Sabers are rattling among friends

trading graphic

 

08.04.2019 – Special report. We already know that: The Saudis supposedly just warned the USA of anti-cartel legislation again. Riyadh will drop the dollar if the NOPEC Act is passed. Most brokers will probably only shrug their shoulders. But what if this time the conflict actually escalates – and petrodollars are used as a weapon in an economic war? We will shed light on the background.

There is always a first time

Perhaps it will turn out as always: NOPEC is prevented, the USA reaches an agreement with the OPEC states and their supporters. They don’t drive the oil price too high to keep the US economy and the global economy from being stalled. But perhaps this time a black swan will actually land on the floor. Reason enough for the Bernstein Bank to devote itself to this smoldering crisis.

Petrodollars as a nuclear option

It is clear that the mood between the USA and the Saudis has deteriorated continuously. Last week, Reuters reported the following, citing unnamed people from Saudi energy policy: Saudi Arabia had threatened to let the dollar fall. In the future, the country could sell its oil for other currencies as well if OPEC became the target of American anti-trust legislation. Riyadh discussed the plan with other OPEC states and communicated it to the American authorities. The Saudis knew that they could use the dollar as a “nuclear option”. If NOPEC were adopted, the US economy would fall apart.

Fear of NOPEC

NOPEC – specifically: No Oil Producing and Exporting Cartels Act – is a kind of political zombie that has been wandering around for quite some time, but has neither been finally killed nor really brought to life. The bill was first discussed in 2000. According to him, OPEC states and their supporters in the US could be charged with antitrust violations, which could result in detention and expropriation. So NOPEC is not yet a law. Nonetheless, the act under Donald Trump and an insubordinate Congress has gained momentum: Trump has not yet spoken out in favor of it as president, but in a book from 2011 he supported it. However, US Energy Secretary Rick Perry has already warned that NOPEC will have undesirable consequences.

US Treasuries as a weapon

The issue of government bonds is also becoming more explosive because of NOPEC. About three years ago, the Saudis had already rattled their treasury sabers for the first time: The New York Times reported that Riyadh would throw US government bonds worth hundreds of billions of dollars onto the market. This would happen if Congress passed a law according to which the Saudi government could be held responsible before US courts for the attacks of 11 September 2001.
Since 2004, according to the financial blog “ZeroHedge”, the Saudis have increased their holdings of US Treasuries from virtually zero to currently around 167 billion dollars. The figures were supported by “Asharq Al-Awsat”, one of the largest Arab daily newspapers: Saudi Arabia held US Treasuries worth around 165 billion dollars until August 2018. The United Arab Emirates had it worth around 60 billion dollars. Kuwait came to 43 billion dollars.
Remains Russia. According to the Russian medium “RT”, the Kremlin reduced its stock of US Treasuries from around 97 billion to 13 billion by last November and bought more gold. The influence of Moscow is therefore still small. Venezuela and Iran, which do not sell oil for dollars, make no big difference either.

De-Dollarization and Petro-Yuan

But an affront by Saudi Arabia and the other Arab US allies would be a significant signal in the de-dollarization process. This could trigger a process in which investors worldwide assume a crash of the dollar and treasuries and thus reinforce it. The leading global holders of American bonds are still China and Japan, both of which have already reduced their holdings: The People’s Republic still holds about 1,200 billion US dollars, Japan about 1,000 billion.
Since OPEC is also likely to curb production in the course of a dispute, CFD traders should also keep an eye on commodities. In addition, there are already attempts to establish another currency in oil trading: The yuan. Investors should not ignore it either.

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.