In the early 1970s in the forming of OPEC, Jimmy Carter championed Saudi Arabia as the head of OPEC in exchange for oil to be priced, bought and sold in US Dollars and on the understanding that Saudi Arabia would buy US Treasury Bonds to assist the stability of the US economy.
This meant that all countries who wanted to buy oil had to stockpile US currency or they couldn’t buy or sell oil on the International markets. This helps the US to impose sanctions at will around the globe with countries deemed not to be friendly by refusing them access to the greenback. No US dollars equates to no ability to buy or sell oil.
The Chinese however, have done a nice deal recently with the Saudis whereby the previously mothballed Shanghai Oil Exchange has been allowed to re-open, courtesy of the Obama Administration, whereby small amounts of oil could be purchased by the Chinese via the old Gold standard in exchange for the Chinese Government pledging to help more proactively in the fight against counterfeiting of goods and infringement of intellectual property by Chinese marketeers.
Once news reached Russia that the Exchange was open, it didn’t take long for Putin to obtain oil via this method, side-stepping the need for US Dollars to purchase the oil. Of course the Chinese, being the shrewd businessmen that they are ensured that a small premium was attached for their time. Due to this arrangement, which has so far still not received any censure by the Trump administration, the Chinese, Saudis and Russians are content because they all win, whilst America loses but that surely will not last as Trump has ramped up the rhetoric aimed at the Chinese in the ever escalating trade war.
The Democrats under Obama were willing to strike at both General Gadaffi and Presidemt Assad, who had attempted to revert back to the Gold Standard and thus remove the US from the equation when buying and selling oil on the International markets. Obame did so to preserve America’s ability to project soft power around the world via the use of sanctions.
Only time will tell what President Trump’s reaction will be to the news that the Chinese are allowing others to buy and sell oil via the Shanghai Oil Exchange without the need for the US dollar. This is now a very serious, profound and viable threat to the US and its ability to project soft power around the world and is no doubt at the very heart of the escalating war of words between President Trump and the Chinese Government over recent weeks.
Who knows where this will all end but right now we have the worlds two major economies squaring up to each other and if Trump has shown us anything during his Presidency, it is that he is willing to do whatever it takes for the US to be great again. We live in very interesting times and only time will tell who blinks first.
My money is on the Chinese as Trump simply cannot afford for the US to back down on this.