Thursday, March 29, 2018

Following China's introduction of a new oil financial market, the next step towards ending the Petrodollar coming from a Russia-Saudi partnership

On Monday China introduced the first non-dollar denominated oil contract in four decades and ushered in the end of the unipolar Petrodollar world.  Yet even with the new Yuan-denominated futures contract overtaking London's Brent market on volume on its very first day of trading, the real turning point between the Petroyuan and Petrodollar will occur when Shanghai achieves a critical mass of oil purchasing and producing nations using their platform more than either London or Chicago.

And that day may be coming sooner than most think as a new report out on March 29 shows Russia and OPEC led Saudi Arabia in talks to collaborate on a new energy cartel that will dominate the market for years to come, and assuredly move oil purchasing away from the dollar and into the Yuan.

Moscow and Riyadh, backed by OPEC, are negotiating a deal that would allow them long-term control of oil prices. If successful, Russia and Saudi Arabia would manage oil markets for the next two decades. 
At the moment, Russia and OPEC are signing agreements on oil production cuts on a yearly basis. However, the next deal could be much longer. 
“We are looking for a very long-term cooperation between OPEC and non-OPEC producing countries,” OPEC Secretary General Mohammad Barkindo said on Wednesday. 
Saudi Crown Prince Mohammed bin Salman announced the plan in an interview with Reuters on Monday. “We are working to shift from a year-to-year agreement to a 10-20 year agreement,” he told the news agency. “We have agreement on the big picture, but not yet on the detail.” 
If such a deal is signed, it would be unprecedented. Russia and Saudi Arabia have worked together in previous oil crises, but such long agreements have never been reached. – Russia Today
Russia's largest oil company already sells its output to China using the Yuan currency, and some OPEC nations (Iran, Qatar) also already deal in Yuan when selling energy to Beijing.

Besides the potential for a more stable price, switching away from London and the U.S. will ensure that Washington cannot use the Petrodollar anymore as a means of economic warfare against nations such as they have done in the past.  And of course it also means that fewer nations will need to hold dollars in reserve for energy purchases, leaving the U.S. to soon have to deal with the threat of inflation once these dollars start to come back home.

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