Let China sleep, for when she wakes, she will shake the world"
-- Napoleon Bonaparte
Back in the 1960s, French President Charles de Gaulle didn’t trust the US, and as a result, he decided to reduce France’s US dollar reserves. He traded them for gold from the US government. This action sent a wave through the market as others followed, and as a result, President Nixon killed the gold standard for the US dollar.
What followed was the creation of the petrodollar. As a result, Saudi Arabia, OPEC, and the rest of the world accepted the US’s request and started using US dollars for all oil sales.
Until now, that is.
The US has been the driving force behind implementing sanctions against Russia, but President Obama’s pattern of failed foreign policy is repeating yet again.
The sanctions against Russia are backfiring on the US.
We at Casey Research were the first to state that the sanctions were not going to play out the way Obama had intended. As I’ve stated in these missives, the Russians are playing a complex game of chess; Obama is at the table, but he thinks he’s playing Connect Four.
Consider this example: France needs Russian natural gas. Total SA has just announced that the company is seeking financing for a gas project in Russia, in spite of the current sanctions against Russia. What’s the catch?
Patrick de la Chevardière, CFO of Total SA (which is France’s largest energy company), has publicly announced that Total is looking to finance its share in the $27-billion Yamal LNG project using euros, yuan, Russian rubles, and any other currency but US dollars.
“The effect of US sanctions was that Yamal LNG will be prevented from raising any dollar financings,” de la Chevardière stated in London at a news briefing.
Checkmate to Obama.
Total SA is relying on the Yamal project, which is expected to start in 2017, to provide a big chunk of the company’s production growth.
How big is Yamal?
Really big. Proven reserves are equivalent to over 800 million barrels of oil-equivalent.
Are American Companies Even Paying Attention to the Sanctions Against Russia? No.
ExxonMobil, America’s largest oil company, has been drilling a well with Rozneft (Russia’s largest oil company) in the Russian Arctic offshore.
According to the rules of the sanctions against Russia, ExxonMobil shouldn’t be doing any more work with the Russians in Russia.
Do the sanctions apply to ExxonMobil? No. ExxonMobil is still drilling the well with Rozneft in Russia.
ExxonMobil got the equivalent of a hall pass from the US government to complete the well, using the excuse that it’s environmentally safer to complete the well than to allow the Russians to do it alone.
Well, that flimsy reason might work for the mainstream media, but I don’t buy it.
Want to know the real truth why ExxonMobil is allowed to complete the well?
Here it is—and remember, you read it here first.
If ExxonMobil walked, as it was supposed to due to the sanctions, the Russians would complete the well without the company.
If the well becomes a major success — which it looks like it will be—ExxonMobil’s ownership wouldn’t be the same as it would be if it completed the well with Rozneft. If ExxonMobil walked, the Russians would have the legal right to terminate the existing terms of the contract and could renegotiate with ExxonMobil or other major companies, such as the major Chinese oil companies. ExxonMobil would have to pay more — a lot more — post discovery to get back into the JV with the Russians.
So President Obama’s sanctions are backfiring.
The French have already backstabbed him—and rightly so… and the end of the petrodollar has started.
To make Obama’s lip-service sanctions even more ineffective, how does it look to the rest of the world that the US’s largest oil company doesn’t have to comply with his own sanctions?
Do you think the Germans and the rest of Europe are taking notice?
You better believe they are… and they’ll act accordingly.
The Germans depend on Russia’s energy more than the French do. The country has few options, and since Obama has already shown his cards, why should German politicians take him seriously and risk getting hurt in the process?
If this were the World Series of Poker, Obama would have gone all in with a 2 of clubs and a 7 of hearts. In poker terms, that’s the worst possible hand.
The world knows that the cards Obama holds have no leverage over Russia.
The Russians are well aware they have a royal flush in their hands, and they’re taking their time to see how the rest of the table is going to bet.
What to expect next?
Expect more loopholes to appear in the sanctions, and expect the Germans to work out a deal with the Russians. Winter is near, and the rest of Europe will follow France’s lead and drop the petrodollar if needed to work out a deal with Russia.
What makes me so confident of this?
I’ve spent over a decade studying the Russian energy matrix with the countries it supplies.
Vladimir Putin is not only building a lasting energy legacy for Russia,
but is establishing new markets for Russian energy that haven’t existed prior to his presidency.
Everyone knows that the global geopolitical landscape is shifting. In my new book "The Colder War",
I present a stark picture of just what that shift will look like for America.
Marin Katusa, Chief Energy Investment Strategist, "The World of Energy"