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Time for a Post-Petrodollar Profit Play

Beware of unintended consequences.

That's the advice I'd give Western leaders when imposing sanctions on Russia over the Ukraine crisis.

You see, Putin's been racking up his air miles, hastening the pace to replace the petrodollar.

It's a topic I recently discussed here, along with an investment idea for a "counterattack."

At the end of Putin's two-day trip to China last week, the two nations signed a landmark natural gas supply deal, driving another large nail in the dollar's coffin.

Amid Tensions, Russia Turns East

On the first day of meetings, VTB Bank, one of Russia's largest, inked a deal with Bank of China whereby they will pay one another in domestic currencies, sidestepping the dollar for everything from trade finance to inter-bank lending, and even investment banking.

But by the end of day 2 came the whopper. Gazprom signed a 30-year deal to supply natural gas to China at a rate of about 38 billion cubic meters annually, valued at a monstrous $400 billion.

Putin called it an "epochal event." And he was right…

It's a progression that's leading to larger and more frequent deals between these neighbors, as well as other BRICS members and even beyond.

Russia is clearly not sitting idly by.

As reported by the Voice of Russia, "on April 24th the government organized a special meeting dedicated to finding a solution for getting rid of the U.S. dollar in Russian export operations. Top level experts from the energy sector, banks and governmental agencies were summoned and a number of measures were proposed as a response for American sanctions against Russia."

Wait. Could Russia be shooting itself in the foot?

After all, China's been accused of manipulating the yuan through devaluation. But that's not news; it's a tactic nearly every other central bank is guilty of, including, most notably, the Federal Reserve.

Thanks to these banking agreements, payments from China for Russian exports will likely be made in ruble, and, in the other direction, in yuan.

As trade between the two grows, the more potential exchange rate risks will diminish.

It's an accelerating trend away from the petrodollar that's being further cemented with each passing deal.

A New Era Dawns

At the summit Putin commented, "Our countries have done a huge job to reach a new historic landmark…. China has firmly settled in a position of our key trade partner… If we sustain this pace the level of bilateral trade of $100 billion will be reached by 2015 and we'll confidently move on."

In 2013, China was the largest automotive manufacturer in the world, producing 22 million units – twice the number of the United States, its nearest rival.

With emission standards tightening, palladium is in high demand for catalytic converters. Meanwhile, Russia happens to be the world's largest producer of the crucial metal and is located right next to its leading market.

As the largest exporter of natural gas and second-largest exporter of oil in the world, Russia has plenty of the resources others need.

The Best Post-Petrodollar Play

This is a clear secular trend that's accelerating. So how can you benefit?

Join the conversation. Click here to jump to comments…

About the Author

Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.

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  1. H. Craig Bradley | May 27, 2014


    President Obama and the American People have proven to be pretty stupid, so some " nasty unintended consequences" are probably richly deserved. It how lessons are taught. Unfortunately, stupid people never quite "get it". Just not quite smart enough. Instead they blame Putin or other known "personalities".

    • Werner | May 31, 2014

      You are quite harsh in you judgment on the American people. Personally I would put Congress and Seante in between Obama and American people. Whilst an apparent majority elected those politicians, some did not.
      Do not forget that America will do whatever it can to preserve the USD's reserve currency status. However, it will become more and more difficult. The Euro may still blow up (in fact America's desire to get rid of a competing currency), alternatives start turning up. One of the various causes of the Iraq war, was Saddam Hussein's threat to dethrone the USD and get paid in Eurros. You know the outcome of that one, Saddam has been eliminated, but Iraq oïl now flows more to Europe, American majors have lost most of their share in that country. Europe would love to see the Dollar appreciate against the Euro, and it will possibly. Beware of the Fed though, it will undetake any imaginable step to prevent it from going too far. No later than in the past week, Comex positions have turned heavily long USD, short Euro (and yen too). So part of Peter's forecast may have already been priced in. We shall see after ECB's décisions on Thursday.
      Having been in the Forex market since 1971, I believe to know which way the Dollar will go basically, and that 's South. In the meantime USA tries to extort as much money from foreign banks for infringing US sanctions which will just be another cause to avoid USD alltogether.

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