Cooperation with BRICS and the SCO is essential. One reason is that recent developments – including OPEC transforming itself into the broader DoC – signal that a significant reorganization in the global oil market is close at hand.
This shift has serious implications for the U.S. It will facilitate the creation of a new currency that, backed by gold and other commodities, will threaten the dominance of the dollar. The petrodollar, established in the 1970s, has long been a cornerstone of U.S. economic influence, but now its days appear numbered. As other countries seek to de-dollarize, the U.S. must carefully reconsider its position in the changing global economy. The rise of developing countries and China’s fast advancements in science and technology further underscore the urgency of the need to reassess our strategies to adjust to a changing world.
In the face of these forthcoming changes, individual investors need to take steps now to secure their financial well-being. More details below. But first, let’s discuss the recent news items that struck me as particularly noteworthy.
The Cartel Is Shaking Things Up
The latest monthly energy report from OPEC revealed a notable shift in how the cartel identifies itself. In the past, OPEC has divided the world into two categories: OPEC – later, OPEC+, to include Russia – and non-OPEC. The recent report, however, divides the world into DoC countries and the rest of the world. DoC stands for Declaration of Cooperation, and it includes 10 oil-exporting countries in addition to OPEC+. The declaration was signed in 2016, but this is the first time the larger DoC grouping is featured in the monthly energy report. It indicates that cooperation among all the oil exporters is now fully operational. DoC will be the terminology employed going forward.
The significance of this lies in what it implies. All 10 of the newly included countries have also expressed interest in joining BRICS, an organization of developing countries. BRICS is exploring ways to create a monetary system that will serve as an alternative to the dollar in international trade,with the new system backed by gold and possibly other commodities. For the new currency to succeed, however, it’s critical that it can substitute for the dollar in pricing vital commodities, especially oil. The emergence of DoC as a replacement for OPEC+ suggests that’s getting very close and is an ominous development for the U.S. The additional 10 countries include Mexico as well as Malaysia; the latter is part of the ASEAN bloc of countries (see below).
The Petrodollar’s Days Are Numbered
The departure of the U.S. from the gold standard in 1971 led to a significant shift in global currency dynamics. However, the subsequent establishment of the petrodollar system in 1974, as part of an agreement between Saudi Arabia and the U.S., played a crucial role in shaping international trade and finance.
By pricing oil in dollars and receiving U.S. military protection for its oil exports, Saudi Arabia essentially ensured the dominance of the dollar in global trade. The arrangement allowed the U.S. to increase its money supply without facing significant opposition, as other countries had no choice but to hold dollars in order to purchase oil.
In retrospect, the petrodollar system had far-reaching consequences, some of which have been detrimental to the U.S. economy and its global standing. The existence of the petrodollar facilitated the use of sanctions as a means of exerting control over other nations, but recent events have shown that this weapon is losing effectiveness.
Now, the looming emergence of alternative currencies suggests a potential shift away from the petrodollar system. The prospect of a new currency backed by gold and other commodities challenges the long-standing dominance of the dollar in international trade. This potential change has significant implications for the U.S., and it is clear that policymakers in Washington are closely monitoring these developments.
One reason the Saudis may now be willing to abandon the petrodollar relates to the original reason they agreed to it: the promise by the U.S. of military protection. Recent reports, including those in reputable Western science journals like Nature, indicate that China has taken the lead in global scientific achievement, surpassing the United States for the first time since World War II. This scientific dominance extends to military technologies, with Russia also making significant strides.
The emergence of hypersonic missiles, showcased in the conflict in Ukraine, has sparked discussions about whether China or Russia was the first to develop them and has highlighted the West’s vulnerability to these advanced weapons. Developing countries now wield significant influence, boasting vast landmass, large populations, and substantial gross national product (GNP) measured in both purchasing power parity (PPP) and traditional dollars. Notably, their economies are growing at a much faster rate than those of developed nations, meaning the gap in GNPs will continue to widen.
The ASEAN Currency Shift
The recent recognition of a Palestinian state by Norway, Spain, and Ireland marks a significant shift away from the U.S. by several European countries. This move, along with other geopolitical developments, indicates a growing trend of countries seeking to assert their independence from U.S. influence.
While ASEAN countries are thinking more in terms of trading in their own currencies rather than of joining BRICS, it would have the same effect on the U.S. house of cards. It would reduce the need for a group of countries representing more than $4 trillion in GDP and growing at an annualized rate of about 5% to hold reserves in dollars. Moreover, Malaysia, for one, actually has applied to join BRICS. The plans of BRICS combined with ASEAN intentions would lead to a dramatic reduction in worldwide reserves held in dollars.
Currently, the dollar represents about 50% of currency reserves, but this percentage could drop to less than 25% if oil were repriced as a new gold-backed currency. Additionally, gold, which has grown to nearly 20% of reserve assets, would likely replace the dollar as the most important reserve asset. The backing of the BRICS currency by gold and other commodities would further strengthen this shift.
While I hope for a “13th-hour” change in the U.S. position, I’m beginning to fear it’s wishful thinking. Significant de-dollarization is no longer something for the distant future. Indeed, it could arrive as soon as late October, when the BRICS members gather in Kazan, Russia, for the yearly summit meeting.
Wrap Up…
It’s shaping up to be the worst crisis the United States has ever faced. Why? Because it would create a train wreck of massive dollar debt that would have to be repaid, and with no large buyers of that debt other than the Federal Reserve. The result could be hyperinflation or close, a depression that would make the early 1930s seem minor, or some combination. In effect, the United States would become a nearly isolated country.
I could be wrong – I hope I am. But given the stakes, you must orient your investments in ways that focus squarely on protecting yourself and your family. For me, first and foremost, that means investing in gold along with other commodities, including silver. Because in the U.S. there could be a risk of confiscation, as happened in the 1930s, my preference is to have at least your gold investments in vehicles outside the U.S. But you don’t have to go whole hog. Since both gold and silver are likely to surge significantly quickly, you’ll gain a ton of protection, even putting less than half your investments in these areas.
