Skip to comments.Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China
Posted on 03/21/2014 11:51:08 AM PDT by Rusty0604
If it was the intent of the West to bring Russia and China together - one a natural resource (if "somewhat" corrupt) superpower and the other a fixed capital / labor output (if "somewhat" capital misallocating and credit bubbleicious) powerhouse - in the process marginalizing the dollar and encouraging Ruble and Renminbi bilateral trade, then things are surely "going according to plan."
For now there have been no major developments as a result of the shift in the geopolitical axis that has seen global US influence, away from the Group of 7 (most insolvent nations) of course, decline precipitously in the aftermath of the bungled Syrian intervention attempt and the bloodless Russian annexation of Crimea, but that will soon change. Because while the west is focused on day to day developments in Ukraine, and how to halt Russian expansion through appeasement (hardly a winning tactic as events in the 1930s demonstrated), Russia is once again thinking 3 steps ahead... and quite a few steps east.
While Europe is furiously scrambling to find alternative sources of energy should Gazprom pull the plug on natgas exports to Germany and Europe (the imminent surge in Ukraine gas prices by 40% is probably the best indication of what the outcome would be), Russia is preparing the announcement of the "Holy Grail" energy deal with none other than China, a move which would send geopolitical shockwaves around the world and bind the two nations in a commodity-backed axis. One which, as some especially on these pages, have suggested would lay the groundwork for a new joint, commodity-backed reserve currency that bypasses the dollar, something which Russia implied moments ago when its finance minister Siluanov said that Russia may regain from foreign borrowing this year. Translated: bypass western purchases of Russian debt, funded by Chinese purchases of US Treasurys, and go straight to the source.
Here is what will likely happen next, as explained by Reuters:
Igor Sechin gathered media in Tokyo the next day to warn Western governments that more sanctions over Moscow's seizure of the Black Sea peninsula from Ukraine would be counter-productive.
The underlying message from the head of Russia's biggest oil company, Rosneft, was clear: If Europe and the United States isolate Russia, Moscow will look East for new business, energy deals, military contracts and political alliances.
The Holy Grail for Moscow is a natural gas supply deal with China that is apparently now close after years of negotiations. If it can be signed when Putin visits China in May, he will be able to hold it up to show that global power has shifted eastwards and he does not need the West.
More details on the revelation of said "Holy Grail":
State-owned Russian gas firm Gazprom hopes to pump 38 billion cubic meters (bcm) of natural gas per year to China from 2018 via the first pipeline between the world's largest producer of conventional gas to the largest consumer.
"May is in our plans," a Gazprom spokesman said, when asked about the timing of an agreement. A company source said: "It would be logical to expect the deal during Putin's visit to China."
Summarizing what should be and is painfully obvious to all, but apparently to the White House, which keeps prodding at Russia, is the following:
"The worse Russia's relations are with the West, the closer Russia will want to be to China. If China supports you, no one can say you're isolated," said Vasily Kashin, a China expert at the Analysis of Strategies and Technologies (CAST) think thank.
Bingo. And now add bilateral trade denominated in either Rubles or Renminbi (or gold), add Iran, Iraq, India, and soon the Saudis (China's largest foreign source of crude, whose crown prince also happened to meet president Xi Jinping last week to expand trade further) and wave goodbye to the petrodollar.
As reported previoisly, China has already implicitly backed Putin without risking it relations with the West. "Last Saturday China abstained in a U.N. Security Council vote on a draft resolution declaring invalid the referendum in which Crimea went on to back union with Russia. Although China is nervous about referendums in restive regions of other countries which might serve as a precedent for Tibet and Taiwan, it has refused to criticize Moscow. The support of Beijing is vital for Putin. Not only is China a fellow permanent member of the U.N. Security Council with whom Russia thinks alike, it is also the world's second biggest economy and it opposes the spread of Western-style democracy."
This culminated yesterday, when as we reported last night, Putin thanked China for its "understanding over Ukraine." China hasn't exactly kept its feelings about closer relations with Russia under wraps either:
Chinese President Xi Jinping showed how much he values ties with Moscow, and Putin in particular, by making Russia his first foreign visit as China's leader last year and attending the opening of the Winter Olympics in Sochi last month.
Many Western leaders did not go to the Games after criticism of Russia's record on human rights. By contrast, when Putin and Xi discussed Ukraine by telephone on March 4, the Kremlin said their positions were "close".
The punchline: "A strong alliance would suit both countries as a counterbalance to the United States." An alliance that would merely be an extension of current trends in close bilateral relations, including not only infrastructure investment but also military supplies:
However, China overtook Germany as Russia's biggest buyer of crude oil this year thanks to Rosneft securing deals to boost eastward oil supplies via the East Siberia-Pacific Ocean pipeline and another crossing Kazakhstan.
If Russia is isolated by a new round of Western sanctions - those so far affect only a few officials' assets abroad and have not been aimed at companies - Russia and China could also step up cooperation in areas apart from energy. CAST's Kashin said the prospects of Russia delivering Sukhoi SU-35 fighter jets to China, which has been under discussion since 2010, would grow.
China is very interested in investing in infrastructure, energy and commodities in Russia, and a decline in business with the West could force Moscow to drop some of its reservations about Chinese investment in strategic industries. "With Western sanctions, the atmosphere could change quickly in favor of China," said Brian Zimbler Managing Partner of Morgan Lewis international law firm's Moscow office.
Russia-China trade turnover grew by 8.2 percent in 2013 to $8.1 billion but Russia was still only China's seventh largest export partner in 2013, and was not in the top 10 countries for imported goods. The EU is Russia's biggest trade partner, accounting for almost half of all its trade turnover.
And as if pushing Russia into the warm embrace of the world's most populous nation was not enough, there is also the second most populated country in the world, India.
Putin did take time, however, to thank one other country apart from China for its understanding over Ukraine and Crimea - saying India had shown "restraint and objectivity".
He also called Indian Prime Minister Manmohan Singh to discuss the crisis on Tuesday, suggesting there is room for Russia's ties with traditionally non-aligned India to flourish.
Although India has become the largest export market for U.S. arms, Russia remains a key defense supplier and relations are friendly, even if lacking a strong business and trade dimension, due to a strategic partnership dating to the Soviet era.
Putin's moves to assert Russian control over Crimea were seen very favorably in the Indian establishment, N. Ram, publisher of The Hindu newspaper, told Reuters. "Russia has legitimate interests," he added.
To summarize: while the biggest geopolitical tectonic shift since the cold war accelerates with the inevitable firming of the "Asian axis", the west monetizes its debt, revels in the paper wealth created from an all time high manipulated stock market while at the same time trying to explain why 6.5% unemployment is really indicative of a weak economy, blames the weather for every disappointing economic data point, and every single person is transfixed with finding a missing airplane.
Russia and China have been close allies for a very long time, even when they appeared like enemies. Ex-KGB like Anatoliy Golitsyn, who defected to the west, called it all a show aimed for western consumption.
Idiots in the western world. We are killing ourselves over this whole “no carbon” attitude. Instead of cheap efficient energy that would free the lives of so many people, we strive to control and destroy lives chasing a green dream over a problem that doesn’t exist!
Yes, but both China and Russia are homophobic, so America is morally superior and after all, isn’t that what really matters? /sarc
Pre-Obama there existed $900 billion dollars, the vast majority of which were overseas being held by countries to satisfy their debts. Every bridge, railroad, war and jellybean had been purchased with those dollars. Then in 2009 Obama added another $900 billion. In 2010, another $900 billion dollars. Since then it’s been another $87 billion per month. This has been the greatest hidden tax on saved value in the history of the world. Yet nobody has arrested this thief. Bernie Madoff went to prison for a comparatively petty theft. Yet our president takes the most elaborate vacations in history and is still lauded by the press. Is there no justice?
Two primadonnas make for a poor team. Won’t take long before the paranoia about the other sets in on both houses.
Two primadonnas make for a poor team. Won’t take long before the paranoia about the other sets in on both houses.
While Obama throws the “Holy Hand Grenade” into our economy.
Will Obama view this as a Mission Accomplished body blow to the West and the US or is he just totally out of his depth and would rather play round ball?
there’s that flexibility Obama spoke of.
This would have been much worse news if the USA were not rapidly becoming oil independent.
That is all the bad dollar/usa economy stuff that zerohedge has predicted would happen—would happen because of shrewd chinese currency plays and foolish US over indebtedness —were it not for rising US oil and natural gas production and impending oil independence.
All that’s happening is that the world is moving toward a new balance of economic power.—but it will balance and not unfavorably to the USA.
We are becoming oil independent in spite of Obama, even though he and the greenies fight against it.
The catch 22 is if we don’t import oil(or anything) paid for in US dollar, which in turn is used by the foreign nation to buy treasuries, the gov’t would have to cut its spending deficit, but probably not before forcing retirement accounts to buy treasuries.
Makes a great deal more sense (economic, energy, safety) to ship Siberian gas to China by pipeline than US gas by LNG tanker, which I’ve seen discussed.
One aspect of this deal apparently not mentioned is that Russia’s East continues to empty demographically.
An immense, almost completely empty, resource-rich land right next door on which it is economically dependent will at some point become a nearly irresistable lure for China. Or quite possibly Siberia will remain Russian de jure while becoming Chinese de facto.
Which would be a type of poetic revenge for how Russia handled Manchuria 100 and some years ago.
The whole world will love and protect us.
The catch 22 is if we dont import oil(or anything) paid for in US dollar, which in turn is used by the foreign nation to buy treasuries, the govt would have to cut its spending deficit, but probably not before forcing retirement accounts to buy treasuries.
good point. however, the added oil production is directly adding 100 billion annually to federal revenues and indirectly another 100 billion byo higher stock market prices.
You’ll notice that in the last year the federal deficit shrank by over 300 billion dollars to about 680 billion dollars. Its on track this year to shrink by another 200 billion dollars.
Result? less need for foreign countries to buy US treasuries.
You are also right that all of this is happening IN SPITE of Obama —not because of him.
I fully expect China to take part of Russia possibly via Mongolia once the Us is marginalized and weakened.
One only has to look at geography and demographics to see the incredible lure that concept has for China.
145 million inhabitants in the largest country on earth vs 1.5 billion who need breathing room?
Also, Russia can’t afford to lose too many people because of war. China would probably shrug at the concept of losing a few million?
If O’bummer was smart, he would immediately open up federal land to oil and gas extraction to sell overseas. Who cares to whom?
Just that announcement would make the whole world take heed.
The only problem there is nukes. Would Russia be willing to use them to protect Siberia.
All of Siberia, which is huge, has only about 25M people and dropping.
Maybe, but China would be taking a big bet that Russia wouldn’t make that 500 million dead Chinese when Putin decides to use that aging Russian nuclear arsenal. A better deal would be for the two of them to come to some deal that benefits both of them such as Chinese funding in exchange for Russian space and gas.
Jed Eckert: ...Well, who *is* on our side?
Col. Andy Tanner: Six hundred million screaming Chinamen.
Darryl Bates: Last I heard, there were a billion screaming Chinamen.
Col. Andy Tanner: There *were*.
Putin loves to see that the wacko environmentalists have so much control over our politicians. If I didn’t know better, I’d say they were part of the communist manifesto.
Maybe this will help the Euros get over their deathly fear of fracking...
And if the dollar stops being the world’s reserve currency, we’ll suddenly no longer be able to print money. We’ll have to live within our means.
With the Obamanation in control, that means DoD will be practically disbanded in favor of socialist programs.
But even worse, when all those outstanding treasuries come due and we can’t pay up...
This will certainly be embarrassing for the 1st Lady.
And if the dollar stops being the worlds reserve currency,
because of the fracking boom—that possibility is now off the table.
however, fracking is producing much more federal revenues—so the deficit is rapidly shrinking. If the deficit keeps shrinking at the current rate—the federal budget will balance in a couple years.
the terrible thing about this is that the democrats will have learned all the wrong lessons. they’ll credit obama with the balanced budget just as they did clinton after his budget balanced. this the hateful disgusting thing about this good news.
Not only this, but in a few years, Gazprom along with Exxon will open a colossal LNG export facility in Vladivostok to bring gas to Japan and South Korea. Look at the numbers, it will be like a Niagara Falls of cash. Anyone who thinks that Exxon is going to allow the US gov’t to cause them to lose their 20% share of that multi-billion dollar annual revenue stream is crazy. Some of that money will be going to Exxon’s shareholders, ie the entire US establishment - the Carlyle Group, Blackstone etc. Those two funds are the where the people who really run America have their money. Watch what they do more than anything.
BTW, the Russian far east will see massive investment from Asian countries in the coming years. Germany will continue massive investments in Russia no matter what. Germany is involved in practically every industry in Russia. Iceland is also investing in building up Russia’s enormous geothermal energy potential. Much of the far east can be powered by geothermal the way that world leader in the field Iceland is. South Korea is investing tidal power in Russia, a field they are the leader in. You could go on and with examples of the countries that stand to make money in Russia. They can get all the markets and investment they need from countries that will never join US lead boycotts.
These facts are why Russia’s leaders are so confident and don’t care about threats of sanctions. Remember that only the English speaking countries are really serious about confronting Russia. Our “European allies” are just pretending they care like they always do. They are not going to blow up what’s left of their economies to promote what they consider in private to be “Anglo-Saxon imperialism.”
I hope no one here believes this nonsense that Russia is going to be destroyed by more natural gas production five years from now.
If you want a reality check, look into who has the contracts to develop Iraq’s oil and gas fields post-US invasion. That should tell you all you need to know about how effective our government is in leveraging US power to support US interests.
Parts of the far east are growing in population. Russia has stabilized it’s population loss and is settling the east and other vulnerable areas with Cossacks and other traditional types that are patriotic and have large families. Unlike Americans or Europeans, these people are organized along tribal lines have their own militias. The idea is to not rely on the power of the state alone to protect Russian territory, but to settle the land with people who will be hard to dislodge by temporary foreign incursions. Russia’s leaders are thinking far into the future.
Russia will do anything necessary to protect its territory, including “population transfers” of non-loyal people. They would not hesitate to deport all Chinese or Muslims or whoever from Russia if they thought it were necessary.
“There are two ways a nation can use economic growth to reduce budget deficits. The first method is to participate in economic growth, with a growing economy increasing tax collections. A second method is to raise taxes so drastically that they consume all economic growth.
The United States government recently announced it has some great news - a fast moving economic recovery is slashing the size of the deficit.
The real economy (if we accept official US government inflation rates) grew by only 6.7% over three years, while the federal government’s real take of that economy rose by a remarkable 21.9%. Because 6.7% in economic growth is only equal to 31% of the total 21.9% increase in tax revenues, this means that economic growth only accounted for 31% of real tax growth, while it was the increase in tax rates that generated the other 69%.
So while the reduction in deficit is being presented as increased revenues from a surging economy, in fact more than 2/3 of the growth in tax receipts was simply from raising taxes.”
And approve the XL pipeline.
Oh, and I saw an article that said Soros is recommending Obama sell our strategic oil reserves to push the price down, and that would teach Putin a lesson!
Green on the outside, red on the inside.
Soros: ‘Stupid is as stupid does’...just one more rich idiot.
Did they finally figure out to build solar power where there is sun and windmills where there is wind?
She might have to sell her clothes at a consignment shop.
They are already taking credit for the deficit reduction and taking credit for the increased oil production. The “people” are not informed that it is happening in spite of Obama’s policies.
They are already taking credit for the deficit reduction and taking credit for the increased oil production. The people are not informed that it is happening in spite of Obamas policies.
Its pretty much the same thing as happened in the 90’s. The economy and the stock market produced and enormous amount of new revenue for the federal government...while newt’s congress efforts merely kept government spending from growing. Clinton fought newt tooth and nail and creamed him for newt’s efforts and then took credit for the balanced budget.
Something similar is in the offing but I don’t think obama is going to remembered as kindly as clinton because except in very blue states— he’s killing democrats on the state and local level.
So while the reduction in deficit is being presented as increased revenues from a surging economy, in fact more than 2/3 of the growth in tax receipts was simply from raising taxes.
I don’t know what deficit reduction was prior to 2012-2013 but in that year the deficit fell from 1 trillion to about 680 billion.
My understanding was that 100 billion of that came from tax increases, 100 billion came from increased stock market revenues, 100 billion came from increased fracking related oil/gas revenues.
This year the deficit is slated to decrease another 200 billion. I think from equal parts increased fracking related oil/gas revenues and increased stock market revenues.
And Clinton got credit for the tech boomprosperity. The boom went bust just as Bush came into office and the Democrats blame it on him.
Don’t forget that the year of the recovery act is when the deficit was jacked up to over a trillion.
That’s like a store that originally marks an item very high, then when the put it on sale the customers are fooled into believing they are getting a good deal.
I agree with you that our increased oil production is a good thing and I hope we keep it up. But I don’t think everything is as rosy as they would have us believe.
“If Obummer was smart”
That’s a ginormous “if”, and I think we all know the answer.
But I dont think everything is as rosy as they would have us believe.
agree. but what it does mean is that the bottom is not going to fall out. the gold bugs are being burned and will continue to be burned.
Here is a chart of historical inflation adjusted gold prices. Compare 1980 to today. Something similiar happened then as is happening today with adverse affects for the gold bugs. history does not repeat itself but it does rhyme.
I happen to be a gold bug, but like most gold bugs I hope I never would have to use it. I am also invested in stocks, mostly oil companies and some technologies.
“Which would be a type of poetic revenge for how Russia handled Manchuria 100 and some years ago.”
The Russians and the Chines were killing each other as recently as 1950s. There was some border issue.
Russia FEARS China. China is still the middle kingdom. I have a hard time believing that anyone will move into Siberia. It is desolate, the Chines do not leave their limited national boundaries.
China too has indigenous population issues, Muslim included, that are not reported by the US Commie press
And Michelle is in China with secure delivery of papers.