Samson: China preparing to trade oil in yuan, no more US dollar

15th December, 2017

China earlier this year announced plans to start a crude oil futures contract priced in yuan and convertible into gold in a bid meant to challenge the dominance of the US dollar

China has reportedly completed its fifth dry run in yuan-backed oil futures contract trading thus moving closer to what could be a revolutionary move to challenge the dominance of the US dollar.

Bloomberg in a report said 149 members of Shanghai International Energy Exchange traded 647,930 lots in the rehearsal with a total value of 268.2 billion yuan. The system met the listing requirements of crude futures after the exercise, it added.

The report quoted economists as saying that the contract had the potential to greatly help China’s push for yuan internationalization.

The success of the contract, however, would depend on the degree of freedom allowed for the capital flows related to it, Bloomberg quoted Yao Wei, chief China economist at Societe Generale in Paris, as saying.

Since the 1970s, the global oil trade has almost entirely been conducted in US dollars.

The largest energy consumer, China, is interested in having oil contracts in yuan. Beijing plans to introduce its own oil benchmark which will rival Brent or West Texas Intermediate. Analysts say Chinese authorities will need to first convince large oil producers and consumers to use the yuan and invest in the Shanghai benchmark, Bloomberg added in a report that was also carried by the website of the Russian news television channel Russia Today.

The Chinese government announced plans to start a crude oil futures contract priced in yuan and convertible into gold earlier this year. The contract will enable the country’s trading partners to pay with gold or to convert yuan into gold without the necessity to keep money in Chinese assets or turn it into US dollars
The new benchmark will reportedly allow exporters, such as Russia, Iran or Venezuela to avoid US sanctions by trading oil in yuan.

In September, Venezuela ditched the greenback for oil payments. Caracas has ordered oil traders to convert crude oil contracts into euro and not to pay or be paid in US dollars anymore. The measure followed the rolling out of sanctions by the United States against the country.



Samson: Silk Road … An economic belt linking Iraq with China

– One Day Ago

The Silk Road is a 12,000 km long land and sea road linking Asia, the Middle East and Europe hundreds of years ago with commercial, cultural, religious and philosophical links. The exchange of goods and products such as silk, perfumes, incense, spices, and cultural and scientific exchanges.

The name Silk Road is relatively recent. In the mid-19th century, the German geologist, Ferdinand von Richthofen, named the name “de sidenstrasse” (the Silk Road in German) on the trade and transportation network.

China’s surplus industrial production is one of the most important drivers behind the initiative. For example, China produces about 1.1 billion tons of steel a year (equivalent to that of all other countries), but it does not consume internally Only 800 million tons. The Federation of European Chambers of Commerce estimates that the initiative will absorb only 30 million tonnes of this surplus.

China enjoys friendly, good and influential relations with most countries in the region as it is expected to have a more effective security and political role in the Middle East.

Sino-Iraqi relations

In June 2007, Iraq’s President Jalal Talabani visited China, the first visit by an Iraqi president, during which four agreements were signed by the two countries. Including an agreement on the cancellation of 80% of Iraq’s debt owed to China, amounting to eight and a half billion dollars, including The other three agreements of cooperation between the two countries’ foreign economic and technical cooperation ministries and a program for the training of human resources and signed a memorandum of understanding between the ministries of science and technology in both countries to train dozens of Iraqis in the field of energy and how to make use of solar energy to produce electricity.

Iraqi Prime Minister Haidar al-Abadi seeks to find an outlet for the suffocating crises in Iraq, security, political and economic through the signing of quick and far-reaching agreements to avoid the fall in oil prices, which is the main source of Iraqi income, calling for the recruitment of Iraq’s joining the Silk Road in developing areas of cooperation in many sectors , Especially coordination and cooperation on energy with China.

Abadi called for “activating the Iraqi-Chinese relations committee, resuming its meetings and increasing trade exchange with China.” He welcomed the expansion of Chinese enterprises in the country, where Chinese President Xi Jinping supported the invitation.

A statement by Iraqi Prime Minister Haidar al-Abadi’s office said that the Iraqi government signed with its Chinese counterpart at the end of 2015 five agreements and memoranda of economic, technological, military, diplomatic, oil and energy cooperation.

The notes are:

The first “understanding on participation in building the economic belt of the Silk Road and the Silk Road of the 21st century”.

And the second “economic and technological cooperation between the two countries”.

The third included the signing of a framework agreement on energy cooperation.

The fourth note focused on “military cooperation between the two countries”, while the fifth memorandum signed an agreement on the mutual exemption of visa for the entry of diplomatic passports.

Silk Road…

The importance of the new Silk Road comes from the Chinese initiative and the areas it is linking to form an economic belt that will expand economic and cultural exchanges and connect groups of small emerging nations, as well as the traditional G20 emerging nations.

The economic belt of the Silk Road is centered on three main lines of the so-called “aspirations and actions on pushing forward the joint construction of the Silk Belt and Road”,

“connecting China-Europe line through Central Asia and Russia,” and a line extending from China to the Gulf and Mediterranean region Central Asia and Western Asia “,” a third line from China to South-East Asia, South Asia and the Indian Ocean “.

The maritime silk route of the 21st century focuses on two main lines: “A line that starts from China’s coastal ports and reaches the Indian Ocean through the South China Sea and the coasts of Europe”; and “a line linking China’s coastal ports to the South Pacific.”

China attaches great importance to Iraq for several reasons:

First, Iraq is a rich country with large oil resources, water, minerals, agriculture and various resources.

This has led the Chinese to think about working and investing in Iraq and have a foothold because China needs great energy. They expect to face problems in this regard. In 2020. By 2025, they expect their oil consumption to be around 15 million barrels a day, while today they consume 6.5 million barrels a day, of which 4 million barrels of extraction, so that the amount they import from the oil abroad 2.5 million barrels per day, then Go ahead China’s development of the past 20 years will require large amounts of energy consumption, although 65 percent of the energy is coal, 30 percent is oil and gas, and 5 percent is nuclear power.

There is an old agreement between China and Iraq to extract oil in the field of “Ahdab” in the province of Wasit at a time when Iraq is suffering the blockade and now the Chinese demand the renewal of the contract and work, as well as geographically and civilizational and cultural heritage and they are one of Iraq’s four civilized countries in the world: Egypt, India, and Iraq, and therefore they want to participate actively in rebuilding Iraq and the use of capital in it, they have a lot of money and China is the first country in terms of financial reserves.

Iraqi Ambassador to China Ahmed Berwari said Sino-Iraqi relations enjoyed an important economic strategy against the backdrop of the belt and road initiative.

He stressed that the “Belt and Road” initiative is important for Iraq because it is historically located on the Silk Road. Therefore, we have prepared ourselves as part of the initiative since it was put forward by Chinese President Xi Jinping.

The importance of this initiative is to support Iraq so that it can rebuild the infrastructure and help it economically and developmentally to be active in the region. The initiative is important for Iraq and the Middle East because it provides them with significant economic and developmental support.

Berwari said that China enjoys superiority in many fields, and since Iraq, an oil-exporting country, is mutually beneficial between the two countries, which enjoy strategic relations.

Chinese state-owned enterprises are the biggest oil investors in Iraq, especially the modernization and development of Iraq’s oil infrastructure.

Berwari said that 90% of Iraq’s imports came from the sale of oil. Therefore, investment is important in development, which is a great support for Iraq.

Berwari said that the volume of trade exchange between the two countries in 2016 amounted to 18 billion US dollars, but this year, according to statistics of the Chinese official body, in the first half of 2017, reached 11 billion US dollars.

Despite the decline in the price of oil, the amount of Iraqi oil exported to China has not decreased, but increased. But because of the low price, we notice that the amount compared to 2013 and 2014 decreased slightly, but the price is down and not the amount of export.

The relative importance of trade relations between the two countries relative to the volume of exports and imports is relatively balanced, a sign of healthy economic and trade relations between the two countries.

And Berwari to the decline in trade in Iraq; because of wars and siege and problems in Iraq, did not have the opportunity to develop and modernize the infrastructure in various areas, after being destroyed in those wars, and the occupation of a terrorist organization calling for cities in Iraq, And reconstruction in full.

“Chinese companies are very effective in Iraq, in fields such as oil, energy, energy, energy, and energy. We have a huge shortage in this field, and Chinese companies are very active and effective in this field.

Berwari said that about 60% of the electricity of the city of Baghdad is produced by Chinese companies in Iraq, and that China is a pioneer in the field of transportation, communication and communication.

Berwari describes Iraqi-Chinese relations as historic and strategic, meaning they have reached a very advanced stage.

This type of relationship between the two countries includes areas of development, economy, oil, electric power, transportation, infrastructure, residential construction, and others.

We look forward to entering into new areas, including agriculture, security and defense, and to develop our relations more, because we want China to have a more active role in our region.

Motives and fears

Despite the development of cooperation between Iraq and China, there are fears that the surplus of Chinese industrial production is one of the most important motives behind the initiative of the belt and road; China produces about 1.1 billion tons of steel annually, a quantity equivalent to that produced by all other countries of the world, but it does not Internally consume only 800 million tons. The Federation of European Chambers of Commerce estimates that the initiative will absorb only 30 million tonnes of this surplus.

China’s Development Bank said it was already tracking more than 900 projects in 60 countries at a cost of about $ 850 billion and by late 2014 it had allocated $ 40 billion to the Silk Road Fund to start funding the $ 1 trillion initiative.

China’s investment in the Silk Road initiative has reached 60 billion US dollars since 2013, and China’s overseas investments will total US $ 120 billion to US $ 130 billion annually over the coming years, mainly to the countries involved in the Silk Road project, Chinese officials said. Will be a major engine for a steady recovery in the global economy, free trade and investment, according to the Chinese view.

Economic advantages for the countries of the region of the Silk Road:

The Arab Republic of Egypt believes that “the belt and the international road” and joining the Chinese initiative 2014, to revive the road will achieve cooperation and the interests of the people.

And a good opportunity for Egypt to present its investment incentives and the application of the new investment law, and in light of the great interest of Chinese companies to invest in the area of ??the axis of development of the Suez Canal, which Egypt aspires to turn into a global industrial and logistics area that is attractive and not just a navigational corridor.

Turkey has received the project of the belt and the road with great pleasure, said Turkish President Recep Tayyip Erdogan: The project «belt and road» known as the «new Silk Road» initiative «will eliminate the escalating terrorism in the world,” stressing that the project has an influential role in the future, Linking Asia, Europe, Africa and even South America to each other. ”

The project covers more than 60 countries on an area of ??40 million km, and 4.5 billion people live in the world, Erdogan said.

“Turkey is one of the most important countries in the Silk Road, and it wishes to cooperate with all countries in this regard,” Erdogan said.

“China is a global power in the fields of trade, economy and defense industries that can fill the vacuum of the West and Turkey’s survival away from this power is a loss,” said Turkish economists.

Shatha Khalil

Researcher in Economic Unit

Link Center for Research and Strategic Studies    link

Iraqi Dinar Guru opinions 12-15-17

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