We should have better data and a better view after the July numbers print.
My guess is, the new China contract is going to continue growing and
petrodollars are going to continue waning. Does it really matter if this new
contract actually threatens the petrodollar? What if this new contract just
takes enough business to sustain the Chinese need to move away from Federal
Reserve Notes? You know, 10%, 20% – what about 50%? What if this new contract
allows China to simply add more gold to their vault or another “leg” to the
Belt and Road Initiative or another 15 nuclear plants/solar farms? Then what?
Does it matter if it is a global force in the oil world? How much damage
would a 35% (780,000 monthly contracts) decline in petrodollars create in the
western economies? I’m guessing unrecoverable.
This was before the new sanctions went into effect and before the oil
industry began discussing the impact of the new sanctions on the Iran oil
market and a shift of Iran oil contracts away from dollar backed oil
contracts to yuan backed oil contracts. This could make a for a massive
change in very short order.
Washington’s decision to withdraw from the Iran nuclear deal and target
the country’s oil sector with sanctions is expected to significantly boost
China’s leverage to demand crude imports be priced in yuan.
The first round of anti-Iran sanctions, targeting the country’s automotive
sector and metals trading, took effect on Tuesday after midnight US Eastern
Standard Time (4:01am GMT). Tougher restrictions, scheduled for early
November, will reportedly be focused on Iran’s oil and shipping industries. Source
All eyes should be on November futures contracts to see what the impact
could potentially be on the dollar backed oil contracts. If we are seeing a
5% spike on the first day of sanctions, when this round of sanctions has zero
effect on oil or shipping, how will this translate when it does effect oil
and shipping? WOW! This could seriously create a monetary shake up that
reverberates through all markets.
Iran is a major crude supplier to China. US sanctions on Iran pushed
China’s yuan-denominated oil futures contract nearly five percent higher, the
biggest daily move since the petro-yuan’s inception in March. The main
contract SC1809 closed at 537.2 yuan per barrel, rising by 25.5 yuan or 4.98
percent, according to Shanghai International Energy Exchange.
China is expected to become a chief beneficiary of the US
unilateral sanctions against the world’s biggest energy producers, including
Russia, Iran and Venezuela. The petro-yuan would save China the cost
of exchanging dollars, the main global currency used in oil trade. It would
also increase the use of the Chinese national currency in global financial
trade, challenging the greenback. Source
As we have already noted, it doesn’t take an absolute shift away from
petrodollars to petroyuan. It only takes a fair percentage, like 25%, 30% or
35-40% and the damage would far reaching. The Chinese contract is
already performing far better than anyone anticipated and all this new action
– which no one has priced in at this point – could potentially shake the
global economic foundation.
With three of the worlds largest oil producers moving away from using
Federal Reserve Note, U.S. dollar backed oil contracts to a Peoples Bank
of China, renminbi/yuan backed oil contract this is going to be a devastating
blow to the flow of dollars into the global economic system. The back flow of
U.S. dollars to America may mean more inflation here at home. The Federal
Reserve may be able to divert those dollars onto their balance sheet to keep
them out of the overall economy which would protect the people but hurt the
Fed.
Will we see love bombs for Iran in the near future? Is this the main
reason for all the Iran rhetoric of late? Can the U.S. seriously attack
China, Iran or Russia or all three at the same time or even over a few months
time? Sounds like suicide to me.
We already know the Iranians are acquiring gold to the tune of a four year
high and with this news, and the potential impact, will the Iranians be
lining up the gold market creating an even greater flow of gold into Iran? My
guess is they will be grabbing for even more of the shiny as November
approaches.
