On Wednesday, Interfax reported that Russia is having difficulty funding its embassies abroad. The ruble is currently hovering around to 0.010 dollars, which is actually up from a value of 0.007 dollars a week ago, and Russia’s ability to move money around international banks severely checked, it’s getting difficult to keep the bills paid in D.C. and London and Tokyo. It’s a problem to which some Twitter commenters have proposed a creative solution.
But seriously, that would first require finding Russian embassy staff not already on the take, and considering how quickly U.S. intelligence was able to learn and make public every step of Putin’s plan in Ukraine, that number seems to be vanishingly small. However, Russia does have a scheme to rescue the ruble from the ash heaps of fiscal history—and that scheme may have a impact that gives Putin at least a little revenge on the world stage.
Right now, Russia is selling about $500 million a day in crude oil. That number could be closer to $700 million today, as the instability of Russia’s supply, and shifting statements from other OPEC members, have generated a sudden bump in prices, putting oil back around $120 / barrel. But all that Russian oil is purchased in American dollars. Almost all oil is purchased in dollars, with only Venezuela and Iran regularly allowing purchasers to go home with a barrel using some other currency. Other currencies are used in countries where the oil is produced, but when moving from country to country, that oil trades in dollars and only dollars. It’s role as the world’s “petrocurrency” helps facilitate the trading of oil, because prices don’t get affected by the fluctuating relative value of currencies. It also helps hold the dollar’s value up as the world’s trading currency. On average, between 80% and 90% of oil sold on any day is transacted in dollars, and it’s been that way since the “petrodollar” took the crown in the 1970s.
On Wednesday, Russia reportedly issued a demand that its oil, and the gas it ships into Western Europe at a price of over $700 million, be purchased in rubles and only rubles. This would require that nations seeking to buy Russian fossil fuels first purchase rubles with dollars, then buy the oil or gas with rubles. In terms more familiar to the average person—Russia is only going to make accept payment in Chuck E. Cheese tokens, so you have to buy tokens first.
The immediate goal of this is that it should help prop up the price of the the near-worthless ruble. In fact, just the announcement has the ruble halfway back to the 0.014 dollars it was selling for before the invasion got rolling. But it could also have an effect in terms of chipping into the dollars role as the one and only international petrocurrency. Earlier this month, there were reports that Saudi Arabia was considering allowing China to purchase oil in yuans, rather than first converting their international currency (China has another currency for internal use) rather than requiring that they first convert funds into dollars. Saudi Arabia has made such threats before, using it to blackmail Congress into not applying antitrust laws to OPEC members.
Should Russia’s move help accelerate the end of the standard petrodollar, there could be a series of consequences that help to destabilize the global economy, resulting in higher inflation and increased borrowing costs, not just for individuals, but for governments.
It would also reduce what’s known as “petrodollar recycling,” in which oil producing countries lend, spend, or otherwise spread around their excess stock of U.S. dollars, which is one of the factors that helps drive the purchase of U.S. securities and U.S. products. In the words of Investopedia, this “creates liquidity in the financial markets, keeps interest rates low, and promotes non-inflationary growth.” It also helps drive investments by oil producing countries within the U.S.
Putin’s war is being waged in Ukraine, but from the outset it’s been clear that this is a global war, especially in terms of the sanctions being applied to Russia in the hopes of strangling its war effort economically. By demanding payment in rubles, Russia can strike back in a way that generates economic pain for everyone by raising the cost of oil in the short term, and potentially destabilizing both financial and commodities markets.
Wednesday, Mar 23, 2022 · 7:22:18 PM +00:00 · Mark Sumner
Madeleine Albright’s last editorial, published one day before Russian tanks rolled into Ukraine.
Mr. Putin’s revisionist and absurd assertion that Ukraine was “entirely created by Russia” and effectively robbed from the Russian empire is fully in keeping with his warped worldview. Most disturbing to me: It was his attempt to establish the pretext for a full-scale invasion.
Should he invade, it will be a historic error.
She also described her first meeting with Putin, in which she comes away with this note:
“Putin is small and pale,” I wrote, “so cold as to be almost reptilian.”
Wednesday, Mar 23, 2022 · 7:36:40 PM +00:00 · Mark Sumner
And on that economic front … when Renault started operations again in Russia, the assumption from many was that this was simply Renault’s Avtoframos subsidiary acting on their own, possibly under pressure from the Russian government. However it seems this action has the support of the company’s president and board. About 10% of Renault’s revenue comes from Russia, but they appear to be most afraid of the possibility Putin might nationalize factories that they just spent a large sum modernizing.
In any case, the Ukrainian government levels the PR guns.
Wednesday, Mar 23, 2022 · 7:59:23 PM +00:00 · Mark Sumner
Ukraine still not going completely on the offensive in the Kyiv area, and the issue is one that’s come up before — while Ukraine has been able to prevent Russia from achieving complete air superiority, what Russia is able to put in the air is still enough to make ground operations difficult.
Wednesday, Mar 23, 2022 · 8:05:19 PM +00:00 · Mark Sumner
Russian sources are reporting the death of Col. Alexei Sharov, commander of the 810th Guards of the Zhukov Order. Sharov reportedly died yesterday in fighting at Mariupol, making another high ranking Russian officer who has died on the front lines.
Daily Kos readers have now raised over $1.9 million to assist Ukrainian refugees.
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