Editorial: Currency Sepukku With An Oil-Bladed Tanto

Tim Haïdar

"Civilisations die from suicide, not by murder." - Arnold J. Toynbee (1889 – 1975)

A year after the formation of the Donetsk People’s Republic (DPR) on the Black Sea coast, there has been a seismic shift in the Russian Federation. And, for once, it has nothing to do with allegations of military intervention in Eastern Europe.

On Friday, Gazprom Neft - the oil-producing arm of the world’s largest natural gas producer - revealed that they have been selling oil to The People’s Republic of China (PRC) in renminbi since the beginning of 2015.

In May 2014, the CEO of Gazprom, Aleksey Miller, and the President of the Chinese National Petroleum Corporation (CNPC), Wang Dongjin, signed a historic 30-year gas contract amounting to approximately $400 billion. One month later, it was decided that these contracts could be settled in either Russian roubles or Chinese yuan.

Gazprom Neft’s latest announcement confirms that transaction of both oil and gas are now happening in local currencies, in a clear distancing from the one-time ubiquitous petrodollar.

The petrodollar pact was negotiated between US President Richard Nixon and Saudi King Faisal bin Abdulaziz Al Saud in 1973, and by 1975 the dollar became the de facto legal tender of the oil trade, acting as the beams and base that underpinned the US dollar as the world’s reserve currency.

The move towards a non-dollar trading oil environment makes sense from the point of view of sanctions-crippled states like Russia and Iran who could circumnavigate the Scylla and Charybdisof financial chaos by switching away from a dollar-denominated system.

Ironically, punitive sanctions that engender a general flight from the dollar, may be equally damaging to the US in the long run. Civilisations commit suicide, but can currencies?

Do you think that there will be concerted move away from the petrodollar and what affects will it have? Have you say here