May 21, 2014
By: JC Collins
Oil
There have been two important factors in the world of geopolitics which have been on a collision course since the early 1970′s. These two run away trains have built up so much momentum that when they inevitably meet, the crash will shake the very foundations upon which the global economy is built.
Over the last few years the rumblings have been increasing at a steady and deeper pace. The news this week of the gas deal between Russia and China, as well as the deal between the two countries banks to settle in each others domestic currencies, are both the latest and deepest evidence of this approaching collision.
One of the direct results of this collision will be the dissolution of the oil cartel OPEC. Once again a pattern emerges and we see that micro and macro are interwoven in a dance of timeless consistency.
In 1911 the Rockefeller controlled Standard Oil was ruled an illegal monopoly and it was dissolved into 33 different companies. John D. Rockefeller, who became even more wealthy from the dissolution didn’t complain and quickly went to work on the continuous expansion of the empire of oil.
Today OPEC is universally referred to as a cartel. Russia openly refuses to accept OPEC or its structure and China is courting Saudi Arabia away from the American hemisphere. Or perhaps its the other way around.
OPEC, like the IMF and BIS, is not an American institution but was developed by the same banking interests that took control of America in 1913. The intent was to set up a system by which the Petrodollar scheme could be supported and encouraged.
It appears we are entering the last days of the U.S. Petrodollar and its at the end of this timeline where the penultimate collision and collusion will take place.
Modernization has progressed in the emerging economies at a breathtaking speed. Each country has modernized faster than the one before it, with Vietnam now in the lead for the fastest modernization.
This modernization has put tremendous pressure on the global energy markets. This pressure has allowed non-OPEC producing nations to export their oil and gas into the emerging economies and since the early 1970′s countries like Canada and Vietnam have become net exporters of energy.
Though both countries have remained under the U.S. dollar influence, (Vietnam being a dumping ground for dollar inflation, and Canada selling its oil and gas to the U.S. for market grade processing which is than sold back to Canadians at exorbitant prices) there is a growing awareness that things are going to shift.
This shift will be towards a SDR (Special Drawing Rights – Managed by the IMF) commodities exchange where oil, gas, gold, silver, rice, wheat, etc, will all be priced in the Special Drawing Right. Though the SDR will not be backed by commodities itself.
It is more likely that the currencies in the SDR basket will be partially supported by commodities and this will in turn create the value from which the SDR’s rate will be set. With that in mind, we watch for the inclusion of the renminbi into the SDR basket as the preceding event to a complete move away from the U.S. dollar in global trade.
The necessity of the SDR system becomes more evident as the sovereign debt crisis continues its climb to peak credit and collapse. The unsustainability of the current situation in the global economy is not widely accepted, nor is the obvious shift to a multilateral system.
The level of sovereign debt, driven for the most part by a process of deflecting U.S. dollar inflation, coupled with the modernization of the emerging economies, are the two runaway factors which will soon collide and push the world into the well planned multilateral system.
Debt creation and modernization aside, the birth of the new system will change some fundamental aspects of the international commodities markets. Everywhere in the world today where there is a geopolitical crisis, is an area that is directly or indirectly involved in the energy markets of the world.
Ukraine, Syria, Libya, Venezuela, and Vietnam, among others, are all focal points of the transition in the energy markets. Today it is announced that the U.S. is sending 80 troops to the resource rich OPEC country of Nigeria to help search for the missing females. The “terrorist group” responsible for abducting the women, are also responsible for bombings and other acts of terrorism. The odds of there being more to this story is highly probable.
China is massing troops on its border with Vietnam for the same purpose that Russia is massing its military on the border with Ukraine. The petrodollar is being pushed out one region at a time.
It could be reasoned that when the renminbi is included in the SDR basket along with the dollar, euro, yen, and pound, and the dollar is removed as the primary reserve currency, other currencies will de-peg from the U.S. dollar and float or fix to the strong regional currencies.
For Vietnam that will be the renminbi, the dongs anchor to SDR stability. Other countries will anchor their currencies where it is logical to do so.
In time other currencies may be added to the SDR basket and the full exchange rate system will become centralized, as discussed in the SDR series on this site. Also see The New Exchange Rate System.
The lack of a standardized system and the chaos born from it will build the acceptance of the centralized and consolidated debt system structured around the SDR and SDRM – Sovereign Debt Restructuring Mechanism.
OPEC, for its part, will not survive in this multilateral world of oil price stability and fixed exchange rates. One victim of many dollar based institutions. The old oil and new oil will both be fixed within the SDR’s price stability structure.
Expect to see more banks leaving the commodities markets as the SDR exchange system approaches.