Discover more from Learning by Proxy with Vivek Srinivasan
The New World Order
IRCing the West; India, Russia and China seem to be thinking of what this situation could mean, long term.
In 1997 an agreement was signed to build a project called Severny Potok which was a natural gas pipeline extending all the way across the Baltic Sea. While the initial agreement was between a Finnish company called Neste and Russia’s Gazprom. Eventually E.On and Wintershall also joined in and the resulting entity that was created was incorporated as Nord Stream AG. The pipeline extends from Vyborg, Russia all the way to Rehden, Germany.
Nord Stream 2 was put in motion in 2011 but the agreement to build it was reached in 2015, just after the annexation of Crimea (Further proof that nobody gives a shit about Ukraine). The pipeline had brought the economies of Russia and Europe close together. Trump probably acted as a catalyst.
And then in 2019…
The company, which traditionally sells gas to European buyers in U.S. dollars or euros, sold 80 million cubic meters of gas on the Electronic Sales Platform (ESP) in the Russian currency to be delivered to NetConnect Germany (NCG) Virtual Trading Point.
"For the first time in Gazprom Export's history, a western European company buys gas and pays in rubles for it," Elena Burmistrova, director general of Gazprom Export, said, adding that the company plans to further develop sales in rubles through the Russian ESP.
The ESP is designed to physically sell natural gas to European consumers, in addition to supplies under existing contracts. When gas sales started through the platform in September 2018, the company sold about 3 billion cubic meters of gas having signed contracts with more than 20 clients.
This transaction is part of the Russian authorities' aim to reduce the use of the dollar in trade due to sanctions imposed by the U.S. and a large number of western countries.
Since then, the Ukrainian fiasco started and the sanctions rolled in. And then…
Vladimir Putin is insisting that 48 “hostile nations“—the US, the UK, and the EU’s members among them—pay for Russian gas in rubles. The demand is more than provocation; it’s a strategy to force the West to dilute the effects of its own sanctions on Moscow.
In 2021, these hostile nations paid roughly $69 billion for gas from Gasprom, the Russian state-owned company. To make a similar scale of payments this year, countries will have to procure around 6-7 trillion rubles. In a meeting with officials on Mar. 23, Putin told the Central Bank of Russia to figure out how these ruble payments can be made.
There is a further development in this story. I am reading a book currently called Deficit Myth. In the book, the author argues that there is no need for the US government to balance the budget since the US can issue currency at will, to cancel out any debt it may have on its books. To tell the truth, this has been true and it has worked out for the US. In the aftermath of the 2008 collapse, Obama issued a stimulus worth $787 Billion only because $1 Trillion would spook the Republicans. Otherwise, they would have given more to the investment bankers to line their pockets with, given the stellar work that they had done.
Since COVID, stimulus bills are all in the Trillions now.
The thing is, when Americans buy Chinese stuff, China has a trade surplus and America a trade deficit. Even so, China chooses to park its money in US dollars because it needs USD to buy petroleum and trade with other nations. So America is not left in a position where its currency is depreciating like crazy even though it is wantonly increasing the money supply.
If China stops using USD, then it is another story. It could ask the US to pay it in Yuan! The US would be needed to buy Yuan in the open market and pay China. This would flood the market with Dollars and cause the value of the currency to collapse. Even if China does accept payments in USD, it could then choose to sell the dollars on the open market to convert it to Yuan. Same result.
In much the same way, Russia’s push will force energy buyers to now buy the Ruble on the open market causing demand to go up and therefore its value!
Not for the first time, China is attempting to buy oil in yuan rather than dollars, and now it may have found a willing seller. Saudi Arabia, which sells a quarter of its exports to China, is considering making these sales in yuan, the Wall Street Journal reported.
That link was forged in the early 1970s, not long after president Richard Nixon decoupled the dollar from gold. In 1974, Washington and Riyadh struck a deal by which Saudi Arabia could buy US treasury bills before they were auctioned. In return, Saudi Arabia would sell its oil in dollars—not only enlarging the currency’s liquidity but also using those dollars to buy US debt and products. The political economist David Spiro, in his book The Hidden Hand of American Hegemony, described how Saudi Arabia convinced other OPEC nations to invoice oil in dollars, rather than in a basket of different currencies.
Russian oil has become incredibly cheap and Russia does not want to value its currency against the USD. The current turmoil makes the Ruble look quite a lot cheaper than it ought to be simply because of the balance of trade. Demand for the Ruble has collapsed as opposed to the dollar. But that should not determine the inherent value of its currency. Or so thinks Russia.
Soviet Union era, India-Russia Rupee-Rouble trade is now being seen as a solution by Indian businesses for days to come because it is uncertain how long Western sanctions on Russia would continue.
At present Indo-Russian trade stands at $9 billion, Russia would look up to enhance its procurement of consumer goods including textiles and leather products from India. Reviving Rupee-Rouble trade could make trading between the two countries free from dependence on dollar as in the past. Russia’s Deputy Chief of Mission reports point out that there has been a five-fold increase in payments in national currencies from about 6% earlier to over 30% now. This may increase further as economic sanctions on Russia along with its exclusion from SWIFT has stopped use of dollars for transactions with Russia. Businesses in both the countries can engage in trade with more convenience if Rupee-Rouble trade is institutionalized.
Source: Times of India
If this happens, India will be able to source crude at a considerable discount. While the market price floats at about $100, Russia seems to be willing to sell it at a 20% discount. For a country like India, suffering from a Fiscal Deficit, this is a godsend. Also, don’t need USD anymore then!
Iranian ambassador to India Ali Chegeni has offered to relaunch the rupee-rial trade mechanism for the export oil & gas to India. He added that bilateral trade has the potential to cross $30 billion if the two sides can revive the rupee-rial trade. Prior to US sanctions, Iran and India ran a barter system wherein Indian oil companies would pay in rupees to local Iranian banks, which in turn used the currency to pay for imports from India. The mechanism led to a proliferation of oil trade between the two countries to the extent that Iran replaced Saudi Arabia as India’s largest oil supplier.
Source: Times Now
The Dollar has been an essential go in-between for many of the countries because it is near impossible to maintain 190 currency baskets for each country. But for large economies, the option of creating 5 or 10 other baskets is looking very feasible.
China’s foreign minister Wang Yi is likely to visit India at the end of this month, people familiar with the development said on Wednesday, adding that the trip is not yet fully locked in and dates have not been confirmed.
If the plan goes through, it will be the first visit by a senior Chinese leader to India after the two countries locked horns in a dragging military standoff along the Line of Actual Control (LAC) in eastern Ladakh since May 2020. The standoff, and a brutal clash in Galwan Valley in June 2020 that resulted in the death of 20 Indian soldiers and at least four Chinese troops, took bilateral ties to an all-time low.
Source: Hindustan Times
India, China and Russia together represent 3 Billion people. This is almost 40% of the global population. If you were to include South East Asia, this would surpass 60% of the global population.
In 1900, at the peak of the British Empire, less than 100,000 Europeans were living in India. They ruled over a population of more than 230 million people. I always wondered, what if the 230 Million had decided to turn on them?
For the last 70 years, a country of about 300 million people, has been able to hold sway over the rest. Have the situations developed such that 3 Billion of them decide to turn on them? Could Russia, China and India form a triumvirate the determine the new world order? Russia and China have authoritarians who can determine to do pretty much anything they like. India has a right-wing extremist who is great at making his sins look like virtue. The political will and capability seem to be there.
In the meantime, Elon Musk seems to think that he can win the currency war with a crypto-currency which should have probably been called DoucheCoin.
The Moral Segue
There is a lot of Moral shaming that is being done from the west to the east. Jen Psaki stands in the White House and says, Biden spoke to Xi and told him what side of history would he like to be on?
If anyone has read history, they would know, the right answer is, the winning side.
America dropped the Nuclear Bomb on Japan. It represented one of the worst civilian genocide in history. Which side of history are they on?
When Jamal Khashoggi was murdered by the Saudis; did America stop importing oil from the Saudis because they were on such a moral high ground?
400 companies that have left Russia; when will they return? I would like a list of demands from them. Are they just biding the time to let the news cycle die down?
Germany should just decimate Nord Stream 2. Why just hold back from certification? Destroy it. You obviously do not want to do business with a country that engages in wanton acts of aggression.
Everything that is being done is purely moral posturing. It is meant to meet an end, which involves maintaining world order. Not with the objective of doing what is right.
As the grilling of the first Black woman to be appointed as a Supreme Court judge begins in the US Senate, the news cycle is moving. Moving away from Ukraine. In a matter of weeks, you may not even know that there is a war still on in Ukraine.