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Geopolitics

Crude Oil as the new weapon in the U.S and China trade war?

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As the U.S.-China trade war continues to escalate, Beijing and its energy giants appear to be bracing for a worst-case scenario where the spat would drag on for years and possibly result in Chinese foreign oil supply stifled.

The idea that the world’s top oil importer could see some of its overseas crude supply blocked has always been an unthinkable notion, but now some analysts and Chinese industry executives suggest that China should prepare for the very worst of the worst, such as its oil supply impacted by a lengthy trade dispute.

Chinese oil industry executives said this past week that China’s oil industry must have a contingency plan in case the trade war takes another turn for the worse. https://finance.yahoo.com

Expectations for any sort of trade deal in the near-term are quickly dissipating, leaving investors to map out what else could get caught in the escalation between the U.S. and China. Here’s a new one to add to the list: Oil.

Higher oil prices though would be bad for China (as well as other emerging markets that import oil like India), further deteriorating its current account balance. “Could the China hawks in the U.S. administration also try to change Chinese behavior through a higher oil price? https://www.barrons.com

just today Saudi Arabia raises July crude oil prices to Asia. Saudi Aramco has raised its July price for its Arab Light grade for Asian customers by $0.60 a barrel versus June to a premium of $2.70 per barrel to the Oman/Dubai average, the state oil company said on Sunday. –kitco.com

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Geopolitics

China’s creation of the gold-backed petro-yuan

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It is now been months since China launched its oil futures contract, denominated in yuan.

What are the benefits of trading with the Yuan? As China’s oil imports come to be priced in its domestic currency, foreign suppliers will have more yuan-denominated accounts with which they can purchase not only Chinese goods and services, but also Chinese government securities and bonds. – scmp.com

Pakistan Encouraged to Use Yuan Amid China’s De-Dollarisation Trend – sputniknews.com

For the past decade, China’s strategy for internationalizing the renminbi has involved greater reliance on the IMF’s Special Drawing Rights as an alternative international reserve currency. But the launch of renminbi-denominated oil trading this year suggests that China will now pursue de-dollarization head-on.  – project-syndicate.org

What has not been reported at all in the mainstream media is that China and India both refuse to go along with Washington’s embargo on Iranian oil exports. Both countries continue to buy Iranian oil and are devising ways to pay for it in other currencies, bypassing the U.S. payments system. To the extent this is successful, it reduces demand for dollars and eventually, those redundant dollars return to the U.S., adding to domestic inflation. – tribstar.com

What about the petrodollar?

The US dollar , Since 1971, the US dollar was no longer backed up by gold. That was the year then-President Richard Nixon unilaterally withdrew from the Breton Woods Agreement that pegged the US dollar to a gold standard. The US was forced to do this because they had to print paper money to support expenses incurred in the Korean War and the Vietnam War.

When some countries like France, UK wanted to redeem their paper dollars with gold at Fort Knox, the US refused. The US dollar retained its status as reserve currency only because Saudi Arabia acceded to US demand that it sell its oil using only the US dollar, in exchange for Saudi royalty’s safety and security. Thus, the US dollar gained its petro-dollar status. – manilatimes.com

China’s decision to push forward with the Petro-yuan appears to be a challenge to the US’ global energy market hegemony, but it remains to be seen if it can make a significant impact.

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Geopolitics

Washington: Nord Stream 2 sanctions on the way

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Washington is getting ready for another sanctions package that if put in place would put major restrictions on companies involved in Russia’s $10.5-billion Nord Stream 2 project.

United States Energy Secretary Rick Perry said on Tuesday that a sanctions bill putting onerous restrictions on companies involved in the Nord Stream 2 project and would come in the “not too distant future”.

US sanctions against the controversial Nord Stream-2 pipeline from Russia to Germany are unlikely to stop the project’s construction but may prevent Russian gas monopoly Gazprom from using the pipeline at full capacity in the future, Alexei Kokin, a senior oil and gas analyst at UralSib Financial Corp in Moscow, told New Europe on 23 May. neweurope.eu

Half of the €9.5 billion project is financed by Gazprom, with the rest covered by its European partners: Germany’s Wintershall and Uniper, Anglo-Dutch Shell, France’s Engie and Austria’s OMV. – https://www.euractiv.com

The US wants to expand its LNG exports into the EU and has frowned upon any new pipelines into Europe from Russia. Even after the EU Promised To Double US LNG Imports Within 5 Years. at the start of the month, U.S. Energy Secretary Rick Perry addressed the High-Level Business-to-Business Energy Forum in Brussels, telling them that U.S. gas is more reliable than Russian gas.

Why Russia wants the Nord Stream 2?: Ukrainian

Russia decides to forge ahead with the pipeline after the Ukrainian Government was found stealing Russia gas from the pipeline passing through into Europe and disputes concerning gas debts and non-payment. “If Nord Stream 2 becomes operational, Ukraine will be cut out from gas transit, losing roughly the equivalent of its defense budget each year in fees,” said Agnia Grigas, energy and political risk expert at the Atlantic Council.

Russian President Vladimir Putin said that Russia will continue gas transit through Ukraine if it remains economically feasible.

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