The Day the Petrodollar Died
By Dmitry Orlov
March 23, 2022 is shaping up to be an important date. Today Putin announced that in very short order Russia will stop accepting payments for its exports in currencies of hostile nations, immediately for natural gas, eventually for everything. Existing contracts will be honored but rewritten to stipulate payment in rubles.
In response, the ruble immediately strengthened relative to the US dollar and currently stands at 98.5₽/$ compared to 139.0₽/$ on March 7th—a gain of almost 30% in just over three weeks. At the same time, dollar-denominated prices of oil and gas surged.
Here’s the complete official list of hostile nations: Australia, Albania, Andorra, Great Britain, all members of the European Union, Iceland, Canada, Liechtenstein, Micronesia, Monaco,New Zealand, Norway, South Korea, San Marino, Northern Macedonia, Singapore, USA, Taiwan (a province of China), the Ukraine, Montenegro, Switzerland, Japan.
And here’s a partial list of Russia’s key strategic exports for which there is no replacement: oil, natural gas, wheat, fertilizer, titanium, sapphire for semiconductor manufacturing, nickel, enriched uranium, rocket engines… Hostile nations will be unable to continue business as usual without these key ingredients.
n turn, hostile nations are likely to be unable to raise enough rubles in order to continue purchasing these commodities because of sanctions which were imposed on Russia as a result of its special operation in the Ukraine. Many companies stopped doing business in Russia altogether (Siemens is the latest major casualty) and their market niche in Russia has been immediately taken over by Russian companies. Many other companies limited their exports to Russia to essentials, but these essentials now include potato chips, lip gloss, children’s makeup and many other nonessentials.
A return to dollar trade seems unlikely for Russia. By arresting Russia’s sovereign wealth fund held in dollars the US essentially declared sovereign default, proving itself to be an unreliable partner. Neither Russia, nor any other country, has any reason to sell anything for dollars since the proceeds of such a transaction can be confiscated at any time. Conversely, the US will no longer be able to print dollars (borrow, technically, but since this debt will never be repaid it is essentially just printed money) and buy imports with them; instead, it will be forced to earn rubles to buy the oil it needs to keep its refineries in operation or the enriched uranium it needs to continue generating electricity.
But what can the US export to Russia that Russia would want? These would need to be products, not services, since the services Russia has received from the US are most unsatisfactory. Nor could these be payments for the use of patents, software licenses and other intellectual property: all of these are now free to Russians. There is, of course, gold, but US gold reserves haven’t been audited and it is unknown how much of its hoard has been quietly traded away to China and other creditor nations to keep them from dumping US debt.
And that leaves asset stripping. A lot of it went on in Russia in the 1990s after the Soviet collapse. I predicted that it would eventually happen in the US as well in the very first article I published, “Post-Soviet lessons for a Post-American Century.” And now, barely 22 years into the post-American century, these predictions are about to come true.