On Wednesday, Interfax reported that Russia is having difficulty Funding its Embassies abroad. The Ruble is currently hovering around 0.010 dollars, which is actually up from a value of 0.007 dollars a week ago, and Russia’s ability to move Money around International Banks severely checked, it’s getting difficult to keep the Bills paid in D.C., London, and Tokyo.
Right now, Russia is selling about $500 million a day in Crude Oil. That number could be closer to $700 million today, as the Instability of Russia’s Supply, and shifting Statements from other OPEC Members, have generated a sudden bump in prices, putting Oil back around $120 / barrel.
But All that Russian Oil is purchased in American Dollars. Almost all Oil is purchased in Dollars, with only Venezuela and Iran regularly allowing Purchasers to go home with a Barrel using some other Currency. Other Currencies are used in Countries where the Oil is produced, but when moving from Country to Country, that Oil trades in dollars and only dollars.
It’s role as the World’s “petrocurrency” helps facilitate the Trading of Oil, because prices don’t get affected by the fluctuating relative value of Currencies. It also helps hold the dollar’s value up as the World’s Trading Currency. On average, between 80% and 90% of Oil sold on any day is transacted in Dollars, and it’s been that way since the “petrodollar” took the crown in the 1970s.
On Wednesday, Russia reportedly issued a Demand that its Oil, and the Gas, it ships into Western Europe at a Price of over $700 million, be purchased in Rubles and only Rubles. This would require that Nations seeking to buy Russian Fossil Fuels, first purchase Rubles with Dollars, then buy the Oil or Gas with Rubles.
The immediate Goal of this, is to help Prop-Up the Price of the the near-worthless Ruble. In fact, just the Announcement has the Ruble halfway back to the 0.014 Dollars, it was selling for before the Invasion got rolling. But it could also have an effect in Terms of Chipping into the Dollars role as the One and Only International Petrocurrency.
Earlier this month, there were Reports that Saudi Arabia was considering allowing China to purchase Oil in Yuans, rather than First converting their International Currency, China has another Currency for Internal use, rather than requiring that they First convert Funds into Dollars. Saudi Arabia has made such threats before, using it to Blackmail Congress into Not applying Antitrust Laws to OPEC Members.
Should Russia’s move help Accelerate the End of the Standard Petrodollar, there could be a series of Consequences that help to Destabilize the Global Economy, resulting in Higher Inflation and Increased Borrowing Costs, not just for Individuals, but for Fovernments.
It would also Reduce what’s known as “petrodollar recycling,” in which Oil producing Countries Lend, Spend, or otherwise Spread around their Excess Stock of U.S. Dollars, which is One of the factors that helps drive the Purchase of U.S. Securities and U.S. Products.
In the words of Investopedia, this “creates liquidity in the financial markets, keeps interest rates low, and promotes non-inflationary growth.” It also helps drive Investments by Oil Producing Countries within the U.S.
Putin’s War is being waged in Ukraine, but from the outset it’s been clear, that this is a Global War, especially in terms of the Sanctions being applied to Russia, in the hopes of Strangling its War effort Economically. By demanding Payment in Rubles, Russia can strike back in a way that generates Economic Pain for Everyone, by raising the Cost of Oil in the Short Term, and potentially Destabilizing both Financial and Commodities Markets.
Will this push the World off Fossil Fuels Faster or will we just Pump Faster?
Russian sources are reporting the Death of Col. Alexei Sharov, Commander of the 810th Guards of the Zhukov Order. Sharov reportedly died yesterday in Fighting at Mariupol, making another High Ranking Russian Officer who has died on the Front Lines.
NYC Wins When Everyone Can Vote! Michael H. Drucker
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