Dieselgate —the implications
Trump’s agreement with Putin to supply diesel is America’s concession that it has lost its geopolitical battle against the Russian Chinese partnership.
ALASDAIR MACLEOD
“The decline of American power is taking its currency down with it.”
The cat’s out of the bag
On Friday, President Trump revealed that Russia has agreed to supply 300,000 tonnes of diesel to America and international markets immediately, with more to follow in the coming months.
In return, the US has agreed to suspend energy sanctions against Russia.
At the time of writing, Russian confirmation is from senior officials rather than a formal Kremlin announcement.
Zelensky’s response has been to double down on attacks against Russian refineries, reportedly striking two such facilities — moves likely to further alienate the Americans.
The Europeans have also been blindsided by this move.
For them, it is a clear breach in relations with their dominant NATO partner and raises questions over NATO’s future existence.
It is already clear to independent observers that Ukraine is a lost cause, and this is the implication of the diesel agreement with Russia.
The only surprise is the degree to which European Russophobia continues to blind UK/German/French/EU politicians:
Andy Burnham immediately called Zelensky and offered his cast-iron support ensuring Trump’s disapproval, threatening that most cherished British government notion, the Special Relationship.
Under Trump, it’s been revealed as an illusion anyway.
Predictably, the British press condemns Trump’s move, but they have one thing right: this is a victory for Putin.
We would go further.
The structure of the deal is an immediate supply of 300,000 tonnes of diesel (about 2.2 million barrels, or considerably less than the 3.6 million barrels daily supplied by the Gulf before the war against Iran, or only 7.5% of global daily consumption).
It may allow Trump to claim a win, though the amount is unlikely to solve his diesel problem.
The agreement appears to include the phased exports by Russia of an additional 1.5m tonnes (11.25 million barrels, or about 40% of only one day’s global consumption).
In effect, Russia is withholding the bulk of the agreed supplies, not just because of the practicalities of exporting these quantities while Ukraine continues to compromise its refining capacity, but we can envisage the day when Russia says, “Sorry, but because the Ukrainians have continued to attack our refineries, we have no option but to delay our exports to the US and global markets”.
And talking of global diesel supplies, there’s likely to be further pressure on the US from Russia to withdraw from the Middle East, and not to escalate the mess it has already created for global markets.
Israel’s partnership with the US will have to be abandoned.
By linking Trump’s moves with pump prices ahead of the mid-terms next month, the Western press is missing the big picture.
The 120-year-old prediction by the father of geopolitics is bearing fruit.
Halford Mackinder first laid out his theory to the Royal Geographic Society in 1905, that the centre of world power is in Asia — the territory of Russia, China, and Persia combined.
“Who rules East Europe commands the Heartland; Who rules the Heartland commands the World-island; Who rules the World-island commands the World.”
- Halford Mackinder, 1905
Halford Mackinder with his Heartland Theory is credited with inventing geopolitics.
121 years later, we are finding out that his heartland theory was right.
His pivot area in the map above is dominated by Russia, China and Iran.
And it can be already said that apart from Western Europe and the two “Outers” of Britain and Japan, they control the Inner or Marginal Crescent.
Until now, the Arabian Middle East has been a further exception.
Control of the Middle East with its energy resources is obviously key in a geopolitical context, and by attacking Iran the US appears to have lost it. Iran insists that the Gulf states close down US military bases on pain of their destruction.
Israel will then become isolated and emasculated.
With US forces retreating from Arab lands to Israel, they are all an easy target for Iran’s hypersonic missiles.
For Iran it will be like shooting rats in a barrel.
Israel will have no alternative but to parlay with the proximate hegemons of Russia and China, and arguably Iran as well.
This is clear from Mackinder’s theory.
We shall see how this plays out, but our working assumption must be that the US has lost control over the Eurasian continent — Mackinder’s World Island.
The implications for inflation in the G7 nations are being wildly underestimated, leading to yet higher bond yields and interest rates as the truth dawns, driving indebted industries into an economic slump.
The death of the dollar
As the truth of Mackinder’s prophecy is revealed, the US dollar will be discarded by Asians, already anticipated by China and Russia.
Now there is selling pressure from Arab lands, which hold considerable dollar investments due to war-related costs.
Asia includes Japan, a staunch ally of the US but also under pressure to liquidate dollar investments for other reasons.
It raises a question as to how the US is to finance itself and absorb dollar liquidation.
Sharply rising G7 bond yields due to the inflationary implications of the Iran war are now adding to funding difficulties, throwing the US and other G7s into inescapable debt traps. The war is just the start of it.
The relative stability of China’s yuan is already contrasting with the instability of the dollar as the World Island and its Marginal Crescent ditches dollars for the yuan.
Economic consequences
Markets are still underestimating the consequences for the dollar and the currencies of America’s allies in the G7.
Their purchasing power will be on the slide, increasingly driven by markets’ assessments of the consequences of the US’s withdrawal from Europe and the Middle East.
The emergence of debt traps for all G7 currencies is driving bond yields and interest rates higher.
All asset values without exception will decline, some such as overblown equities potentially rapidly.
The destruction of these credit values will be further reflected in the declining purchasing power of the dollar, as economic and financial carnage leads to a slump in tax revenues while welfare commitments soar.
In other words, the US and its fellow G7s are irretrievably bust, which is what debt traps are signalling.
Once under way, this slide into crisis is likely to be rapid, accelerating as foreigners liquidate financial asset positions in both US markets and those of the Europeans and Japan.
It is an outcome which is shaping up to be unstoppable.
It is time-out for 52 years of the petrodollar and 55 years of the dollar-based fiat currency system.
Both Russia and China are prepared for this outcome while America and its hapless allies are not.
China and Russia have hidden reserves of real money, that is gold with which to secure the value of their currencies.
It contrasts with America whose level of gold reserves are in considerable doubt.
China in particular has laid the groundwork for a Bretton Woods Mark 2, using gold to back the international yuan at a fixed rate.
Despite its war footing, Russia can credibly back her rouble as well.
Both nations can carry their electorates Overton-wise through the transition.
With their finances in a mess and their private sectors in a slump, the US and other G7s cannot.
The ultimate strength of the World’s pivot area is shaping up to be sound money, just as fiat credit is America’s Achillies heel
Unless this changes, which is currently impossible to envisage, the end of the fiat currency system will drive the dollar into valuelessness, reflected in a dollar gold price of infinity for practical purposes.
It will prove once more, that with the seeds of their own destruction fiat currencies never survive indefinitely.
The decline of American power is taking its currency down with it.
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