Beware the Coming Foreign money and Commodity Commerce Wars

[ Editor’s Note: VT readers have been schooled here on the threat of geopolitical grifterism,…

[ Editor’s Note: VT readers have been schooled here on the threat of geopolitical grifterism, where creating destabilizing chaos creates a ‘target rich environment’ for pocketing some huge increases in wealth while there is market movement.

This Southfront piece concentrates on the growing synergy of how currency evaluations with commodity prices give insiders who know how to play the swing games an advantage on fleecing the rest of us. And by that I mean not just individual portfolios, but countries, also.

All of us who have anything to lose have to be somewhat aware of what is going on to be able to protect our liquid and unliquid assets.

We need to stay abreast of the hustles the scammers are using that give them a huge advantage over us. The big surprise for me from this article was the trick that an oil tanker with a mix of Russian oil at below 50% gets a sanctions violation pass.

Imagine that, how some insiders got Congress to plant that little goody for those in the know to use. But Russia threw a curveball into the game with its backup plan to demand rubles in payment for its commodities, which boosted its value above what it was when the US hammered it down by the energy sanctions announcement.

While we may not be in a direct shooting war with Russia, the financial war is clearly engaged, which will be uncharted territory for the rest of us… Jim W. Dean ]

Looting throughout warfare time is one thing the US had a whole lot of expertise with, like Iraq

First revealed … April 13, 2022

After Russia’s particular navy operation began on February 24, the US of America and the European Union instantly imposed probably the most complete sanctions in recorded historical past, making Russia probably the most sanctioned nation on the planet by a large margin, far overshadowing these imposed on Iran, Venezuela and even North Korea.

At first, the impact of those sanctions appeared catastrophic for the Russian financial system. The ruble was virtually was ineffective fiat cash. Or so it appeared at the least.

Nevertheless, after dropping over 50% of its worth in exactly 2 weeks, the embattled Russian forex didn’t simply regain all of its worth, but additionally gained momentum and reached values larger than these earlier than the beginning of Russia’s particular navy operation in Ukraine.

Most individuals don’t actually perceive how the trendy financial system works, which is why we have now determined to speak to Mathias, an economics and finance skilled who’s at present employed by a big Central European funding financial institution.

 – Thank You for taking the time to participate on this interview, Mathias. We might first like to begin by asking how do You see the present disaster in Ukraine from an financial and monetary standpoint and the way is it affecting enterprise dealings between Russia and the EU?

– Thank You for having me. It’s nice to be right here. First off, I want to begin by saying that regardless of what the media are saying, commerce between Russia and the European Union hasn’t actually stopped. When studying or watching most European media, there’s an impression that we now have a literal Iron Curtain or some sort of a bodily wall separating us from Russia.

That is most actually not the case. Doing one thing like that’s almost not possible with out inflicting catastrophic harm to our economies right here in Europe. The world has develop into so interconnected that the whole international financial system is sort of a large domino mosaic. It’s not possible to vary one factor with out inflicting a ripple impact of worldwide proportions.

And this isn’t a brand new state of affairs. The financial disaster in 2008. began with a crash of the American automotive trade, which, in flip, was related to insurance coverage and funding giants within the US. After all, the present scenario is totally different. Individuals appear to have forgotten concerning the devastating impact of the COVID-19 pandemic, which has been ravaging the markets for effectively over two years now.

The Ukrainian disaster was the very last thing we wanted, however the harm is already performed. Even when the hostilities had been to cease at the moment, the adverse results would nonetheless be there for years to return.

 – What do You concentrate on Russia’s request to make use of rubles for pure gasoline funds?

– From a political, or higher stated, geopolitical standpoint, this determination is hardly illogical. Nevertheless, from a purely financial standpoint, it does create a whole lot of issues for the established financial ties between Russia and the EU.

After all, our Russian enterprise companions insist that is the results of freezing Russia’s international reserves, making it not possible for Russia to make use of this cash, which left them with no alternative however to request rubles for Russian pure gasoline. The choice to freeze Russian property was a political one and whereas we perceive the EU’s need to assist Ukraine, we nonetheless suppose financial ties may’ve been disregarded of geopolitics.

See also  Glenn Greenwald: Nothing Trump Did Compares to the ‘Ethical Evil’ of Bush’s and Obama’s Wars

In spite of everything, this wouldn’t be the primary time it occurred. Nevertheless, with the present scenario escalating to ranges we haven’t seen in a really very long time, we have to discover options to maintain doing enterprise with Russia. And it must be famous that this isn’t a query of feelings, politics or something of types.

It’s merely a query of frequent sense. Whereas we don’t agree, nor will we condone Russia’s actions in Ukraine, we nonetheless have to work with Russia, as a result of it isn’t simply a big nation in our rapid neighborhood, but additionally a internet exporter of pure gasoline, oil, electrical energy, varied metals, together with uncommon earth metals and nonmetals, fertilizer and meals, amongst different issues.

Most individuals don’t take note of these items, however they’re important to the essential functioning of any financial system. With out these, the entire system simply crumbles and we already see that in an enormous value hike of almost all commodities, a lot of which could not appear related to grease, pure gasoline or any of the aforementioned items.

On this regard, we have to discover mechanisms to proceed buying and selling with Russia, as a result of the present value hikes will quickly flip into shortages if we had been to chop ties with Russia altogether. And if this implies we might want to discover methods to commerce in Russian rubles, I consider we don’t have a lot of a alternative.

– You’ve talked about value hikes. It appears the officers in the US have began utilizing phrases like “Putin’s value hikes” and “Putin’s inflation”. Do You suppose these are in any means related to President Putin?

– I can’t touch upon statements given by US or every other officers, for that matter, however what I can say is that connecting inflation and value hikes to at least one particular person, whoever which may be, is an oversimplification, to say the least.

As I’ve talked about earlier than, we’re nonetheless going by a pandemic, and solely lately we’ve began enjoyable the lockdown measures which have been in place for 2 years in nearly the entire world’s high economies and the US isn’t any exception to this. Because of this, regular financial exercise wasn’t simply disrupted, however it merely got here to a halt.

This worn out the demand in total sectors of the worldwide financial system, slowing down and even shutting down provide strains. Individuals had been left with out work, however they nonetheless had wants. In an effort to meet these wants, many nations printed extreme quantities of forex with a purpose to finance the lockdown measures.

And regardless of the importance of the Web for our economies, this pandemic taught us that we nonetheless can’t actually run an financial system which is totally on-line. This has develop into much more apparent in the course of the present disaster in Ukraine, as a result of each Russia and Ukraine export commodities of strategic worth.

Resulting from hostilities and the following sanctions, mixed with extreme forex emissions, particularly within the US and EU, we now have these value hikes that are affecting common individuals, which once more negatively impacts demand, leading to a really unstable mixture of excessive inflation and stagnation, in any other case generally known as stagflation. It’s very a lot an financial catch-22. There’s no strategy to actually cease it.

That is very true for the US, EU, Japan and the UK. Our economies are extra based mostly on secondary and tertiary sectors of the financial system, equivalent to banking and funds, as an alternative of manufacturing and commodities, which is the case in most creating economies, such because the BRICS nations, for example.

 – Do You suppose there’s a strategy to ameliorate the consequences of sanctions, with out getting caught in geopolitical circumstances of the opposing events?

– That’s the million-dollar query. Or ought to I say ruble. Jokes apart, we’re engaged on mechanisms to do precisely that. Sadly, it’s almost not possible to have an effect on geopolitical components in a disaster of this magnitude.

What we will do is attempt to discover options. Nevertheless, the issue with the options is that they’re all too costly, prohibitively costly even, which doesn’t make our place any simpler.

See also  Russia Will No Longer Rely upon West, Deepen Commerce Ties with China – Lavrov

We’re additionally witnessing hypocrisy coming from a few of the international gamers that are formally condemning Russia and imposing sanctions on anybody making an attempt to do enterprise with Russia, however on the similar time, they’re circumventing their very own sanctions by importing oil, fertilizer and different commodities and even reselling these items to EU nations.

– Are You referring to the US? How are they doing this?

– I want to keep away from making any direct references, however we’re witnessing it as we converse. As for the way that is performed, it’s fairly easy. Let me offer you an instance. If an oil tanker has lower than 50% of Russian oil in it, it doesn’t formally transport Russian oil.

So, in case your tanker has 49% of Russian and 51% of Norwegian, Dutch or British oil, then it’s formally transporting Norwegian, Dutch or British oil.

 – Is that authorized?

– It’s not unlawful, however it most actually is immoral. Particularly given the truth that sanctions are imposed on any occasion shopping for Russian oil or pure gasoline, leading to untold harm to our economies. International locations that are abroad depend on tankers, to allow them to simply implement this technique.

The EU, however, is related to Russia by way of a sequence of pipelines. There’s no means for us to make use of “lower than 50% of a pipeline”. Which is why low-cost moralizing concerning the EU supposedly financing the warfare in Ukraine is dishonest, at finest.

 – However even when the EU decides to not impose sanctions on Russia’s power sector, how may it resolve the difficulty of rubles for gasoline, given the latest statements that it’ll not use rubles?

– I consider these are simply political statements designed for home use. If the EU had any various to the Russian power sector, it will’ve sanctioned it by now. This means that we might want to discover a strategy to pay for Russian pure gasoline and oil.

Whether or not EU officers will give in to Russia’s calls for or possibly discover a center floor is irrelevant. What’s realistically doable and related is that our financial system will probably be disrupted and broken past restore for the foreseeable future if we fail to search out some sort of association with Russia.

Seizing Russia’s large foreign exchange (international alternate) property proved to be unwise on this regard, as a result of it undermined the arrogance in each our forex and our worldwide monetary obligations. On this planet of finance and banking, that is the Holy Grail and it will’ve been significantly better had we left it alone.

 – You’ve talked about the freezing of Russia’s property. What occurs if Russia defaults on its debt fee as a result of seizure of those foreign exchange reserves?

– There’s a 30-day grace interval for many bond funds. We are able to solely hope that the US Treasury will cease blocking Russia’s makes an attempt to make the bond fee. Nevertheless, if the US continues blocking Russian funds, in US {dollars} or every other forex, the Russian authorities can take authorized motion.

Extra particularly, it could actually cite exterior forces stopping the fee, which technically isn’t thought of a default. Whereas authorized proceedings are underway, any bond funds are postponed at some point of the authorized course of.

 – What do You suppose the utilization of rubles in worldwide commerce can result in?

– As everyone knows, the ruble isn’t a worldwide reserve forex, not like the US greenback, pound sterling, euro or the Japanese yen. We would add the Chinese language yuan to this checklist, because it’s already successfully utilized in that capability. Nevertheless, the seizure of Russia’s foreign exchange property and the sanctions imposed by the EU have pushed the ruble to a free fall.

In an effort to stop hyperinflation, the Russian Central Financial institution pushed the rates of interest to twenty%, stopping additional lack of worth. Nevertheless, this didn’t flip again the clock. It was merely harm management. What really turned again the clock is Russia’s announcement it is going to solely be taking rubles for pure gasoline and oil funds.

That was when the Russian forex regained not simply all of its worth, but additionally exceeded the pre-sanctions alternate fee. Along with this, Russian Central Financial institution additionally introduced it is going to be pegging the ruble to gold. Extra particularly, a gram of gold will probably be price 5000 rubles.

This might make it the primary gold-backed forex since US President Nixon abolished the gold normal in 1971. Nevertheless, some analysts have said that Russia can even be pegging the ruble to pure gasoline, oil and even diamonds and different commodities, making the demand for ruble even larger.

See also  Christoforou: Fog of battle in Azovstal. Kiev’s EU membership coming quickly. Replace 1

 – What do You suppose Russia’s finish recreation with all this be?

– It’s very troublesome to say, however I’ve a number of concepts what Russia hopes to attain with all this. The primary consequence might very effectively should do with the value of gold, extra particularly the distinction of the value of gold in rubles and US {dollars}, after Russia pegged a gram of gold to five,000 rubles.

If the value of gold on the world market is over 1900 {dollars} per ounce (round 28 grams), when transformed into rubles, an oz might be purchased for an equal of 1,500 {dollars}. In doing this, the Russian Central Financial institution artificially raises the worth of the US greenback by round 1 / 4, which can seem to be a great factor for the Individuals, however it is going to really result in everybody speeding to purchase these gold-backed rubles in Russia after which purchase gold for a value which might successfully be 25% decrease.

This might have a dramatic impact on the world monetary market. The worth of the ruble would start to rise sharply resulting from excessive demand, as a result of everybody would wish to purchase it with their shares of US {dollars} and euros, whereas the worth of US {dollars} and euros would go down within the course of.

This might quickly result in different nations pegging their forex to gold, whereas seeking to change each US {dollars} and euros with a purpose to make revenue, but additionally to stop a speedy devaluation of their forex as a result of reliance on international alternate reserves. All of this could have a synergistic, virtually cascading impact, an exponential development, the place one impact reinforces and pushes the opposite.

By doing this, Russia may trigger sudden hyperinflation of the US greenback, which the US would be capable of decelerate provided that it began shopping for rubles, however which might additionally result in additional skyrocketing demand for the Russian ruble. The identical goes for the EU and its forex.

Once more, this may result in a really sharp improve within the worth of the ruble to 50 rubles per greenback, then 45, 40, 35, and so forth. In different phrases, we would see the ruble going again to pre-2014 ranges and much more. The worth of gold would additionally improve sharply resulting from excessive demand, in addition to the ruble which might now be pegged to gold.

International locations which have massive gold reserves would have an curiosity in shopping for and promoting gold solely in rubles or every other forex firmly pegged to gold, as a result of the value of gold in US {dollars} and euros can be very unstable.

All this could be such a shock to the worldwide monetary structure, that I don’t see every other strategy to describe it, however to say it will be equal to Russia’s financial and monetary nuclear strike on the US and EU. In the mean time, these high nations of the worldwide monetary system can do little or no to stop and even mitigate the implications of such a world-altering course of.

 – However do You suppose this might doubtlessly result in a direct confrontation between Russia and the West, given how the political West reacted to related makes an attempt by Saddam Hussein or Muammar Gaddafi?

– I can’t actually touch upon one thing that excessive. What I can say is that I actually hope it is going to by no means come to that, given the truth that Russia is likely one of the world’s premier powers. Such a battle wouldn’t simply be economically devastating. It will result in bodily annihilation of our civilization. I don’t even wish to give it some thought. What I’m saying is that the financial and monetary penalties can be not like something we’ve ever seen.

After all, this doesn’t imply the West is totally incapable of answering economically. The present downside is that we have now an excessive amount of politics concerned within the monetary sector. Western nations have to deal with a wiser financial and monetary response to this disaster. Ideology and geopolitics must be disregarded of this, as a result of we have to defuse the scenario, not make it worse.

– Let’s hope it doesn’t come to any escalation. Thank You for Your time, Mathias.

– Let’s hope it doesn’t. The pleasure was all mine.