Recently we have heard comments that the petrodollar system might be scrapped, which means that major oil producers will accept other currencies besides the US dollar for their exports of oil. The petrodollar system is really just an understanding that contracts and settlements for the oil trade generally be denominated in the US currency. But at the same time, it is entirely possible to do business without the petrodollar. China does buy oil from Iran without using the USD.

Ever since the launch of the quantitative easing (QE) programme two years ago, the worries of a possible US dollar collapse have increased, especially with inflation surging and rumours for the petrodollar to be scraped keep popping up. This silent crisis is threatening to change everything. The USD might lose its status as the global reserve currency at a time our monetary system is already cracking the value of our money is eroding fast.

Recent negotiations between China and Saudi Arabia are a major sign that the USD might be dropped as the global reserve currency. Saudi Arabia is negotiating with the Chinese government to price oil sales to China in yuan instead of USD. Saudi Arabia is one of the largest oil exporters while China is one of the biggest importers and if they decide to do business without using the petrodollar, it will mean trouble for the USD and America as the dominant global economic hegemon.

USD/RUB Daily Chart – Reversing Down After the Large Spike

The Rubble is regaining momentum after the losses

The question now is whether it happens and what Russia does in response. Europeans have given strong indications that they won’t pay in rubles. They note that the contracts call for payment in dollars or euros and feel they don’t need to change course. Even if they wanted to pay in rubles, they would be hard to secure.

US WTI Crude Oil Daily Chart – MAs Are Acting As Support

Is crude oil resuming the uptrend again?

This week we’ll find out. If Europe refuses to pay in rubles, Russia has hinted that it could hold them in default on payments. That’s a stretch but it’s not like we’re exactly operating within global norms. If that’s the case, perhaps Putin would have a pretext to cut off supplies altogether? That would be incredibly damaging to Russia domestically but it would also inflict heavy pain on European industry along with energy consumers. It would mark a dramatic escalation in the economic war.

What makes me think it’s a higher possibility than most believe is that today, Russian foreign minister Sergey Lavrov said the west had declared total war on Russia in light on sanctions. This might be their way of returning the favor. The US is talking about increasing LNG supplies but there aren’t any supplies available for years. Anything that’s delivered to Europe will have to be redirected away from somewhere else, likely Asia.

US WTI Crude Oil Live Chart