Siberian oil in yuan Russia and China strike the petrodollar


Сибирская нефть в юанях: Россия и Китай наносят удар по нефтедоллару

On 18 January, China announced the launch of trading oil futures in yuan on the Shanghai international energy exchange. This event was advertised for several years as a possible alternative to the petrodollar and now reinforced by the possibility of gold equivalent the Chinese currency. However, the Chinese leadership is made secure from the aggressive reaction of the United States, exempting Iraqi or Libyan scenario.

The fact that Chinese oil trading platform will include only a certain brand of oil – medium acidity. The quality is closest to the sort of oil extracted in Russia, therefore will not be direct competition to the Anglo-Saxon brands WTI and Brent, as well as supplies from Venezuela, Nigeria and Libya. However, the Shanghai contract is designed for correct estimation of the other brands of oil that the American oil refineries.

The threat to the petrodollar system lies in the fact that futures trading in RMB will improve the liquidity of the latter abroad. Advantage is the convertibility of the yuan into gold through the Shanghai Gold Exchange, which gives this oil market foreign exchange loan. Thanks to the gold convertibility of their government bonds China may expand the market for sovereign debt, making their bonds less risky, and to turn the yuan into a convertible currency.

Russia is also a winner in the Chinese system, because the quality of Urals oil has a chance to become international brand on the model of the WTI or Brent. With the commissioning of the oil pipeline “Eastern Siberia” Moscow has increased the supply of oil to China to 600 thousand barrels per day. Considering that “Gazprom” prefers to align the price of its long-term gas contracts on a more sustainable price of oil, not a volatile price for natural gas, the gas policy of the Russian Federation also receives the benefits. This will allow Russia to stabilize the international price of gas in anticipation of a launch in late 2019 gas pipeline “Power of Siberia” with the contractual obligations on 400 billion dollars.

At the end of 2017, the trade turnover between Russia and China reached 84,07 billion. China is important for the Russian economy in conditions when the USA are holding back economic growth, by blocking sanctions, the involvement of foreign capital. Last week, the leadership of China has abandoned the accumulation of assets in the Federal reserve in connection with the fall of the dollar. This means that China will no longer use trade imbalance in its relations with the US to stop to appreciate the yuan against the dollar.

The coming increase in interest rates in the United States caused by the tax reform trump, will enable China to dispose of its Treasury holdings in its sole discretion without excessive exposure to the yuan. The dollars held by China, will be used for financing of the global project “One belt and one road”. According to the American analyst Thomas Luongo, “both countries understand the problem and persist in making good decisions to support the changing macroeconomic environment.” In the case of the introduction of new US sanctions against Russia, China, and in 2015, will help the Russian economy to provide liquidity.


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