely on Russian and Iranian oil supplies. It appears that the most active dealers of the new futures exchange are not from Russia and Iran, but companies associated with banking circles from the former British Empire. The first transaction of the new exchange was carried out between Unipec, a subsidiary of the Chinese oil giant Sinopec, and Shell International Eastern Trading Company, which is part of the oil empire of well-known families like Rothschild and Samuel. The transaction was first announced by Reuters, which contacted Royal Dutch Shell for comment, but the company declined to provide a statement. According to the British Press Association, the most active players of the Shanghai energy exchange are the corporations Glencore, Trafigura and Freepoint Commodities. There is sufficient evidence that the first two are connected with a cluster of banking institutions grouped around the famous Rothschilds.

At the end of 2016, Glencore and its partners from the Qatar Sovereign wealth fund bought a 19.5 percent stake in the Russian energy giant Rosneft. Trafigura, a company registered in Switzerland, is among the best partners of the Russian state corporation. Trafigura is the largest oil buyer of the sanctioned Rosneft company and is helping the Russians build a global network for producing, processing and marketing oil. Among Rosneft’s main partners are Glencore, Royal Dutch Shell, Vitol and others. At the end of August 2017, Rosneft and its Trafigura allies closed the biggest deal in assets acquisition in Indian history by becoming owners of India’s second largest private oil company, Essar Oil. The Russian Corporation’s assets already include a huge oil refining plant in the Indian port city of Vadinar, capable of handling 400,000 barrels of oil per day (9 percent of India’s oil), and the purchase also includes an electric power plant and 3,500 Indian petrol stations. Vadinar’s plant has high-end oil processing equipment which allows the refinement of a high-sulfur oil that comes from the rich oil deposits of Venezuela, Moscow’s key ally. A global network is being built with the help of all these moves, curtailing the existing world dominance of the United States. In this way, starting to trade petroleum futures on the Shanghai International Energy Exchange is the next important step for Russia, China and part of the Western elite on the path to dethrone the U.S. dollar from the financial pedestal. The common objective is to remove Wall Street’s monopoly on the global financial system and to break it up into several currency zones.

The next milestone for the anti-dollar coalition would be Saudi Arabia, which is expected to soon sell a minority stake to China in the largest oil company in the world: Saudi Aramco. The Saudi Kingdom is facing a complex choice, on one hand it firmly supports its partnership with the U.S., but at the same time its refusal to trade oil in yuan has already had a serious impact. Beijing has begun to rely more on Moscow, which was able to replace Riyadh as its main oil provider. Saudi Arabia’s refusal to cooperate with the Celestial Empire means the gradual contraction of the Muslim country’s share of the Chinese market.

The start of petroleum futures denominated in yuan is a breakthrough in the big geopolitical and geoeconomic battle. In the long term this means a sharp reduction in the demand for dollars, and their depreciation and inflation in the United States. As a result, the money invested in U.S. bonds, a key funding source for the U.S. budget, would be reduced. The United States is gasping for breath due to its colossal debt, which exceeds $21 trillion. There are two outcomes for them, a painful reform or a big war.