Russia to trade oil in rubles - a new threat to the dollar

For over thirty years the US dollar has been the only currency in which oil is traded. The crime of Hugo Chavez in Venezuela, of Saddam Hussein in Iraq, and of the Iranians, has been to challenge this dollar hegemony. There are ample threads on the Iranian oil bourse - I would just say that it still doesn't seem to have opened yet. The opening date keeps being put back and this in itself is a curious matter.

If the US were genuinely committed to a free market it would welcome the trading of oil in any currency. However its overstretched economy requires that as many countries as possible buy dollars, and the trading of oil in dollars enforces this. This means that pretty much every country in the world gets a really bad deal as the one consistent behaviour of the dollar is its inflationary tendency. Countries must buy more and more dollars which are worth less and less.

Now it seems that Russia is making a deliberate effort to trade its oil in its own currency, the ruble.

On May 10, Russian President Vladimir Putin ignited a firestorm that is bound to sweep across the global economy. In his State of the Nation speech to parliament,, he announced that Russia was planning to make the ruble “internationally convertible” so that it could be used in oil and natural gas transactions. Presently, oil is denominated exclusively in dollars and sold through the New York Mercantile Exchange (NYMX) or the London Petroleum Exchange (LPE) both owned by American investors. If Russia proceeds with its plan, the ruble will go nose to nose with the dollar on the open market sending several billions of surplus greenbacks back to the United States. This could potentially send the American economy into freefall; triggering a deep recession and an extended period of hyper-inflation.

“The ruble must become a more widespread means of international transactions,” Putin said. “To this end, we need to open a stock exchange in Russia to trade in oil, gas, and other goods to be paid for in rubles."

Currently, the central banks around the world carry large stockpiles of dollars to use in their purchases of oil. This gives the US a virtual monopoly on oil transactions. It also forces reluctant nations to continue using the dollar even though it is currently underwritten by $8.4 trillion national debt.

........

A growing number of nations are now focusing on the empire’s Achilles’ heel, the dollar. Venezuela, Russia, Norway and Iran are all threatening to move away from the greenback. Is this a spontaneous uprising or is it a new type of asymmetrical warfare?

Whatever it is, Washington is bound to be reeling from the affects. After all, war maybe possible with Iran or Venezuela, but what about Russia? Would Bush be stupid enough to risk nuclear Armageddon to protect the drooping dollar?

The administration is exploring all of its options and is developing a strategy to crush Putin’s rebellion. (This may explain why Newsweek editor and undeclared spokesman for the Council on Foreign Relations (CFR), Fareed Zacharia, asked his guest on this week’s “Foreign Exchange” whether he thought Putin could be “assassinated”? Hmmm? I wonder if we’ll hear similar sentiments from Tom Friedman this week?)

No wonder posters in other threads are predicting the imminent collapse of the dollar. But for an administration determined to seek upsides to the most disastrous events, it will at least make it even easier to tip the US into full-blown fascism, as hyperinflation was perhaps a necessary component of Germany's transition.

I was woundering and thinking why doesn't the u.s. just buy oil from them instead of other countries like iraq.Instead them mock them in american movies giving a bad view on them.
I mean their oil is way cheaper.
Mod Edit: Big Quote – Please Review This Link.

[edit on 23/5/2006 by Mirthful Me]

[edit on 23-5-2006 by Hawaii_boy]

We only get 12% of our oil from Iraq, and NONE from Iran right now. The rest of the world buys plenty, but we get our oil mainly from Mexico and Canada through the multi-nationals.

PDF Document

Mod edit: fixed long link disrupting page formatting

[edit on 5/23/2006 by Gools]

I wonder if bush will invade Russia now?

Or are they too big a country for him? He seems to like to "pick" on the smaller ones like Iran and Iraq. I don't think Russia should have any worries but I bet Bush and Co are not happy!

Originally posted by Violent
We only get 12% of our oil from Iraq, and NONE from Iran right now. The rest of the world buys plenty, but we get our oil mainly from Mexico and Canada through the multi-nationals.

PDF Document

The point is that in order to buy oil, the rest of the world has to buy dollars first. That's what keeps the US economy afloat. If the rest of the world can buy oil in a harder currency, and if the ruble starts competing with the dollar, the US economy could be looking even shakier than it already is...

Mod Edit: fixed link

[edit on 5/23/2006 by Gools]

Originally posted by rich23

Originally posted by Violent
We only get 12% of our oil from Iraq, and NONE from Iran right now. The rest of the world buys plenty, but we get our oil mainly from Mexico and Canada through the multi-nationals.

PDF Document

The point is that in order to buy oil, the rest of the world has to buy dollars first. That's what keeps the US economy afloat. If the rest of the world can buy oil in a harder currency, and if the ruble starts competing with the dollar, the US economy could be looking even shakier than it already is...

No no no no no - you got me all wrong - let me repeat that comment with proper emphasis:

We only get 12% of our oil from Iraq, and NONE from Iran right now. The rest of the world buys plenty, but we get our oil mainly from Mexico and Canada through the multi-nationals.

The WAY more important aspect is THE REST OF THE WORLD BUYS PLENTY. And you're completely right, if you're interested in this, there are a few threads we've taken a look at this:

www.abovetopsecret.com...
www.abovetopsecret.com...

I'm sure there are more.

OH forgot this one!:
www.abovetopsecret.com...

[edit on 23-5-2006 by Violent]

Mod Edit: fixed link

[edit on 5/23/2006 by Gools]

Sorry - I got you now. I hadn't quite cottoned to the fact you were replying to an earlier post.

Cheers

richard

Heck, all the Russia talk is rubbish.

That country is exporting energy and basic materials but in itself it doesn't produce jack. Since they need to buy American chicken, Turkish leather jackets , French condoms and Polish knock off Tampax, they will need to pay real currency as opposed to roubles. So yeah, they can demand that only roubles be accepted as payment for oil, but those roubles will be swapped back into Euro or USD in a millisecond. So it's really immaterial. Duh.

The dollar is looking precarious, as Forbes' article about the OECD suggests:

The OECD said in its world economic outlook that the depreciation faced by the dollar could be 'of the order of one-third to one-half.'

The adjustment in the deficit would 'need to induce a sharp slowdown in US domestic demand and that this would have adverse spill-over effects on other economies both through the trade and asset revaluation channels,' it said.

The rebalancing may be accompanied by an increase in risk premiums and a reversal of private capital flows, it added.

Countries with current account surpluses have been accumulating dollar reserves and 'their willingness to hold dollar assets on their balance sheets may diminish,' the OECD warned.

This Russian site says it will start trading in rubles from June 8th 2006.

They must of been planning this for some time

Link to Russian Site

So anyone buys oil from russia will pay in rubles? is that compulsion? or just an option?

Originally posted by netscape
So anyone buys oil from russia will pay in rubles? is that compulsion? or just an option?

They will only deal in Rubles. They're trying to make their Currency strong again.

No need for any of the other country's to buy the dollars from the USA to pay for the oil anymore!!! Not a good sign for the USA.

I think Iran is doing this too? I believe they are dropping the Dollar as their main payment in favour of their own.

That is being used for whipping Americans into a xenophobic frenzy, and to help anti-americans convince themselves that "progress is being made in taking down the western devil."

It comes from a fundamental misunderstanding of how securities markets operate.

The currency of record in a commodities auction is nothing more than a footnote. All foreigners will have to set up an account with a local bank, and that bank will convert their money into the national currency so the person can buy or sell commodities.

The gold market in London is denominated in pounds sterling! OMG !!!
And to trade in London, you'll have to first open an account with a Bank that does business in UK, and have them vouch for you with that market.

Have you ever bought anything from overseas on EBAY???

Didn't you use paypal or another service? How much of an impediment to trade was that?

I bought a book from a dealer in Scotland. Did the UK receive any benefit from me paying through PAYPAL in GBP? No---Paypal was the beneficiary (actually, I and the seller both benefitted too. . . .) But England didn't get a royalty check, or have their economy "propped up" because of our action.

The oil market is the same thing on a larger scale. A few banks make a profit on exchanging your money for you. But your nations currrency is not "propped up" by how many people use it.

If THAT were true, China and India would be the richest states on earth. Switzerland would be the poorest.

If you call my firm, and want to hedge some securities, but don't like the loan rate in the USA, we can call some German or French banks, and get you a loan in those countries. The issuing bank will denominate the loan in whatever currency you'd like. They transfer the credit to your banks accounts, and you'll spend the "dollars," probably by writing checks and e-banking. It's possible you'd spend several million in a credit line without actually touching dollar bills. In that whole transaction, no US paper money ever entered or left the US.

Oil is bought and sold the same way.

We're talking billions here, friends. Not even an oil sheik has a wallet that big. people don't buy and sell oil with suitcases full of currency. They type their passwords into a computer and exchange money over the net.

No currency issues at all, other than the exchange rate.

.
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Originally posted by dr_strangecraft
That is being used for whipping Americans into a xenophobic frenzy, and to help anti-americans convince themselves that "progress is being made in taking down the western devil."

There are lots of reasons to want the USD to remain stable. If it crashes, there will be knock-on effects round the world. Also, as I've said before, hyperinflation all too often precedes fascism. The victim mentality is prevalent enough in the US as it is since 9/11. More anger would follow hyperinflation and even a moron like Dubya might be able to focus it on some convenient outside target.

The oil market is the same thing on a larger scale. A few banks make a profit on exchanging your money for you. But your nations currrency is not "propped up" by how many people use it.

If THAT were true, China and India would be the richest states on earth. Switzerland would be the poorest.

If you call my firm, and want to hedge some securities, but don't like the loan rate in the USA, we can call some German or French banks, and get you a loan in those countries. The issuing bank will denominate the loan in whatever currency you'd like. They transfer the credit to your banks accounts, and you'll spend the "dollars," probably by writing checks and e-banking. It's possible you'd spend several million in a credit line without actually touching dollar bills. In that whole transaction, no US paper money ever entered or left the US.

Oil is bought and sold the same way.

Either your argument is disingenuous or it is foolish, I'm not sure which.

The oil market in the UK uses dollars, not sterling. So do ALL the other oil markets in the world. Back when OPEC was set up, the US used its muscle to ensure that the standard currency for oil was the USD - there's even a word for it you may have heard of: the petrodollar.

No-one is suggesting that suitcases full of dollars fly around the world just to cover oil accounts. But the example you give is to do with loan rates, not oil: at some stage, the currency the buyer uses has to be converted into US dollars. In the vast majority of cases, those dollars will never be anything other than virtual: but this keeps a demand for dollars high. If they don't come in a suitcase, they have to come on line from a currency reserve somewhere.

No currency issues at all, other than the exchange rate.

That is the currency issue. On my last contract in the US I lost around 20-25% of the value of the money paid me in currency fluctuations. The US got my labour more cheaply than I had bargained for, because its currency is in decline. Good for the US, bad for me. Saddam Hussein made money simply by switching to the euro in the months before the invasion.

There is going to be the biggest share I.P.O ever in russia it is called rosneft and it said it would post on london and u.s but it may not now that it see the stock all going down and just stay on russias market

Originally posted by rich23
The oil market in the UK uses dollars, not sterling.

I was talking about the gold market. I was choosing an example to try and illustrate that other commodities are priced in local currencies, and that it wouldn't be the end of the USA if oil was denominated in local currencies as well.


first you say this . . .

No-one is suggesting that suitcases full of dollars fly around the world just to cover oil accounts.

But then you say this:

If they don't come in a suitcase, they have to come on line from a currency reserve somewhere.

The reason I was using debt as an example is because banks "Create Money" when they issue a loan. And when a German banks issue a loan that gets denominated in dollars, then they are de facto creating US dollars. And doing it without approval from the US Federal Reserve.

Regardless of the denomination of the loan, money is created globally when a loan is issued.

What I'm saying is simply this: if it hasn't brought down the global economy to have debt freely denominated in the currency of the buyer's choice, why do you imagine that denonminating oil in local currency will somehow ruin the US?

If Iran only sells oil in Dinars, I'm confident that those dinars will be converted to USD, EUR and a hundred other currencies at the speed of business. Which is really what is happening now, if you think about it.

That is the currency issue. On my last contract in the US I lost around 20-25% of the value of the money paid me in currency fluctuations. The US got my labour more cheaply than I had bargained for, because its currency is in decline.

Maybe so, but you could have hedged against that risk for only a few percentage points. Businesses and Countries that don't hedge will run exactly the risks you ran. But the fact is, they all already hedge. That won't change because of oil offered in home currencies. I guarantee you that anyone who does business with Iran or Russia is hedged against all sorts of risk, and not just from currency fluctuations.

Which is why the currency that oil is counted in is ultimately not relevant to anyone but arbitrageurs.

.

Originally posted by Aelita
Heck, all the Russia talk is rubbish.

That country is exporting energy and basic materials but in itself it doesn't produce jack. Since they need to buy American chicken, Turkish leather jackets , French condoms and Polish knock off Tampax, they will need to pay real currency as opposed to roubles. So yeah, they can demand that only roubles be accepted as payment for oil, but those roubles will be swapped back into Euro or USD in a millisecond. So it's really immaterial. Duh.

Russia has one of the world's largest oil reserves in the world. The problem until recently has been that they didn't have enough money to drill for it and now it's really starting to grow as an industry in Russia. In 2004, they had 7% growth, more than any other G8 country. I think this is a brilliant move on Putin's part. They will be exporting LOTS of oil now and in the future; demanding rubles certainly would strengthen their currency. Russia may become a force to be reckoned with again.

Sweet Revenge! Russia Declares War On U.S. Dollar!

The American Economy took a big hit over the past 2 weeks... Dropping 600 pts on
the Dow! The Loss was due mostly to higher than expected core inflation numbers... but thats NOTHING compared to what is about to happen... HYPER-INFLATION!!!

In A Stunning Move... Russian President Vladamir Putin declared in his State of The Union Address Last Night,... That Russia Will Begin to Trade its Vast Natural
Resources, including OIL< and Natural Gas, NOT IN THE PETRO-DOLLAR... BUT in Russian Rubles!!!

This Will Be the First Time that the American Dollar has ever been Challenged for Supremacy. Iraq was about to do it...then we invaded them. Iran is about to do it in 2 months... and America is pressing the issue in the UN, despite intelligence that says it will be YEARS before they have "the bomb".

Now Russia!!! THIS IS NOTHING SHORT of a Declaration of War on the American Dollar.

Now that Our Enemies...you know the list... China, Middle East, Russia, Korea...
DONT Have to Hold The American Dollar as their Reserve Currency for Oil trades, do you think they will send them back to america? And if so, With Inflation already hitting the economy due to the prolonged period of low interest rates... wouldn't that cause HYPER INFLATION? And Should That Be Construed as a Weapon of War. An Economic Attact equivelant to a Nuclear Bomb!!!


READ THIS ARTICLE!!!

mathaba.net...

Related ATSNN Story: Russia Tentatively OKs Ban on Dollar, Euro.
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Dr Strangecraft -

you're talking about the banks creating money, creating debt: the scenario you outline is that of a classic "bubble" that always, sooner or later, has to burst. The US has massive foreign debts and if the dollar loses value against all other currencies, which is what is beginning to happen, it won't be able to create and secure that debt internationally.

If it weren't so important for the US dollar to have been the oil currency, why did the US work so hard to ensure that oil was traded in only one currency, its own?