A mega-IPO for Saudi Aramco (the Arab-American oil company) to paper over hemorrhaging deficits is Crown Prince Mohamed Bin Salman's power play -- but the price of Chinese investment into what Beijing knows full well are grossly inflated Saudi reserves may be ditching the petrodollar and selling crude for yuan. This could trigger a conflict between the older princes who fear Washington's wrath for dumping the dollar and the more impetuous supporters of the young Crown Prince MbS. It could also lead, as the threat of class action JASTA lawsuits remains tied up in U.S. courts, to the belated discovery on the Americans part that their former BFFs in Saudi Arabia were behind 9/11, or that the Saudis are the biggest state sponsors of terrorism in the world and...just might need some regime changing.
Of course, the Saudis hypocritical effort to brand their former ally Qatar with the state sponsor of terrorism label after Trump's big visit to Riyadh went over like a lead balloon and has further exposed the Kingdom's humiliating weakness to the entire Mideast and wider world. Doha has successfully defied a Saudi/UAE blockade, exacerbating the 'frenemies' rivalry between the Saudis and Emiratis, the latter already tired of the Yemen War which Qatar has quit. Now Washington having permitted the Kingdom to go too far with its threats against Doha is trying to salvage the situation even as the Qataris welcome better relations with Iran, which is sending food across the Persian Gulf and with the Turks, who are increasingly overtly turning away from NATO towards the Russians, Iranians and Chinese. Given the growing clout of the Russians in Syraq and inability of the U.S. to get its EU including NATO allies to go along with sanctions against oil and gas rich Iran, it's no wonder desperation is in the air in D.C. and the neocons in Congress are doubling down with more sanctions that as London Paul says will only solidify the Russian-Iranian-Chinese Eurasian axis.
Dr. Jim Willie is a longtime friend of Team RogueMoney, which has frequently cited Jim's excellent work on the Hat Trick Newsletter at his Golden Jackass web site, which he runs from Costa Rica. You can subscribe to the newsletter here. You can listen to his July 29 interview with RogueMoney's friend Dave from the X22 Report here:
We are reproducing his July 15 story, providing critical financial background on what's really going on behind the Mideast wars, with Jim's permission below. -- JWS
The Chinese Govt is greatly irritated by the requirement to use USDollars in payment for crude oil in the global market. The Beijing officials finally have some leverage in arranging for a major deal to pay for crude oil in RMB currency, their Yuan. The negotiations have been in progress for a couple months. The development is not covered well in the financial press, not even in the alternative media. It will happen, just a matter of time. Its effect will be far reaching and likely devastating.
The global currency reserve status for the USDollar is at severe heightened risk. It will not be deposed via financial markets, like with a bond market failure or a COMEX gold market default with bust. Such is folly to imagine as likely to occur. The Western bankers are expert at rigging the financial markets, one and all. Their central bank bond support has extended to stock market support, soon to corporate bond wide support also. The USGovt is hanging onto its power base in increased isolation. The assaults are on many flanks and platforms.
ESSENCE OF PETRO-DOLLAR
Its essence is the sale of crude oil universally in USDollar terms. Typically the payment form is the USTreasury Bill. The OPEC crew typically sock their surplus petro dollars in USTreasury Bonds. The sale proceeds never exit the USD form. The deal was struck in 1973 by the Rockefeller agent named Heinz Kissinger. It came in the wake of the abrogated Bretton Woods Gold Standard, which Nixon violated with force and audacity. In fact, the arrangement was suggested by the US side of the table. Nevermind that it was Rockefeller who hatched the idea of a tripled oil price, the exact opposite of what has been inscribed in the historical annals.
The other little item in the Petro-Dollar defacto standard treaty is that the Saudis, along with the Gulf Arab neighbors, would buy USMilitary hardware exclusively [note: Kuwait and the UAE are buying Russian weaponry and Saudi Arabia has hinted at doing the same in Crown Prince Mohamed bin Salman's talks with Putin -- JWS]. The USGovt would provide them with plenty of regional conflicts. Over the four decades since, the Arabs have accumulated a few cool $trillion in USTBonds. The TIC Report on foreign bond assets is a gigantic fabrication. Most Saudi bond holdings have been hijacked and stolen, used as the core to the USDept Treasury’s vaunted Exchange Stabilization Fund. They will never see at least $3 trillion in sequestered bonds. A joke here, since the ESFund is the most secretive multi-$trillion fund in human history.
WEAK LINK IN GLOBAL CURRENCY RESERVE
The global currency reserve consists of the trade payments done in USD terms, together with the banking systems holding USTBonds as core assets. The West controls the financial markets, but the East increasingly controls the global manufacturing capacity. The USEconomy is heavily dependent upon imported goods within its massive supply chain. To some extent the producers in Asia, the Pacific Rim, and the Emerging Markets can dictate terms on trade payment.
The Saudis are the subject of occasional debate for a failed kingdom, a collapsed monarchy, a bankrupted nation, with finances bleeding red ink like never before in its brief history. Infighting has occurred to wrest the title of crown prince for Mohammed bin Salman (MbS), certain to have caused internal resentment and worse. The kingdom is depleting it financial reserves faster than it is the oil reserves. Deficits are at astounding levels. The lower crude oil price has resulted in half as much in revenues, while the filthy Yemen War has aggravated the costs within the financial ledger. The Saudis have issued bonds to finance their deficits, breaking new ground and angering some hardline Moslems. Their currency swaps are occasionally showing danger signals.
The incidents with Qatar have left the Saudis with few if any friends, even in the Arab world. The arms deal charade with President Trump was one for the comic books. Even Langley is angry, as MbS screwed up their plans to stabilize the kingdom and region, with the goal of less terrorism. The other violent clown, Mohammed bin Zayed (MbZ) is the crown prince of Abu Dhabi in the UAE. Both might soon become expendable.
LIAR LIAR OILFIELDS ON FIRE
The big fat liars in the oil room are the Saudis. They have lied about their spare production capacity since the year 2000 or so. Such lies are used in attempts to move and to control the oil price. They have lied about their oil reserves for years also. That they have depleted oil reserves is the perfectly fitting motive for their predatory war in Yemen. They wish to steal the Yemeni oil & gas reserves, which are enormous and plentiful, even as not ever mentioned in the dutiful lapdog Western press. After 50 years of oil production, the Ghawar field is pumping over 98% water and brine [saltwater]. Other elephant fields are equally tapped out. The Saudis do have several smaller fields in production, but they do not compensate for the vacated elephants. Not at all. The Saudis are liars on oil reserves.
ENTER THE ARAMCO DEAL
The Saudis wish to conduct an IPO stock deal on 10% of the ARAMCO assets and income. They laughingly estimate the total petro-chemical corporation to be worth US$2 trillion. In response, the Western energy analysts hopped on the wagon to provide financial analysis of value. Well, surprise surprise! The analysts estimate the ARAMCO giant to be worth $500 billion or less, at least four times less than the bloated exaggerated value posted by the Saudi liar princes. The IPO deal is stalled, possibly since underwriting brokerage houses might not wish to be the object of lawsuits in the near future. Meanwhile, the Saudis are sweating badly, very worried about not having their $200 billion payday. They will be lucky to have $50 billion in the tainted IPO deal. Below is just one site of the sprawling state owned complex.
CHINA ON WHITE HORSE
The Chinese are always opportunistic. They invest in trade and structural placements, in the hope of winning commercial partners and friends. They do not wage war to win their way. The Chinese are observing the ARAMCO deal and its massive snag. They might hand to the Saudis an over-valued offer on a gilded platter. China has stayed away from any direct involvement in the Yemen War. However, they might be the supplier of some missiles used in Yemen by the native defenders, delivered by the Iran Military. China might over-pay for a stake in the ARAMCO company for two reasons.
First, they [Chinese] want a toe-hold in the kingdom, in order to win other trade deals with a degree of exclusivity. They would become a favorite foreign son in the process, especially if other Western financial houses refuse to invest in the bloated over-valued petro-chemical firm. Second, the Chinese would then be in a position to demand that oil sales to China be paid in Yuan currency, in RMB terms. The ARAMCO investment, large or small, would serve as leverage to fracture the Petro-Dollar at its home base, within Saudi Arabia. The shock waves would be heard around the financial world.
COPYCAT DAMAGE AS WILDFIRE
Once the Chinese win the privilege to buy Saudi oil in RMB terms, the other Gulf Arab oil producers will match the offer of selling oil to the Chinese in their own currency, and NOT in the USDollar. The Petro-Dollar defacto standard is about to suffer multiple coffin nails. The rival Gulf Arabs will not wish to lose market share to the Saudis. They will permit the Chinese payment terms in RMB, a no-brainer.
On the other side, Southeast Asian oil customers will wish to buy crude oil from the Gulf region generally in currency other than the USDollar. They are fast dumping their USTreasury Bonds, a trend that has endured for almost two years. The Gulf Arabs will grant the Asians the right to pay for crude oil in whatever currency they wish, being very accommodative. The result will be deeply damaging. The Gulf Region will sell crude oil in non-USD terms on a widespread basis and significant scale. To be sure, the Saudis and other Arab rivals will be pressured by the USGovt not to agree to the RMB oil deal. But Washington has lost most of its prestige and most of its power. The NeoCons in charge are diverted in their attention with the slightest temptation toward useless nonsense. The USCongress is a chamber of corrupted members and babbling fools, the majority of whom are bribed into puppet status.
When the Chinese, and Asians in general, begin to buy Saudi oil, and Gulf oil in general, the entire geopolitical balance of power will suffer a massive tectonic shift. The Petro-Dollar will be recognized as dead, no longer the standard. If not dead, it will be regarded as having left the Intensive Care ward and heading to the Morgue, a white sheet over its lifeless cadaver, with a cemetery plot being selected. With logic on the argument’s side, no standard can have such large exceptions on the buyer side or seller side. The advent of the Dual Universe will have its dawn, with the USD sphere coexisting with the RMB sphere. The impact will then fall on the global banking reserves for more avid bond dumping. Concerns will be raised on how the USGovt and USFed can manage the heaping volumes of dumped USTreasury Bonds. The derivative machinery will be put to screeching strains, even given some adverse publicity.
The Asians will shed their USTBonds, in favor of both RMB bonds and Gold bullion. The game will change in a way to make clear the end of the King Dollar Era. The great transition from Western sovereign bonds to Gold bullion will begin in earnest. Forty years of exported inflation will be reversed, and wreak havoc upon the USEconomy. The United States will be compelled to create and launch a new domestic only dollar, all in time, complete with official denials. Let it be dubbed the New Scheiss Dollar, complete with a long sequence of devaluations. The $500 billion annual trade deficit will become a major talking point. It will open the door for the United States to the Third World.
Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials.