Thou Shalt Not Challenge The Petrodollar
Jeffrey C. Borneman | October 21, 2014
Christophe de Margerie, CEO of French Energy giant Total died in plane crash in Moscow yesterday after hitting a snow-plough on take off (or during an emergency landing - depending on the source). de Margerie's recent statement: "There is no reason to pay for oil in dollars," was still reverberating around the globe.
French policymakers apparently assigned de Margerie the task of finding ways to bolster the use of the euro in international business following a record multi-billion dollar U.S. fine for BNP. Of course this translates as "trading away from the Petrodollar" and that simply cannot be allowed. There are many financial analysts that are claiming we "have passed Peak Petrodollar" territory, and are in fact, calling for the end of the reign of the Petrodollar.
In July of this year, France sent unambiguous indications of its displeasure with the Petrodollar as the reigning currency. Christian Noyer, French National Bank governor and member of the ECB's governing board could not have been more clear: "A movement to diversify the currencies used in international trade is inevitable ... Beyond [the BNP] case, increased legal risks from the application of U.S. rules to all dollar transactions around the world will encourage a diversification from the dollar," as reported by The 4th Media.
Investors must understand that the Petrodollar is the heart of the existing world order. That world order is changing - for many reasons - but at its root, the organizing principal is Energy: Every geopolitical event of note is an Energy play. I've stated many times that 75% of the US military budget is spent protecting the free-flow of Energy around the globe because it trades via the Petrodollar. The Energy "game" is hundreds (if not thousands) of 3-D chess matches happening simultaneously but always pivoting around the Petrodollar.
The US will not relinquish the power over world order without a fight - literally. Those predicting the demise of the USD (Petrodollar) from excessive debt issuance should take heed: The USD has quietly but swiftly moved up to highs not seen in a generation as global Instability leads capital back to the one remaining safe-haven, precisely because of its dominance.
Investor note: The crucial rule for investors in the Energy game is to never bet against the house. It is the most crucial of rules. In the current Energy paradigm "the house" is the Petrodollar - backed by the might of the US military and NATO. The new addition to this crucial rule seems to be: Do not make public statements such as: "There is no reason to pay for oil in dollars."
The world is heading to a pivot point, a tectonic shift in the status quo. While much of it planned, unexpected events will have an impact as well. Regardless, it is the reason the MDEF™ Investing strategy was created: Own only the essential market sectors that both governments and individuals must rely on for survival. As events unfold, and DEMAND for non-essential goods and services wane, investing capital rotates into areas of confirmed need and reliable returns.
If you want to know more about how the MDEF™ Investing strategy is positioned in this, or other geopolitical possibilities, please contact us directly.