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Ukraine-Russia Sanctions: Oil Embargo – Iran, Venezuela and Arab nations join Russia’s rally against the West

The long lines for Gas under President Jimmy Carter

The long lines for Gas under President Jimmy Carter

Posted 8March2022 TFIglobal ” Iran, Venezuela and Arab nations join Russia’s rally against the West “: Remember the long lines for Gas under President Jimmy Carter?
If Russia, the second-largest oil producer in the world, starts weaponizing crude oil exports too, then the US too could face problems. The US imports a lot of Russian crude oil. Last year, it imported an average of 209,000 barrels per day of crude oil and 500,000 bpd of other petroleum products from Russia.

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Bolsonaro Asks WTO Not To Sever Russian Trade As 27 Fertilizer Ships Inbound 

by Tyler Durden 27April2022 – 01:00 AM https://www.zerohedge.com/geopolitical/bolsonaro-asks-wto-not-sever-russian-trade-27-fertilizer-ships-inbound

The latest example of G-20 countries not bowing down to US pressure to halt trade relations with Russia comes from South America.

On Tuesday, in response to the World Trade Organization’s (WTO) Director-General Ngozi Okonjo-Iweala’s request for Brazil to increase more food exports, Brazilian President Jair Bolsonaro asked the WTO not to sever trade flows with Russia. He said there are 27 Russian vessels hauling fertilizer to Brazil.

Now, why would Bolsonaro go against the wishes of the US and EU politicians to eliminate trade with Russia?

Well, the South American country imports more than 85% of its fertilizer demand. Russia is its top supplier, and Belarus provides 28% of the total.

Restraining fertilizer consumption would be absolutely disastrous, crush harvest yields, and threaten the world’s food security. The country is a top exporter of coffee, sugar, soybeans, manioc, rice, maize, cotton, edible beans, and wheat.

This is more evidence that G-20 countries, such as Brazil, India, and China, widely known as BRICs, disregard US pressure to halt trade with Russia. Many of these countries are dependent on Russia and Belarus for commodities. In one chart, here is Russia’s commodity reach:

Russia's commodity reach:

Russia’s commodity reach:

Defiant G-20 countries imply the old economic order, in which the dollar’s centrality to global trade remains king, is fading. Numerous countries are already trading outside the dollar system (see & here) because Western sanctions isolated Russian banks from the SWIFT payment system. This has given rise to commodity-based currencies.

It remains to be seen if South American traders will use a Brazilian real-Russian ruble payment system for the fertilizer purchases.

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Chinese Oil Giant To Exit US, Canada And UK Over Fears Of Western Sanctions

by Tyler Durden 16April2022 –

An odd thing happened this week: for obvious reasons, Russian usage of the Chinese yuan has been booming in recent weeks, with the Nikkei reporting that Russia boosted yuan holdings over dollar just before the invasion (having previously dumped all of its Treasury holdings all the way back in 2018 telegraphing what was coming to anyone who was paying attention), and even though Chinese trade with Russia has soared

 

China Exports-Import with Russia April 2022

China Exports-Import with Russia April 2022

… many Chinese companies had refused to side fully with Russia, amid concerns that they would be swept up in various secondary sanctions should the increasingly erratic Biden administration decide to lash out at Beijing.

That’s not the odd thing, in fact it is to be expected: after all, if you go after the king – in this case the king of global reserve currencies, the dollar, you better not miss and according to most experts, China is nowhere near ready to dethrone the US as the world’s biggest superpower (with or without the assistance of Russia). What was odd, is that Reuters reported that China’s top offshore oil and gas producer CNOOC, was preparing to exit its operations in Britain, Canada and the United States, because of concerns in Beijing the assets could become subject to Western sanctions, industry sources said.

In other words, one of China’s largest and most important companies has decided to pull the plug before it absolutely has to, in what appears to be a clear indication that what comes next will be very troubling.

The United States said last week China could face consequences if it helped Russia to evade Western sanctions that have included financial measures that restrict Russia’s access to foreign currency and make it complicated to process international payments. Additionally, the US has also made very clear that any Chinese invasion of Taiwan will result in an identical response to that faced by Russia now. The implication: one of those two things may be about to happen.

Some background: according to Reuters, while companies periodically carry out reviews of their portfolios, the exit being prepared would take place less than a decade after state-owned CNOOC entered the three countries via a $15 billion acquisition of Canada’s Nexen, a deal that transformed the Chinese champion into a leading global producer. The assets, which include stakes in major fields in the North Sea, the Gulf of Mexico and large Canadian oil sand projects, produce around 220,000 barrels of oil equivalent per day, Reuters calculations found.

However, it now appears that CNOOC has had enough, and last month, Reuters reported CNOOC had hired Bank of America to prepare for the sale of its North Sea assets, which include a stake in one of the basin’s largest fields. That’s just the start, however, and Reuters adds that CNOOC has launched a global portfolio review ahead of its planned public listing in the Shanghai stock exchange later this month that is aimed primarily at tapping alternative funding following the delisting of its U.S. shares last October. CNOOC is also taking advantage of a rally in oil and gas prices, driven by Russia’s invasion of Ukraine on Feb. 24, and hopes to attract buyers as Western countries seek to develop domestic production to substitute Russian energy.

As it exits the West, CNOOC is looking to acquire new assets in Latin America and Africa, and also wants to prioritize the development of large, new prospects in Brazil, Guyana and Uganda, the Reuters sources said.

Even before its exit, CNOOC faced hurdles operating in the United States in particular, such as security clearances required by Washington for its Chinese executives to enter the country.

“Assets like Gulf of Mexico deepwater are technologically challenging and CNOOC really needed to work with partners to learn, but company executives were not even allowed to visit the U.S. offices. It had been a pain all along these years and the Trump administration’s blacklisting of CNOOC made it worse,” said the source.

And just to make it even clearer what’s coming, in its prospectus ahead of the initial public offering, CNOOC said it could face additional sanctions. “We cannot predict if the company or its affiliates and partners will be affected by U.S. sanctions in future, if policies change,” CNOOC said.

In the United States, CNOOC owns assets in the onshore Eagle Ford and Rockies shale basins as well as stakes in two large offshore fields in the Gulf of Mexico, Appomattox and Stampede. Its main Canadian assets oil sands projects are Long Lake and Hangingstone in Alberta Province.

All of the above is a very long-winded way to put what Rabobank’s Michael Every summarized in just a few words:

Reuters says China’s oil giant CNOOC is preparing to exit the UK, Canada, and US over sanctions fears. Why would it be retreating if China is not going to do anything that could cause it to be subject to secondary sanctions?

The answer? Because China will do things that will cause it to be subject to sanctions

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Israel Dumps The Dollar For China’s Renminbi

by Tyler Durden Apr 22April2022 – https://www.zerohedge.com/markets/israel-dumps-dollar-chinas-renminbi

Submitted by QTR’s Fringe Finance

Over the last 48 hours, China and Russia have taken big steps toward separating themselves from the monetary policy and economies of the west – and nobody has even noticed.

Those who have been reading my blog for the last couple of weeks know that I have been predicting that China and Russia would grow far closer economically, creating, in essence, a second global monetary system where the US dollar is no longer the reserve currency.

A few weeks ago, I wrote an article proclaiming that Russia would back the ruble with gold as a way to fight back against western economic sanctions. I also made similar predictions about the new digital Chinese currency last summer when I first started Fringe Finance.

This shift is happening as a result of the United States and the rest of the western economies foolishly thinking that they’re going to be able to effectively sanction Russia economically, despite the fact that Russia is a massive producer of oil and the country seems prepared to back its currency, the ruble, with this productive capacity.

Meanwhile, back at the ranch, we continue to run enormous deficits and have very little productive capacity, and even less to back our currency with. Our destiny seems to be to continue printing money regardless of the negative consequences. We’re nothing more than printing press junkies that won’t cease our inflationary addiction until we inevitably hit rock bottom.

US M2 Money Supply (via TradingEconomics)

US M2 Money Supply (via TradingEconomics)

 

US M2 Money Supply (via TradingEconomics)

If you haven’t read them yet, a couple articles that explain my position on Russia and China creating their own monetary system include:


Today’s post is not behind a paywall because I feel its contents are too important. If you enjoy my work, and have the means to support, I’d love to have you as a subscriber: Subscribe now


There’s been several new developments to this thesis over the last 24 hours.

First, it was little noticed yesterday when Bloomberg reported that “Israel’s central bank has made the biggest changes to its allocation of reserves in over a decade, adding the Chinese yuan alongside three other currencies to a stockpile that last year exceeded $200 billion for the first time ever.”

The report read:

Starting this year, the currency mix will expand from the trio of the U.S. dollar, the euro and the British pound to include the Canadian and Australian dollars as well as the yen and the yuan, which is also known as the renminbi. The additions mark a change in the Bank of Israel’s “whole investment guidelines and philosophy,” Deputy Governor Andrew Abir said in an interview.

Following discussions held by the monetary committee last year, the pound and the yen will account for 5% and the currencies of Canada and Australia will have 3.5% each. Under the new approach, the yuan’s proportion is set at 2% for 2022, according to the Israeli central bank’s annual report published at the end of last month.

To accommodate the changes, the euro’s share will fall to 20% — the lowest in at least a decade — from just over 30%, while the dollar will account for 61%, down from 66.5%. The pound’s weighting, by contrast, will almost double to 5%, returning to a level last seen in 2011.

The “dramatic” rise in Israel’s foreign-exchange reserves led the central bank to lengthen its investment horizon, Abir said. “We look at the need to earn a return on the reserves that will cover the costs of liability.”

 

Bank of Israel FX Mix 2020 - 2022

Bank of Israel FX Mix 2020 – 2022

In other words, Israel is reducing its exposure to the dollar and to the Euro to add exposure to the Renminbi.

And so perhaps isn’t just little old me here chipping away at my blog daily that has noticed that China and Russia could be on the verge of effecting meaningful change to the global monetary landscape. It sure seems like Israel is catching on.

I expect other countries to follow suit.

Then, another prediction of mine started to come to fruition this morning when it was announced that China was considering buying some of Shell’s Russian LNG assets. Bloomberg reported:

China’s key state-run energy companies are in talks with Shell Plc to buy its stake in a major Russian gas export project, according to people with knowledge of the matter.

Cnooc, CNPC and Sinopec Group are in joint discussions with Shell over the company’s 27.5% holding in the Sakhalin-2 liquefied natural gas venture after the European firm said it would exit Russian operations following the Ukraine invasion

I had previously argued on my podcast and on my blog that even though the west was going to be ignoring Russian investments, there would definitely be a strategic buyer who would come in and scoop up what can only be described as long-term strategic energy assets from Russia.

Many people smarter than I am, including macro analyst Luke Groman, predicted that China would be the strategic buyer for such transactions. I agreed.

Now, it looks like that is exactly what’s happening. These purchases will only serve to knit China and Russia’s economies even closer together.

 

Liquified Natural Gas Shipping Tankers

Liquified Natural Gas Shipping Tankers

If the picture hasn’t come into focus, it soon will – even for most people that aren’t paying attention yet.

China and Russia continue on a cooperative path together: doing business together, backing their currencies with tangible commodities and, as I wrote just days ago, we’re in the process of watching the dollar become dethroned as the global reserve currency. We just don’t notice it yet.

The next prediction I have, that hasn’t yet taken place, is that China will back its digital currency with gold. I’ve predicted this since August of 2021, long before the current macro picture has emerged. Now, my convictions are even stronger.

When the rest of the world catches on to what is playing out here, there’s going to be a mad dash for gold, in my opinion. I still prefer gold over any fiat currency and, as I wrote weeks ago, consider miners to be one of the market’s truly undervalued sectors.

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