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Russia tips the balance November 23, 2006

Posted by tkcollier in Business, Geopolitics.
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Asia Times Online :: Central Asian News – Russia tips the balance

The struggle for dominance of the world’s energy centers on control of the production of oil and gas fields, and therefore where and to whom that production will be offered. Russia, with help from China and India, is beginning to win this battle. Next, with new oil exchanges that don’t deal in US dollars, begins the assault on the greenback.
the fact that the West’s oil majors have lost control of all but 9% or 10% of reserves means that state-controlled oil companies can reroute any amount of product they wish from the New York-London exchanges to any of the new exchanges. This will provide a more than sufficient supply to guarantee the success of the new exchanges, and the US can do nothing to stop it.

As this happens, the prospect of a targeted embargo of the West is revived. Producers will be able to restrict the amount of oil they sell on the London-New York exchanges, or cease selling there altogether, because they will have viable, even preferred, alternative exchanges. That will seriously endanger the amount of supplies accessible to the West and will radically drive up the price of oil on the dollar-denominated exchanges. But because all of the new and planned exchanges will have their own non-dollar pricing mechanisms, the undesirable price volatility will tend to be confined to the dollar-denominated exchanges.

What happens to the US dollar as the new exchanges become operational and begin to be successful? The exit from the dollar as the international currency will have begun in earnest. But that exit will not be to one currency, but simultaneously to the several currencies that are the denomination currencies of all the successful new oil and gas market exchanges.

The dollar will begin to weaken as its international support and devotion wanes, or even sinks. As the dollar weakens, the price in dollars for everything the US imports will skyrocket, adding a powerful inflationary hit to the US economy. Along with the impending US recession, that will further weaken the dollar and likely its decline, or outright collapse, will feed on itself.

As the dollar weakens and energy price volatility increases on the New York-London exchanges, producers will have further powerful incentive to switch their product offering to the non-dollar-denominated exchanges, where there will be greater stability and where they will not be forced to take payment for their products in the increasingly undesirable weakened dollar.

The profound risks to the West as respects its ability then to secure access to sufficient energy resources should be self-evident. Left with a severely shrunken dollar-denominated pool of oil and gas, a pool that virtually only the West draws from, the viability of a potential targeted embargo will have increased exponentially.

The globe’s producers will be fully able to “throttle” the economies of the West by virtue of controlling how much of their oil and gas they sell into the dollar-denominated pool. This represents the nightmare scenario for the US.

Perhaps the most disturbing aspect of this analysis is the fact that it is not based on any hypothetical conspiracy theory, but rather on solid economic and market principles and the increasingly ominous warnings of experts and informed leaders.

Additionally, the key developments that are already pushing the world order to the eventuality described here, that of a full exploitation of the West’s Achilles’ heel by Russia and its global partners leading to a loss of the US global position of economic and geopolitical dominance, are already well established.

Russia, in conceiving the new model of “international” energy security and a new global energy order, and in winning increasing numbers of key converts and adherents to its model, thereby defines and draws the circle of international energy security. Those inside the circle will achieve Russia’s definition of “energy security”, but those left outside will be left with little if any energy security by any definition.

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