Scary Times for the World Market

The world economy was for the last 40-50 years based on control of coal, oil and gas and the ability to allow it to enter the market though the use of mainly the USD. This had everything to do with the dominance of the US, with bases in most parts of the world. The reach of US dominance has been shrinking in recent decades, as oil, coal and gas producers tried to challenge the idea all fossil fuels are sold in USD, at prices determined on US trading exchanges. The US has been fighting this erosion, because it is the basis of its power, which works like this :

Because fossil fuels are traded in USD and the US can print USD, the US is never short of fossil fuels, as long as it uses a sizable amount of it to prevent this USD trading rule from slipping. It is the same as when you hold the gun, you can keep holding the gun, when you lose it to someone else, you can not grab it without getting shot, or the first that gets to the sword is the king.

There is more sides to this dominance, its deeper than just the markets, its also based on expertise of oil/gas/coal companies. That expertise is protected. For example now that Russia has gone mad, the oil extraction experts have left the country, and Russia’s oil infrastructure is going to deteriorate unless it develops skills on its own. Same happend to Venezuela, or any country that does not want to comply.

Iran is an example of a country that tried to sell oil for Gold, but was quickly sanctioned. Iraq same story. Egypt tried to get from under the US puppet government recently, but failed. It was facing hunger because the US printed USD to hoard food and fuel, while Egypt could not, but yet Egypt was a supplier of oil the the US.

The refinery infrastructure is also vulnerable, sparse. This is not trivial, Iran can not turn its own oil into fuel, nor can Iraq. Some defense functions like fighter jets need special fuel. It seems Russia is not using much of its air dominance because it can’t make much of the necessary fuel.

Because of the global dominance of the US and the global oil/gas market (or the illusion of it) we all feel like our Euro, Dollar, Swiss Franc etc, is hard currency, we expect to use it. We expect our stock in NY or Frankfurt to be sellable, we have a global financial system. When we transfer USD to Singapore it is going to have roughtly the same buying power as in Amsterdam.

This can change. The determining factor is the shared fossil fuel market under a managed currency basket (USD, JPY,CHF,EURO,CAD,GBP) with relatively stabile exchange rates. If the fossil supply desintegrates for some reason, the currencies will all develop differently, as if a continent split into islands.

As Russia invaded Ukraine recently, and the world was trying to figure out how to deal with its oil/gas sanctions, China looked on with some trepidation, and signs of the above scenario where apparent. China had to openly say it would support the world economy in the far future, as well as it would not withdraw Chinese companies listed on US exchanges.

The latter would definitely happen if the world became a group of autonomous energy islands, which it will become some time in the near future. The reason for this is simple : If the energy used to make a product in China has no relationship with the energy used in the US (through a shared currency) then US money has no value in China. Especially if the production of goods and services in China is sufficient for all needs in China. A chinese manufacturere would have no use for US dollars, it would not spend them in the US, nobody else would have any use for it. Today any chinese manufacturer HAS a use for USD because it can buy oil/gas/coal which is usefull to a manufacturer.

So what would happen if every continent developed its own energy supply, not fossil, not shared, not globally traded? The same things could be made on every continent, but there would be efficiency gains if one would make all the things needed in Europe.. in Europe.

Today, because banks want to remain important and because the US can fund oil consumption, and because of the artificial global oil market, the location of production is not too relevant. Banks made themselves more important by maximizing the distance between producer and consumer. This also helps with obfuscating abusive, criminal, ecologically damaging activities.