Skip to content

The First Real Russian Retaliation for American Sanctions

2014 April 4
by Ian Welsh

It starts:

Rosneft has recently signed a series of big contracts for oil exports to China and is close to signing a “jumbo deal” with Indian companies. In both deals, there are no US dollars involved. Reuters reports, that Russia is close to entering a goods-for-oil swap transaction with Iran that will give Rosneft around 500,000 barrels of Iranian oil per day to sell in the global market. The White House and the russophobes in the Senate are livid and are trying to block the transaction because it opens up some very serious and nasty scenarios for the petrodollar. If Sechin decides to sell this Iranian oil for rubles, through a Russian exchange, such move will boost the chances of the “petroruble” and will hurt the petrodollar.

It can be said that the US sanctions have opened a Pandora’s box of troubles for the American currency. The Russian retaliation will surely be unpleasant for Washington, but what happens if other oil producers and consumers decide to follow the example set by Russia? During the last month, China opened two centers to process yuan-denominated trade flows, one in London and one in Frankfurt. Are the Chinese preparing a similar move against the greenback? We’ll soon find out.

The US has, to use the phrase du jour, a great deal of “privilege” because the US dollar is the standard unit of trade, most significantly, trade in oil.  If you get frozen out of the dollar, you get frozen out of a large part of the world economy.  American sanctions can virtually destroy a country, as banks, even non-American banks, won’t do business with a country the Treasury department has forbidden doing business with.

Breaking that—moving to a multilateral world, or to a world where trading in Yuan is just as acceptable, goes a long way to breaking American power. In general, the Europeans will follow the US lead, so moving to the Euro provides no protection from America.  But moving to the Yuan and the Ruble, does.  Pricing large oil transaction in rubles also helps protect the Russian currency from large moves: if the ruble drops too much, people will go into it if you can buy oil in rubles, and the Russians are opening a futures operation as well, meaning traders can make that play, even if the US doesn’t like it.

Of course, the US could go harder in sanctions, making it difficult to take those winnings and get them back into dollars or Euros, but if the trade is large enough, Chinese and Oilarchy banks will clean the money and hide the flows.  London and New York will then want to get in on it, and will, through their offshore subsidiaries in various banking havens.

Note also the poke in the eye: the deal to take Iranian oil and sell it as Russian oil, bypassing the sanctions against Iran.

All of this is far more harmful to America’s real interests than any sanction the US has so far imposed on Russia.


If you enjoyed this article, and want me to write more, please DONATE or SUBSCRIBE.

36 Responses
  1. Formerly T-Bear permalink
    April 5, 2014

    And thusly petulant children are led to learn or not depending upon their profoundest natures, why adults rule.

    Just how long was supposed to pass before this was bound to happen, that attack would be made upon great strength weakened through perfidious assumptions and beliefs feeding avarice and power; the great shinning city on the hill behind its gleaming parapets is reduced to memories of what once could have been, its citizens reduced to beggars for bread.

    There will be war and pestilence and great howlings and laments before this play is finished and the stage is darkened.

  2. ProNewerDeal permalink
    April 5, 2014

    “All of this is far more harmful to America’s real interests than any sanction the US has so far imposed on Russia.”

    I cringe when a right-wing neoliberal US poli-trick-ian like Obama, Bush43, H Clinton, etc talks “American interests” when referring to some foreign policy issue.

    Take Obama as an example. With
    1 support for the ongoing US medical cartels that charge 2X Canada/other civilized nations, which lead to 50K uninsured USians dying yearly, is responsible for the majority of bankruptcies, & limits entrepreneurship due to employer health insurance job lock

    2 creating some winners & some new “losers” with the ACA, such as charging the Individual Mandate Penalty to broke USians, & the forced autoenrollment into Medicaid to 55+ with Estate Recovery that robs their spouse/children of any assets

    3 the “Grand Bargain” to slash social insurance, when US social insurance is already bad/worst among actually civilized OECD nations. (The OECD should really boot the US from its club, the US is barbaric, not a civilized nation)

    4 pro-IP troll, pro-monopolist, rigged trade agreements like the TPP, which eliminate national sovereignty

    5 dictator-murder of USian citizens without any judicial oversight, including the 16 yr old US citizen boy in Yemen. (Yes, Obama is morally similar to the murderer George Zimmerman who murdered Trayvon Marton).

    6 anti-employment anti-worker policy of refusing to hire direct government workers in a economic depression ala FD Roosevelt, such that the job market is atrocious 6 yrs after the 2008 Global Financial Crisis. Refusal to extend Extended Unemployment Benefits

    afaict, Obama & the US Power Elite is far more harmful of Actual Americans’ Actual Interests than any of Boogie Men the US Power Elite continuously cries about, be they Al Qaeda, Putin/Russia, Iran, Venezuela’s Maduro, Edward Snowden/Chelsea Manning, US whistleblowers, etc.

    Am I crazy, or merely stating an obvious fact?

  3. Celsius 233 permalink
    April 5, 2014

    One just can’t make this shit up.
    Wow! The U.S. is really that stupid? And our government is elected? Wow, just, wow.

  4. April 5, 2014

    @ProNewerDeal

    Indeed.

    “America’s real interests” are whose, again? Those of the oil cartels and the power elites?

    That would seem to be the case — assuming the counter measures to economic and financial sanctions on Russia are effective.

    Once the grip of the dollar on international trade is loosened, who is harmed? And how is that harm manifest?

    Is “American power” — ie: the power of the oil cartels and the financial elites — somehow beneficial and benign? Who knew? It seems to me that if the Russian/Chinese/Indian/Iranian scenario sketched by Ian is effective, the outcome could be far more beneficial to ordinary people in the long run than continuing to carry the burden of Angl0EU-American hegemony.

    On the other hand, it could lead our elites in directions we, the people, would prefer they not go.

    We already have some clue to what direction that might be, and a “New Cold War” does not quite describe what they seem to be toying with…

  5. someofparts permalink
    April 5, 2014

    I’ve always assumed that our ruling kleptocrats would eventually deploy their bloated military in some big foolish way because what else have they got by now? Too bad for those of us stuck here, but I guess we are the eggs that have to get broken this time to make a better global omelet.

  6. Celsius 233 permalink
    April 5, 2014

    someofparts
    April 5, 2014
    …but I guess we are the eggs that have to get broken this time to make a better global omelet.
    ~~~~~~~~~~~~~~~~~
    A better global omlette? Really?
    Better we get smacked down and humbled, which is coming.
    The U.S. is fully engaged now in world domination, because they think they can.
    The other super power is the rest of the world, which includes Russia and China; do you think for one minute they will submit to U.S. domination?
    They won’t, and there will be hell to pay if we push the river, so-to-speak…

  7. April 5, 2014

    If our government truly had the best interests of the U.S. in mind, how could this – Russia’s movement against the U.S. dollar – have not been foreseen?

    But hey, at least the U.S. actions against Russia’s and Putin’s interests made Israel and their loyal representatives in the U.S. government temporarily happy. And isn’t that all that really counts?

    Z

  8. April 5, 2014

    ProNewerDeal,

    No, you ain’t crazy. We’re subjects.

    Z

  9. April 5, 2014

    @Celsius233:
    “The other super power is the rest of the world, which includes Russia and China;”

    I would assume then, that you conclude that two or more “regional powers” can form a superpower. Good thinking. One could wish that the President of The United States was capable of such thinking. He still thinks that regional powers can be punished with impunity. I remain unconvinced that a nation with several thousand nuclear weapons and ICBMs is actually a “regional power.”

    “And our government is elected?”
    According to the latest howls of outrage, our government is purchased by the likes of the Koch Brothers. My view is that it is elected by voters too apathetic or stupid to care, and who therefor allow their votes to be purchased. Only 9% of voters approve of Congress, but of legislators who seek reelection, 85% succeed.

  10. April 5, 2014

    Putin possesses a less dangerous evil than Obama. For Putin’s evil is much more structured: he is an evil man that loves his country and will do what is best for his country. His evil is more principled and predictable. If you don’t work against the interests of his country, you most likely won’t be subjected to his evilness.

    On the other hand, Obama only loves himself … and, as an extension of himself, his family … and will always do what is best for him and the welfare of the country he purports to represent be damned. His evil is more malleable and less predictable and hence more dangerous. He will serve the interests of whomever he perceives can best serve his personal interests at the time. And since he by-and-large believes that the greedy, sociopathic bastards that sit upon the world’s corrupt and evil power structure are best positioned to serve his best interests, evil spews forth through him in all sorts of directions and he don’t give a fuck who pays the price for it as long as he benefits.

    Z

  11. April 5, 2014

    If our government truly had the best interests of the U.S. in mind, how could this – Russia’s movement against the U.S. dollar – have not been foreseen AND AVOIDED?

    But hey, at least the U.S. actions against Russia’s and Putin’s interests made Israel and their loyal representatives in the U.S. government temporarily happy. And isn’t that all that really counts?

    Z

  12. someofparts permalink
    April 5, 2014

    Celsius, I left out a connecting thought, so I see how my meaning was unclear.

    When I say that I think our rulers will use the military I forgot to mention that I assume they will lose. If that happens I figure that life for many people stateside will get more acutely insecure and miserable, if we even survive.

  13. April 5, 2014

    @iwelsh. Very nicely spotted. It will be a long (economic) war if they are serious. The US will back off I predict. I love the way the Russians and Chinese waited until the noise had died down and then made this subtle move. A great contrast with the Obama crowd. Although I think there are two factions vying for control of US foreign policy. The Neocons and the Adults ( James Baker crowd). The Neocons usually get the US into the mess (Iraq etc). The Adults clean up the mess later.

    Once it becomes clear that the that the Russians and Chinese are serious, the Adults will be asked to step in. They will quietly back off. There is nothing to be gained from economic war for the plutocrats and oligarchs who dominate all three countries. There is a genuine nationalist strain in the Russian and Chinese elites, but they are very patient, and will take small gains opportunistically.

  14. jump permalink
    April 5, 2014

    Lots of USD held in reserve by China and Russia so the hurt won’t be fully one sided.
    This would be one hell uva bet. What don’t we know?

  15. Celsius 233 permalink
    April 5, 2014

    This is a hard/difficult watch, but goes straight to the heart of the matter.
    It’s dollars, petro dollars.
    As T-Bear said; There will be war and pestilence and great howlings and laments before this play is finished and the stage is darkened.

    http://www.planbeconomics.com/2014/04/documentary-petrodollar-war-machine.html

  16. Celsius 233 permalink
    April 5, 2014

    @ Bill H;
    According to the latest howls of outrage, our government is purchased by the likes of the Koch Brothers. My view is that it is elected by voters too apathetic or stupid to care, and who therefor allow their votes to be purchased. Only 9% of voters approve of Congress, but of legislators who seek reelection, 85% succeed.
    ~~~~~~~~~~
    No argument here…

  17. April 6, 2014

    As you say of Russian retaliation: “It starts”.

    And, whilst it is Dollar hegemony – and thus direct threats to it – that drive US-UK-NATO geo-politics and moves, Russia has another potent weapon that it has only hinted at using so far (in the form of a reported statement by a middle-ranking Duma member as I recall). Viz: withdrawing cooperation on getting the US and it equipment out of Afghanistan. With routes through Pakistan extremely problematical, the US is dependent on a route through Russian territory which has been agreed but …. well why the hell should Putin cooperate on anything military-related after last week’s NATO withdrawal of cooperation and all the sabre-rattling? Again softly-softly-catchee-monkey is Putin’s way it seems.

    This article pre-dates the Ukrainian mess but illustrates the US problem rather well

  18. April 6, 2014

    I’m with Che Pasa, this has a chance to end up being an overall positive thing for the world and even U.S. citizens. The U.S.’s king fiat currency privilege is what allows wall street/U.S. banking system to jack around other countries’ markets/economies per wall street’s desire at great cost to the people that live in those countries. It helps our rulers to afford wars U.S. citizens oppose. It empowers wall street which is not in the best interests of the vast majority of U.S. citizens. It is the bedrock that our corrupt rulers stand on to impose their will on all the world’s people and the sooner that is dealt a serious blow, the better. It will be felt most by the U.S. citizens, but again, our corrupt power structure needs to collapse and the U.S. dollar falling off of its lofty perch would be a long-term step in the right direction imo.

    Huge actions such as a well-deserved international devaluation of the U.S. dollar could cause things to get out of our rulers’ control and though that is destabilizing and they will do their best to impose the costs on other countries and U.S. citizens, it also can drastically change the dynamics of the situation which can lead to long-term good.

    Z

  19. jump permalink
    April 6, 2014

    Interesting link Celsius, thanks.
    I guess it is a question of what kind of stupidity the US can dream up and I don’t think it will be very imaginative. Now I’m really depressed.
    There may be some comfort in the light at the end of the tunnel as in getting rid of a bully, but that tunnel is going to be a lot of hurt.

  20. guest permalink
    April 6, 2014

    Looks like Obama & Co sharted. Question is: who among us gets hoisted by this juicy, wet “petard”? I suppose one way or the other, we’re all going to be their collateral damage. So for now I will take what little schadenfreude I can from hearing about the consternation this is causing in the White House.

    I used to be so outraged about Bush’s US Attys staying on under Obama, but here we are six years into Obama, and now hearing about Bush’s neocon ambassador Nuland’s stupid, shortsighted machinations in Ukraine. That takes the cake. I wonder how many other Bush appointees are still out there because Obama was just fine with them, and what other shenanigans they have been up to. Such incompetence.

  21. Celsius 233 permalink
    April 7, 2014

    Curiouser and curiouser; why has there been nothing further in the media about this turn of events?
    This is not unimportant…

  22. The new war permalink
    April 7, 2014

    Economic sanctions are always the first phase of a major world war. It starts this way. Despite what they taught in history class being the cause of WW1, it’s rarely a single bullet fired that starts a multi regional conflict. Once the reverberations of sanctions feel their way throughout the countries involved, the only other actions left, out of final desperation, is to move forward with military engagement. It’s sad. It’s unfortunate. It’s unnecessary. Usually, the second sign before it all goes down, is that the rich and fortunate people start leaving. We saw mass migrations happen in vietnam, ww1 and ww2. By current estimates, despite the shale gas renaissance in the US, the USA is still importing 9.794 million barrels of oil per day. The USA is also consuming around 25% of the natural resources around the world despite having only 2% of the world’s population. A global re-balancing is about to take place and it is going to happen under the guise of all that is going on in the Ukraine with Putin. China and Russia have realized that it is not a everybody wins kind of game. There are losers and winners in the economic advancement of civilizations. As for the other points in the comments about the words “regional power vs super power” The idea of a super power is dated. We are in the post nuclear age and anyone with as few as 10 ICBM’s is a superpower. It means nothing to use terms like these anymore.

  23. April 7, 2014

    I notice your source is ‘Voice of Russia’. Yeeeeeeees, quite!

    In the meantime, others like Owen Matthews in The Spectator (no link) have pointed out that by taking the Crimea, Putin has, in effect, swallowed an enormously expensive shit-sandwich. The place is a dump, even the Russian Regional Development minister described it as being ‘another Palestine’. So that’s something *we* don’t have to pay for but Putin does. Equally, there is now absolutely no chance of a government sympathetic to Russia being elected in Kiev for the rest of the century! In addition, Europe has finally been woken up to the fact that relying on Russian gas/oil is not a good idea and you can expect massive west European fracking to start fairly soon. That combined with the drop in American demand (when ‘ol’ Big Ears’ gets his green finger out!) will cause severe drops in the price over the next decade and Russia, being a petro-driven economy run by gangsters, will implode.

  24. April 7, 2014

    @Celsius233: The media only publiushes the glory and power of the empire. It does not publish blowback. It perpetuates the myth of “American Exceptionalism,” which includes the concept that we can punish other nations, “regional powers” if you will, with impunity.

  25. S Brennan permalink
    April 7, 2014

    Entirely Predictable, but no doubt, a surprise to those still slurping Kool-Aid

    http://www.nytimes.com/2014/04/08/world/europe/russia-crimea-ukraine-unrest.html?_r=0

  26. S Brennan permalink
    April 7, 2014

    Some more on the subject from Moon of Alabama

    http://www.moonofalabama.org/2014/04/ukraine-the-east-strikes-back.html#comments

  27. April 7, 2014

    The reason the oil producing states accept dollars is because they can then trade those dollars for lots of goodies all over the place. What can you buy with rubles? Not a whole lot other than various natural resources such as oil, and weapons, the one Russian industry that hasn’t totally collapsed under the weight of kleptocracy.

    In short, the petro-ruble isn’t going to happen. This is especially true since nobody trusts the totally corrupt Russian banking system or the government which controls said banking system. That in and of itself tends to cause people to look askance at the currency — thus why people are looking for alternatives to the dollar. But at best I’m suspecting we’ll see oil-exporting states starting to accept a market basket of currencies. Putin probably dreams of petro-rubles at night, but Putin dreams of many things, such as a reunited Soviet Union that once again is a major superpower. He can dream, but making it happen would require a different nation with a different ruler. Putin simply is not a Stalin, and never will be.

  28. Ian Welsh permalink*
    April 8, 2014

    The Yuan is what ultimately matters, as I’ve noted elsewhere. When they can make what other countries want, the dollar loses its hold.

    But that doesn’t mean that Russia can’t price contracts in rubles: Oil, oil is always useful.

  29. Formerly T-Bear permalink
    April 8, 2014

    Observe the conditions on offer with Iran – barter, no exchange of money necessary, only commodity value for commodity value through negotiated agreement – what’s not to like about the transaction, each gets something they need or could use and naery a petrodollar in sight (although petro-rubles may be used as a measuring devise).

    The dollar ~ gold bond was broken by Nixon in the early ’70′s. Inertia and no viable alternative have operated since. Note how each potential alternative currency has been attacked, destabilized and depreciated; Yen, the basket of Asian tiger currencies, Euro, and currently under attack the Yuan as leading currency of the BRIC group of producing nations. The increasingly massive military expenditures only make sense in light of their assumed ability to enforce the dollar’s hegemony well into the future. How do you suppose that will work out, if it does?

  30. dr.n permalink
    April 9, 2014

    “The dollar ~ gold bond was broken by Nixon in the early ’70′s. Inertia and no viable alternative have operated since.”

    Money is created via debt. The reason Nixon did that was because US peaked in Oil
    and was bankrupt due to Vietnam War. So trading in Dollars is tax on the rest of the world.
    Read price of gas is something like $15 a gallon in the rest of the world didn’t have to hold dollars.

    This is the reason Russia and Ukraine had to get on the Debt train in the 90s with World
    Bank representative — Mr. Summers and Mr. Ruben.

    What is even more amazing is that US Analysts acutally believe that US in not an empire
    dictated its norms on the rest of the world.

  31. Formerly T-Bear permalink
    April 9, 2014

    @ dr.n

    Your ignorance is truly astounding, not a bit of your regurgitation of fantasy corresponds with knowledgable fact.

    Badtux’s perception overlooked the simple fact that Breton Woods established the then gold backed US dollar as replacement for the abandoned gold standard for international trade. International commodity traders priced their goods in dollars as they had once priced in gold. This was a highly rational substitution of issued currency for a commodity that did not reflect a capacity to meet economic requirements. Numerous economic implications are related to this that are overlooked in Badtux’s opinions.

    You are in error that money is created by debt. Money is created by banks holding enforceable contracts creating an asset (credit) and a debit which both disappear when that contract is discharged – incredibly simple concept, that.

    The price of petrol reflects the tax burden placed upon the commodity petroleum. Most countries in the world haven’t that resource and must import, taxing heavily increases price and thereby discourages consumption which has a draining effect on the country’s economy. Your ideas are bizarre.

    Your take on recent Russian history has no reflection in reality whatsoever.

    Keep your day job, thinking is for higher pay grades.

  32. dr.n permalink
    April 10, 2014

    @Formerly,

    So When you deposit $1000 in the bank
    and bank can loan out $100,000 out of thin air is not Debt.

    How did Federal Reserve create 18 Trillion to buy US treasury, Gold, etc
    to save the US economy. That is just contract.
    Tell me more.

    I was simply explaining what happened in 1970 and why.
    None of your obsification can change that.

    So that other countries are happy to hold dollar to buy Oil is just
    fact of life and when Iran tries to change that It is threaten with life.
    Even other countries got visit from the US Treasury. Why was that.

    Why did US stop export of Oil in 1970? Why were Saudis forced to sell in Dollars
    magically. If this system is so grand then Why wasn’t it set that way since
    Bretton Woods.

    I am not here as part of my job in economic field. but I am sure you
    are being paid handsomely to do so. Why is that.
    If you have such fucking higher IQ then why are so stooping so
    low the totem pole. Don’t you have billions from market for being
    mute marine. I am sure Samsung pays more to troll then you are getting paid now.

  33. Formerly T-Bear permalink
    April 10, 2014

    @ dr.n

    Your history is every bit as dismal as your economics 101. There is no evidence that either subject exists in your small world in a recognizable form. Your use of reason is that of a sophomore, your use of fact that of a street 3 card scam artist and your use of language has no attachment to common definition. To continue would be as useless and unrewarding as visiting a carnival’s house of mirrors, maybe amusing but occupying good time wastefully. And, I am sure that any letters that may be trailing your name were obtained somehow fraudulently. Good by.

  34. April 12, 2014

    People who resort to personal attacks do so because they have run out of actual arguments. They are, in effect, declaring intellectual bankruptcy.

    Meanwhile, back at the ranch: The Russians aren’t going to price oil in rubles because they can’t buy anything with rubles. The only place rubles have any value is inside Russia itself.

    The American dollar replaced gold as the standard of trade because the United States was the source of the majority of the world’s manufactured goods in 1970. Thus you could buy lots of stuff (not just oil) with dollars. Today China has edged out the United States as the top source of manufactured goods in the world. But China is still pricing their exports in dollars, not yuan, because they import oil and oil is priced in dollars. This is a historical accident but one that is going to be hard to change because the oil exporting states want dollars because both the Chinese and Americans want dollars for their exports (and those two nations are the two biggest manufacturing states).

    In the end what gives a currency value is what you can buy with it. Otherwise it is just fancy toilet paper whose sole utility value is wiping your bum. Right now oil is what gives the dollar its advantage in “what you can buy with a currency” over the yuan. If that changes… well. Things might get very interesting…

  35. Formerly T-Bear permalink
    April 12, 2014

    @ Badtux

    How utterly pathetic your comments. Of those commenting here, your comments had displayed some limited credibility. That is a mistake I shall not make again. Your mind looks to be ossified in a fog of partial, misleading propaganda. It can stay there.

    You do not seem capable of differentiation between ad hominem and a valid statement concerning observation of another’s ignorant statements, something common in adolescence and those who have not matured beyond. Had the word stupid been used, then your opinion may have been correct, but ignorance was used.

    As for your history as well as your economic opinions, they are as rotten as that fool dr.n; some company you keep – enjoy! Anybody following your rubbish deserves where it leads. F.O.

Comments are closed.