LETTER #32: Global Check on the Dollar.
The West shoot itself in the foot by applying sanctions on Russia.
In Chess, check is a move that can’t be ignored by the counterparty.
A lot has occurred since the West’s decision to sanction Russia which proves that the dollar is losing its hegemonic power. Let’s talk about them briefly one by one:
It was expected. You can’t sanction one of the largest energy exporters of the world and expect no response in return.
Putin has responded.
If you are one of those “unfriendly” countries and are dependent upon Russian natural resources, you better start looking at ways to stockpile ruble. Otherwise, Russia will cut off its supply to you.
The state-run Indian Oil Corp. has bought 3 million barrels of oil from Russia at a discount of 20% from the global benchmark prices.
The MOST interesting part about this story is that the payments were not made in dollars. Instead, a rupee-ruble payment system was used to complete this trade.
I talked about it in detail in one of my previous letters.
India is a country that imports almost 85% of its oil from foreign countries.
Before the US imposed sanctions on Iran, the country used to be India’s second-largest oil supplier. After Donal Trump imposed sanctions on Iran, the annual trade between the two countries fell from $17 billion in FY19 to around $2 billion in April-January of this fiscal.
Ali Chegeni - Iranian ambassador to India - said the following: “Iran is ready to meet India's energy security needs by launching rupee-rial trade for export of oil and gas. Iran is ready to meet India's energy security needs by launching rupee-rial trade for export of oil and gas.”
If succeeded, bilateral trade can reach $30 billion.
What do you extract from these headlines?
It shows the global shift away from the dollar, slowly ( not quite so) but surely. The dollar has been backed by oil for the past 5 decades. It’s the agreement that the US reached with Saudi Arabia in the 1970s that makes the dollar the dominant currency of the world.
These moves by the Global South can’t be ignored by the West. Making payments for the oil in currencies other than the dollar would definitely make a big dent in the US dollar’s supremacy.
What happens when the thing that strengthens you is taken away from you?
You don’t need to be a rocket scientist to know the answer to this one. ;)
FINAL THOUGHT:
As Richard Medhurst would say, “This is global realignment.”