There is an old axiom that goes, if you can’t beat em, join em. And for Eastern powers such as China and Russia, they are taking this adage one step further by implementing a policy of, if you don’t want to join em, create duplicate market mechanisms and replace em.
Over the course of 2015 China has done just this with their new economic policies of bringing online a new SWIFT type system (CIPS), joining the board of the London Gold Fix, and even having the IMF adopt them into their SDR basket of currencies. But even as dollar hegemony and the petro-dollar start to decline from years of misuse by Washington, the one foundation that keeps their empirical status functioning is the control over oil.
But that may soon be changing as on Dec. 10, Russia announced they are building a new oil market platform meant to compete directly with BRENT and WTI markets, and which would allow them to sell their own oil in currencies other than the dollar.
Russia wants to see its domestic oil blends compete with Brent and WTI as primary global crude benchmarks, according to an official from the St. Petersburg International Mercantile Exchange (SPIMEX).
“Our goal is to take a place among the major indicators. Currently, the pricing for most of our oil exports which as well determines our budget, is in the hands of our partners,” SPIMEX advisor Segey Kvartalnov told reporters.
He added that it’s important to set a more relevant mechanism for determining a fair price for Russian crude.
Initially the Russian futures market could use the US dollar in its operations, but it could possibly switch to trading in Russian rubles and other currencies, according to Kvartalnov.
He explains that around 70 percent of the world’s oil contracts are currently based on the Brent benchmark.
At the same time, he said, “the volume of Urals and ESPO Russian oil blends on the international market is twice the total volume of oil supplied from BFOE, Oman and Dubai.”
“The price of Russian oil should stop being determined by Brent or Dubai,” said Kvartalnov. – Russia Today
In global trade, the dollar may act as the world’s reserve currency, but in reality it is energy, and control over energy that determines who controls the global monetary system. And with the dollar’s ties to oil sales being the sole foundation that allows the U.S. to control this mechanism, providing an alternative, similar to how China is providing a new exchange service under CIPS, will over time push many nations who have been in bondage to Washington’s economic warfare the opportunity to move away from the West, and into a more stable and equitable system of trade, commerce, and oil purchasing.
If the war going on right now in Syria and over ISIS is any indication, lines are being drawn between the U.S., Europe, China, Russia, and the Middle East, and the outcome of this war will have far reaching consequences to the loser(s). But as in any conflict where alliances and comrades are not always concrete, and can shift at any time between the lessor combatants, a new force majeure that is coming out of Eurasia could soon cause nations that were forced to rely solely upon the petro-dollar to have a new alternative to the long-standing petro system of dollar hegemony.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.