The threat of the petroruble
Little snowballs at the top of a hill start so small — but if left to roll unfettered, over time they can grow large enough to flatten anything in their path. Putin has pushed a little snowball off the top of the hill.
One bank in Russia has decoupled itself from the dollar. It started with US sanctions over Crimea; but it has allowed Putin to enforce all trading via the Rossiya bank to be conducted in rubles — from consumables to oil. Did I say oil? I’m afraid I did — and this could be the beginnings of the petroruble.
It is the petrodollar that has kept the US — which consistently spends more than it earns — afloat for years. So long as the world’s oil is traded in dollars and world demand for dollars is maintained for that purpose, then the US can simply keep printing more money to pay for whatever it wants. Without that demand, the US economy would be in serious trouble.
So serious, in fact, that when Iraq (with the second largest oil reserves in the world) threatened to stop trading its oil in dollars and start using the Euro, the Bush response was to invade Iraq and impose a more friendly regime.
Russia, like Iraq, is an energy country.
The petroleum industry in Russia is one of the largest in the world. Russia has the largest reserves, and is the largest exporter, of natural gas. It has the second largest coal reserves, the eighth largest oil reserves, and is the largest producer of oil.
If the rest of Russia follows the Rossiya bank and switches to all energy trades in rubles, then that’s a serious issue for America. If other oil companies aligned with Russia (for example, Iran and Venezuela) also dump the dollar for the ruble for oil trades, it escalates beyond serious. It could be catastrophic.
Let us all hope that the US response to the threat of Russia abandoning the dollar is not the same response it had for Iraq’s threat to abandon the dollar.