• Russia will supply China with natural gas from its Far East region.
• Payment for the gas will be settled in euros, not dollars.
• In effect, China aids Russia to get around US sanctions, which have proven useless anyway.

What Now?

Russia, China agree 30-year gas deal via new pipeline, to settle in euros

How does this affect the Ukraine situation?

Does this have anything to do with Nordstream 2?

I think its very sad when Germany makes a massive oil and gas deal with Russia, where youre supposed to be guarding against Russia?,? and Germany goes out and pays billions and billions of dollars a year to Russia, Trump ?told Stoltenberg. So were protecting Germany, were protecting France, were protecting all of these countries. And then numerous of the countries go out and make a pipeline deal with Russia where theyre paying billions of dollars into the coffers of Russia. And I think thats very inappropriate.

1. 1. Russia makes money supplying natural gas directly to Germany.
   2. Germany doesnt buy natural gas from America, depriving it of funds.
   3. America pays for NATO to defend Europe, while Europe funds its supposed enemies.
   4. Ukraine loses out on transit fees, strengthening Russias economic hold over it.
   5. America has more difficulty inviting Ukraine into NATO and planting missiles there.

Why does euro settlement matter?

Russia would have to price its oil and natural gas in euros so that it could receive payment.

Sanctions will include bans of Russian banks from U.S. dollar payment systems and a prohibition on Russian companies seeking finance in Western capital markets.

Additional sanctions will include freezes on financial transactions by Russian leaders and firms, prohibitions of certain high-tech exports to Russia, a ban on Russian investment in U.S. businesses, and perhaps tariffs on U.S. imports of Russian goods.

The U.S. will not prevent Russian bank transactions on SWIFT, the international financial communications network based in Belgium. That would be regarded as an act of war by Russia and would not be supported by European members of SWIFT.

But Jim also agrees with what I wrote about the uselessness of sanctions against Russia anyway:

These sanctions would have some impact on Russia but would not change Russian behavior.

Sanctions have been imposed on Russia since the 2014 annexation of Crimea and have had no material impact on Russian policy. Russia has moved over 20% of its reserves into physical gold bullion stored in Moscow in anticipation of freezes on digital payments.

Because the gold is physical, not digital, it cannot be hacked, frozen, or seized. This gold bullion is worth about $140 billion at current market prices.

Importantly, U.S. sanctions would not affect exports of Russian oil or natural gas.

Russia provides about 10% of all the oil produced in the world. Russia, Saudi Arabia, and the United States combined produce over 33% of all the oil in the world.

Its simply impossible to sanction Russian oil sales. Any interference in Russian oil sales would cause global hyperinflation and global economic collapse at the same time.

The impact on Russia would be marginal; it has a waiting list of customers for the natural gas in China. The impact on Western Europe, especially Germany, would be devastating.

In a best case, higher energy prices from Russian dominance of the Western European market would feed inflation and damage the profitability of manufacturers around the world.

Financial sanctions would reduce global liquidity, increase market uncertainty and possibly trigger a global financial panic of the kinds seen in 2020 and 2008.

If this policy is stupid for America, its positively self-harmful for Germany.

Wrap Up

Americas policy towards Russia is idiotic.

Of course, when politicians make mistakes, even if they realize their mistakes, they cant back down for fear of losing face.

(See: policy, COVID)

America is sowing the seeds of its own economic destruction, and Germany wouldnt escape this situation unscathed.

Its essential to be aware of these manifestations of our central thesis of dollar destruction.

Its a policy so suicidal only academics, politicians, and news anchors can support it.

Until tomorrow.

All the best,

Sean

P.S. If you want to get some great insights into what Ive been writing about with the dollar, you should listen to my friend and colleague Addison Wiggins interview with entrepreneur and investor Mark Moss. Im reading the transcript now, and its chockful of golden nuggets. Check this out from Mark:

And so what we're doing is most people are just looking at financial cycles, and they're going, Well, we're at the end of a long term credit cycle. Interest rates are at zero. What's going to happen next? Is the dollar going to remain the reserve currency? but they're only looking at this one piece right here. And I think you need to understand the other two pieces to understand, like I said, how we got here, what the heck is going on, and most importantly, where we go from here.