Tag: petrodollar

Petrodollars quit world markets for first time in 18 years

Energy-exporting countries are set to pull their “petrodollars” out of world markets this year for the first time in almost two decades, according to a study by BNP Paribas.

Driven by this year’s drop in oil prices, the shift is likely to cause global market liquidity to fall, the study showed.

Brent crude futures have fallen 23 percent this year, with 2014 promising to be only the second year since 2002 that crude prices will end the year lower than they began it.

This decline follows years of windfalls for oil exporters such as Russia, Angola, Saudi Arabia and Nigeria. Much of that money found its way into financial markets, helping to boost asset prices and keep the cost of borrowing down, through so-called petrodollar recycling.

This year, however, the oil producers will effectively import capital amounting to $7.6 billion. By comparison, they exported $60 billion in 2013 and $248 billion in 2012, according to BNP Paribas calculations.

Petrodollar recycling peaked at $511 billion in 2006, BNP said.

“At its peak, about $500 billion a year was being recycled back into financial markets. This will be the first year in a long time that energy exporters will be sucking capital out,” said David Spegel, global head of emerging market sovereign and corporate Research at BNP.

In other words, oil exporters are now pulling liquidity out of financial markets rather than putting money in. That could result in higher borrowing costs for governments, companies, and ultimately, consumers as money becomes scarcer.

Spegel acknowledged that the net withdrawal was small. But he added: “What is interesting is they are draining rather than providing capital that is moving global liquidity. If oil prices fall further in coming years, energy producers will need more capital even if just to repay bonds.”

The reversal is largely down to Russia and the rest of the ex-Soviet Union, which BNP estimates have withdrawn $57 billion from world markets.

Russian companies have been shut out of global markets since Western countries imposed sanctions because of the conflict in Ukraine. Those companies are increasingly forced to rely on their own cash reserves or central bank funding to meet external debt repayments.

Russia signs oil deal with Iran

Russia signed a historic $20 billion oil deal with Iran to bypass both western sanctions and the dollar based western monetary system yesterday.

Currency wars are set to escalate as the petro dollar’s decline continues.

Russian Energy Minister Alexander Novak and his Iranian counterpart Bijan Zanganeh signed a five-year memorandum of understanding in Moscow, which included cooperation in the oil sector.

“Based on Iran’s proposal, we will participate in arranging shipments of crude oil, including to the Russian market,” Novak was quoted as saying.

The five year accord will see Russia help Iran “organise oil sales” as well as “cooperate in the oil-gas industry, construction of power plants, grids, supply of machinery, consumer goods and agriculture products”, according to a statement by the Energy Ministry in Moscow.

The deal could see Russia buying 500,000 barrels of Iranian oil a day, the Moscow-based Kommersant newspaper has previously reported. Under the proposed deal Russia would buy up to 500,000 barrels a day or a third of Iranian oil exports in exchange for Russian equipment and goods.

The Russian government withdrew the statement regarding the deal last night, but said it would issue a new statement today.

In January, Russia said that they were negotiating an oil-for-goods swap worth $1.5 billion a month that would enable Iran to lift oil exports substantially to Russia, undermining Western sanctions.

Yesterday, the Russian President told regional leaders that “the political tools of economic pressure are unacceptable and run counter to all norms and rules.” He said in response to western sanctions he had given orders to boost domestic manufacturers at the expense of non-Russian ones.

The White House has previously said that reports of talks between Russia and Iran were a matter of “serious concern.

“If the reports are true, such a deal would raise serious concerns as it would be inconsistent with the terms of the agreement with Iran,” Caitlin Hayden, spokeswoman for the White House National Security Council, said in January.

U.S. and European Union sanctions against Russia threaten to hasten a move away from the petro dollar that’s been slowly occurring since the global financial crisis.

Source: GoldCore