Iran is delivering oil to China well below the world market price.
(Photo: AP)
The world was surprised when Iran and Saudi Arabia, arch-enemies for years, decided to establish diplomatic relations. Hardly anyone had expected this rapprochement, neither in the Middle East nor in the USA. What makes it all the more significant is that it was Chinese diplomacy that made this breakthrough possible.
It didn’t surprise Credit Suisse analyst Zoltan Pozsar. In a series of essays last year, he showed how comprehensively and strategically China has been working on a new world order for years.
China initially secured access to energy and raw materials. In exchange for billions in investments, Iran supplies China with oil well below the world market price, as do Russia and Venezuela. After all, the three countries together account for around 40 percent of the world’s proven oil reserves.
Saudi Arabia will in future sell its oil against the Chinese currency renminbi. In return, China is building industries and refining capacity in the kingdom. The other states in the Gulf are likely to follow the Saudi example. Since they are not subject to sanctions like Russia or Venezuela, they sell the oil at market prices, but no longer for dollars, which they then invest in the West, but against Chinese investments.
Linked to this is China’s desire to gather a group of states that are skeptical of the Western world order. In addition to the countries already mentioned, these are above all Brazil, Argentina, Indonesia, but also India, to name just a few. Africa has long been under Russian and Chinese influence.
Many countries want to get rid of the US dollar
The goal is to form a block that trades with each other while avoiding the US dollar. The so-called mBridge project, an international payment system based on digital central bank money under Chinese leadership, fits in with this. It is intended to enable the direct processing of payments between countries without the usual detour via the US dollar.
Daniel Stelter is the founder of the discussion forum “beyond the obvious”, which specializes in strategy and macroeconomics, as well as a management consultant and author. Every Sunday his podcast goes online at www.think-bto.com.
(Photo: Robert Recker/ Berlin)
The sanctions against the Russian central bank have given additional impetus to the efforts of many countries to break away from the US dollar. Many governments fear that they could one day be sanctioned in a similar way and therefore want to make themselves independent of the US dollar as a precautionary measure. Because the sanctioning power of the US government is based on the fact that it can cut off other countries’ access to dollar-based payment transactions.
For Pozsar, these are elements of an economic war between the blocs of a new world order with significant consequences. The West must therefore adjust to permanently high commodity prices, and not just for energy. Indonesia’s efforts to set up a lithium cartel similar to the OPEC oil cartel underscore this. According to the thesis, inflation in western countries will therefore prove to be persistent.
In addition, the West must invest heavily in equipping the military and in regaining strategic autonomy in important technologies such as chips and the conversion of the energy supply. This drives the demand for capital, which the states in the Chinese camp are no longer available to finance.
Interest rates are likely to stay higher for longer
As a result, interest rates are likely to rise. Pozsars predicts that this will push central banks to align monetary policy with the goal of lowering interest rates on government bonds, as the Bank of Japan has been doing for several years.
>> Read here: Inflation rate in the euro area is falling more than expected – but core inflation is picking up again
In my view, however, interest rates are likely to remain higher for longer than many expected. They could hit the West’s Achilles’ heel: debt and asset prices are at record levels after decades of easy-money policies.
The turbulence on the financial markets in recent weeks, which has caught Pozsar’s employer Credit Suisse, gives a foretaste of what lies ahead in the coming years. If the central banks are forced to intervene again in favor of financial stability, this is likely to fuel inflation further.
>> Read here: New axis Russia-China: The future world order now depends on three questions
The Russian revolutionary leader Vladimir Lenin is said to have said: “The best way to destabilize the capitalist system is to devalue the currency.” It is quite possible that China and Co. will remember this.
Daniel Stelter is the founder of the discussion forum beyond the obvious, which specializes in strategy and macroeconomics, as well as a management consultant and author. Every Sunday his podcast goes online at www.think-bto.com.
More: How it came to the deep fall of Credit Suisse