/mlpol/ - My Little Politics

As I'm sure everyone is aware of the happening involving a certain two countries. What people may not be as aware of is the full-on economic WWIII that is being waged between the West and Russia, with battle lines being drawn across the world.
Consider first and foremost, that the countries that have passed sanctions against Russia is NATO countries, EU countries (even then, some are hesitant due to their dependence on Russian oil and gas, more on that later), and the G7 Countries (US, CAN, UK, FR, IT, DE, JP) as well as South Korea, Australia, New Zealand and a smattering of Pacific island nations.
But what of the rest of the world?

Know this, the economic WWIII that is being waged goes far beyond Ukraine. What is at stake is nothing less than the future of the US Dollar itself. But for that, we need background.

The Petrodollar: In the 1970s, President Nixon took the US Dollar off the gold standard, effectively rendering it a fiat currency that can be just printed at will. A myriad of reasons went into this decision, but around the same time, the US made a deal with the Saudi royal family: The US would guarantee protection for Saudi Arabia, if the Saudis traded oil for exclusively dollars. This marked the beginning of the US Dollar as the world's reserve currency as Saudi Arabia was the #1 producer and exporter of oil worldwide. This in turn meant other countries needed to buy up dollars in bulk to purchase Saudi oil, thus creating a massive demand for US dollars as the rest of the Middle Eastern OPEC countries adopted the dollar for oil trades. Therefore, the dominance of the US Dollar was cemented throughout the world especially since EVERYONE needs oil in order to even function, much less have proper militaries.

This has several effects on the Dollar. Due to the sheer global demand for the dollar, this makes the US dollar have massive purchasing power which in turn means we can just simply run massive spending bills and export the inflation to other countries. If the Dollar fell in value, exporters who need our consumption would witness their currencies grow stronger, which in turn means higher prices for their exports, which creates lower demand as the US would have to pay more for those exports, which in turn means less imports from those exporters, which ultimately hurts them. So they intentionally devalue their currencies in order to keep the system going. In short, the Petrodollar is good for the US... not so good for everyone else.
This is why the US government passes spending bills that are now in the trillions and has racked up over $30T in debt with impunity, because they've never needed to worry about spending limits, they can just print more money as needed and export the inflation to the rest of the world.

However, this all hinges on the rest of the world wanting our dollars. What happens if other countries try to trade oil for other currencies? Enter Saddam Hussein. In the early 2000s, he tried to trade Iraqi oil for Euros. He was overthrown, and Iraq went back on the Dollar with no discussion of going off the Dollar since then. Gaddaffi tried to trade Libyan oil for a gold-back Dinar as part of the push towards integration within the African Union. He was overthrown and brutally killed by a mob after a NATO-led intervention against him with airstrikes and a color revolution.
These are all backwater countries that have no hope of standing up to the US military obviously. What happens if Russia or China go off the Dollar? So what do we do if say, the BRICS countries dump the Dollar? Make no mistake, dumping the dollar globally means the inflation we've been exporting overseas will start coming back home. The "official" 8% inflation figure in the US is just a small taste of what's to come...

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Back to the economic WWIII at hand. The trigger was when the Western world passed sweeping sanctions against Russia including seizing half of Russia's foreign exchange reserves (amounted to $300B out of $640B). But what are foreign exchange reserves?
>Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence the foreign exchange rate of its currency, and to maintain confidence in financial markets.
>Often, for convenience, the cash or securities are retained by the central bank of the reserve or other currency and the "holdings" of the foreign country are tagged or otherwise identified as belonging to the other country without them actually leaving the vault of that central bank. From time to time they may be physically moved to the home or another country.
Know this: the seizure of Russia's fx reserves has sent waves throughout the financial world as other countries that aren't highlighted in yellow in the third picture have started to question the wisdom of holding US dollars when their reserves can be seized by the West in an instant if they should fail to toe the Western party line. Some have even cut out the dollar altogether in trades with Russia. Enter India.

Not long after the Ruble crashed and the price of Russian oil collapsed well below the Brent crude asking price, there were reports that India made a deal to buy oil from Russia at a hefty 25% discount. Most significantly, the payment was to be made in Rupees, not Dollars.
India has a vested interest in continuing friendly relations with Russia for two main reasons: Russia supplies the majority of weapons for India via sales, and India wishes to have a friendly Russia as a counterweight to China. Russia in turn wishes to turn India against the West and also have India available in order to prevent utter dependence on China, while also selling Russian oil to both countries. Realpolitik in action.

(cont.)