Saturday 14 March 2020

Putin’s Covid-19 oil shock designed to topple US dollar (Sunday Guardian)

By M D Nalapat

Both MBS and Putin have initiated measures that will have the eventual effect of ending the 1971 link between petroleum and the US dollar.

Bengaluru: Unlike in India, where Prime Minister Narendra Damodardas Modi has diplomatically adopted a cautious approach in practice towards the Lutyens Zone, US President Donald John Trump sought from the very start of his first term not to merely weaken but eliminate the influence of the long-term czars and czarinas of the Washington Beltway. As a consequence, while Modi has had to endure only the usual political vitriol during his first term, Trump has been subjected to an unending barrage of abuse, sabotage and subterfuge from inside his administration and outside on a scale far above that which any of his predecessors endured in more than a century. Independent as his thinking was of that of the Beltway, President Trump sought to (a) move the centrepoint of US foreign policy away from the Atlantic to the Indo-Pacific, (b) co-opt Moscow as a partner, thereby raising the fear of future irrelevance in Paris, Berlin and London, (c) abandon the historical alliance between the United States and the Wahhabi International by backing Crown Prince Mohammad bin Salman in Saudi Arabia over those within the Al Sauds who sought to retain the primacy of Wahhabi elements, (d) focus on China as the primary threat to the US rather than remain fixated on the “Russia threat” as his European partners wanted him to be, and in the process, (e) bring North Korea through personal diplomacy towards a path as would preclude resort to force in the peninsula. The Europe-obsessed Washington Beltway, the Wahhabi International and China boosters (such as Bill Clinton and Michael Bloomberg) have consequently combined in a so far successful effort at preventing the comprehensive geopolitical changes that Trump with his practical business logic senses are key to a 21st century future where the US remains the primary power. The consequence of the policy mishaps caused through the contradictory moves of a change-seeking US President and the many tradition-bound elements in his team has been the evolution of a situation where the primacy of the US is now under threat. Although this is being sought to be explained away by the Beltway and its captive media as a consequence of the actions of the 45th US President, the reality is that the steady shredding of US influence is the consequence of governance meltdown caused by the savage attacks on the Trump Presidency by the triumvirate of the Atlanticist Beltway, the Wahhabi International and the China boosters.
While President Trump is close to Saudi Crown Prince Mohammad bin Salman (MBS) and has demonstrated personal regard for Russia’s President Vladimir Putin, his need to survive in office has resulted in agreeing to a dilution of the policies he favours. Repeated barbs directed at both Putin as well as MBS by officials within the Trump administration as well as influential voices in the legislative branch appear to have convinced MBS that the Trump administration is no longer a reliable partner in bad times, or, in the view of Putin, will change its NATO-centric obsession with Russia as a malign force. Both have, therefore, initiated measures that will have the eventual effect of ending the 1971 link between petroleum and the US dollar. Russia already sells petroproducts to the European Union using the euro, and to China using RMB rather than the dollar. Indeed, Rosneft has set the euro rather than the dollar as its default currency for the sale of petroproducts. There has been a repeated weaponisation of the US dollar through the imposing of financial sanctions on target states. Such measures have been used as an intimidatory tactic especially since the time of Bill Clinton and have resulted in a decline in global trust in the safety of the US dollar as a store of value. Several countries are, therefore, switching from relying just on the dollar to going in for a basket of currencies. In some cases, they are avoiding the dollar altogether. The petrodollar link was established when the US was the top net buyers of petroproducts, whereas it is now the biggest producer, overtaking Saudi Arabia and Russia. Such a changeover has reduced the incentive to make the US dollar the unit of calculation in the industry. Meanwhile, for both Saudi Arabia and Russia, it is China that has emerged as the largest buyer of their petroproduct exports. Much of additional US crude production is coming from shale oil, producers of which need a price of around $60 per barrel over the next five years if they are to meet the cost of repayment of the massive loans that they have taken. Should China begin buying oil in substantial quantities from Iran, as well as assist Venezuela to once again become a major oil exporter, and should Russia and other contra-Wahhabi forces succeed in ensuring that General Haftar gets control of Libya from the government based in Tripoli, there is scant chance of oil reaching even the $50 per barrel level. Absent significant technological developments that sharply reduce the price of tapping into shale oil within the next few years, there will not be enough revenue from shale sales to rescue from bankruptcy more than half of the thirty-odd major shale producers in the US from liquidation.
Judging by the deft moves that he is making in the oil market, it is safe to assume that Crown Prince Mohammad bin Salman is conscious that oil may become a useless asset in about 15 years, rather than in the 40 extra years that has been assumed by analysts. Hence the incentive for both him as well as President Putin to win back the major share of the oil market from the US through predatory pricing of the kind that both are now orchestrating. Both Russia and Saudi Arabia are keen to avoid the unhappy experience of India, which has allowed its vast coal reserves to largely go unutilised, even while imports have soared. Putin and MBS would like to sell as much of their oil reserves as possible before the feedstock gets replaced by the steady lowering in costs of solar, wind and nuclear energy. India ought to have been a global solar energy or thorium technology superpower in view of its abundance of such resources as well as talent, but the Lutyens Zone has ensured through defective policy that this has not happened. Similarly, India has for decades been a dump yard for telecom products, the foreign exchange outgo for which is much higher than for any other head. In the case of an essential technology such as 5G, a much smaller country such as Vietnam is ahead in both innovation and rollout than the country which renowned television anchors constantly refer to as being in the same league as the US and China. Prime Minister Modi has now got the opportunity to use the Covid-19 emergency to hold a combined sitting of both Houses of Parliament to get passed numerous reforms essential to the future of India. Several in his party who are dismissive of economic issues, forget that Hindus are respected in the UK and the US because of their high average incomes, while the situation is not the same in Malaysia, where most (Muslim) Malays and (Buddhist) Chinese are much better off than (Hindu) Indians.
The anti-Trump tripartite alliance of the Atlanticist Beltway, the Wahhabi International and the China boosters have forced on the Trump administration policies that are having the unintended effect of the collapse of the 1944 Bretton Woods financial architecture and the subsequent de-dollarization of the global economy. Spurned by Washington, Putin has hewed closely to Xi Jinping. Looking at the way the US has walked away even very recently from the Kurds and the Afghans, and comparing that to the manner in which Russia has stood by the Assad regime in Damascus, even the NATO-friendly GCC rulers may be forgiven for believing that their longevity is assured not by an alliance as fickle to its friends as NATO, but by the rival Sino-Russian military alliance. The only viable alternative on the field would be a full-scope India-US military alliance, in which the GCC and the US ensure economic advantages to India in exchange for India’s superb military helping to ensure the retention of the present governance structures within the GCC. Sadly, the continuing influence of the Lutyens Zone in the policies of the Government of India makes such an eventuality unlikely, despite Prime Minister Narendra Damodardas Modi being cognizant of the importance of India assisting in protecting stability in the Middle East, especially within the GCC. Despite the importance of the Middle East to India, the governance team put in place by Modi since 2014 has adopted a policy of extreme caution where external military activity is concerned. This is probably the result of India’s unhappy foray in Sri Lanka during the 1980s still affecting their thinking strongly. Rather than get skittish about occasional use of the military, the Sri Lankan setback ought to have been dissected for the errors made, especially the way in which President Ranasinghe Premadasa was allowed to ally with the LTTE against the IPKF, without even a murmur from the Government of India. As for the US, parts of the Trump administration (such as the US Trade Representative) seem oblivious to the fact that helping to secure through commercial sweeteners the willing participation of India in US defence moves abroad has become an existential necessity for Washington in a world where the Sino-Russian military alliance is steadily gaining traction. As for other world leaders, given the manner in which President Trump is being savaged by his domestic opponents, it is unlikely that world leaders would trust in the word of Donald J. Trump any more, given what is perceived to be significant weaknesses in his hold on Presidential authority. This is a world where geopolitical tectonic plates are shifting. Xi Jinping and Vladimir Putin are jointly engaged in creating the conditions for a world order that is without the centuries-old overbearing influence of the countries on both sides of the North Atlantic. Putin, in particular, has sought to prepare for an oil price war ever since it became clear by the middle of 2018 that President Trump would not—at least in his first term—be able to prevail over the Atlanticists where policy towards Russia was concerned. Unlike the two largest democracies, the US and India, Russia under Putin has controlled public debt to GDP (which is 17% in Russia as against 104% in the US). Russia, in contrast to India and the US, has a budget surplus. And despite being in charge of a much smaller economy, Putin has earned foreign exchange reserves that are the same size as India’s. Importantly, while India is known to have the largest private gold reserves in the world, any effort by the government to use the law or state power to dip into that would create a firestorm within the country that would be politically untenable. In contrast, both the Russian as well as the Chinese governments have built up gold reserves that can back their money supply. The jury is still out as to whether the recent jousting between Saudi Arabia and Russia in the oil market is real or merely a drama. What is not in doubt is that both MBS and Putin recognise the need to monetise their oil reserves before the feedstock becomes redundant through alternative energy solutions. Rather than calculating sales only in US dollars from oil sales, more economies are turning to a basket of currencies that includes the euro and the RMB. The present oil shock is likely to be the start of the de-dollarizaton of the global economy. In their obsession with kneecapping President Trump, the Washington Beltway has been oblivious to the harmful effects that their vicious campaign against an elected Head of State is having on the overall interests of the US in a situation where the superpower is being challenged by the Sino-Russian alliance.
Covid-19 presents both a health threat to India as well as an economic opportunity caused by the decline in commodity prices. Navigating the emerging world order in a manner which maximises benefits to the 1.3 billion people of India is a task that needs to be tackled by the Modi government in an imaginative and decisive way. The situation meets the standard of an economic emergency, and needs to be tackled in the manner such a situation merits. Land and labour laws need to be changed the way insolvency law was. Tax rates need to be reduced and compliance made easier so as to ensure a voluntary expansion of the tax base, including in the matter of GST. In this crisis, what is expected is directioned and decisive leadership by Prime Minister Modi to ensure that a policy matrix gets put in place that will replace the dysfunctional colonial governance system that ought to have been jettisoned on 15 August 1947 but has been kept in place to serve the interests of those who seek to continue the colonial practice of gouging profit from India in a manner that enervates and impoverishes the country and its people. In this world of disruption and crisis, “business as usual” is no longer an option for a country aspiring to be the Third Superpower.

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