Challenging the Petrodollar Status Quo

Posted: April 5, 2022

Category: News Pulse | Periodicals | Political Pulse

References

Things to mention: India Russian Ural super discount, unloading russian crude for yuan, demands for Russian oil in rubles

While the whole world has their eyes on Russia, there are a bunch of strange stories in energy revolving around oil trading. RARE PETRO has talked about it before, but the petrodollar is a monetary system that guides the trade of crude worldwide. WTI? Traded in American dollars. Canadian Crude Index? Traded in American dollars. Nigerian Bonny Light? Included in the OPEC basket, and both are priced in (you guessed it) American Dollars. The system is old, but it has worked because the US dollar was a dominant currency on the world market, so people felt comfortable using it. Others, like Gaddafi and Saddam Hussein, pushed to price oil in a different currency (the Euro), and some speculate that this was a major reason for the US’s involvement in the Middle East. So… who is currently challenging the petrodollar status quo?

Russia

India Russian and Russian ruble demand

The most notable example of Russia’s attempt to buck the system lies in the end of Month announcement from March 31st, 2022. According to Vladimir Putin himself, “unfriendly” countries will be trading for Russian energy in Rubles. Natural gas is still flowing from Russia to Europe since gas is traded as month to month futures, but the clock is ticking. If Putin is indeed serious about this and no military action is taken to prevent him from doing it, there is reason to believe that Europe will comply. They need this energy even if they are able to supplement with other sources. This will prevent oil from being traded on a dollar basis while simultaneously creating demand for the Russian ruble which has stabilized in value as if the invasion never happened. If things continue the way Russia wants it to, they may actually strengthen their currency while exercising geopolitical leverage with their energy reserves.

China

China has not been too pleased with the petrodollar system in the past, so it is not surprising that they have made arrangements to buy Russian oil with the Chinese yuan. While no major news agencies are able to confirm or deny whether or no the transactions have been finalized with yuan, China is paying with something because the imports of Russian energy keep coming. All we know now is that Geneva-based seller of oil, Paramount Energy & Commodities SA, has pulled a few strings for some customers to pay in yuan, but no one is able to confirm whether the transactions have cleared. Even Taiwan has raised concerns about China’s currency growing in strength as they remain alert to invasions.

Saudi Arabia

Russia isn’t the only one interested in trading in yuan. Saudi Arabian and Chinese leaders meet a few weeks ago to discuss the idea of trading on a different currency, the yuan included. It seems that the enemy of China’s enemy is it’s friend as relations with the US seem to deteriorate with both parties. Countries have been observing the US trigger-happy sanctions for years, energy included. It makes sense that others are looking for ways to establish new means or markets. China buys around 1 quarter of Saudi Arabian oil, so a new oil trading currency could stand easily between these two alone. Who is to say Iran and other territories in the area won’t get in on the action?

India

While India is not yet trading in rubles, it may not be too far off. At the moment, Russia is selling crude to India at a super-discount of $35 a barrel. Russia seems to know that if its good are sanctioned, it just has to make a deal someone can’t refuse. That someone happens to be India who Russia is looking to ship million of barrels of oil to. While not a direct attack on the dollar, ignoring sanctions is a defiant action against the dollar and other forms of currency. Fighting against sanctions often means a fine, but in this case, the deal is too sweet and India will likely come out on top. Word on the street is that China may be interested in the deal as well.