Russia is prepared to switch to the Chinese Yuan in trading with the East.
Putin announced it during the meeting with Xi Jinping.
And it's not just about China — Putin offered to trade in yuan with all of Asia, Africa and Latin America.
He tried to please Xi with all his charms. Like, I’m down for anything, just side with us and get yourself our oil.
Or gas. Or steel… or anything, for that matter.
Xi isn’t rushing it, though. He waits for better proposals, hinting at “Work, work. I need more gold.”
And there’s nothing Putin can do about it.
The situation isn’t tilted in Putin’s favor.
Oil supplies to Europe have been almost completely cut off. Gas supplies have plummeted after
the Nord Stream explosions. Putin has nowhere to run.
For years, oil and gas revenues accounted for 30% to 50% of the Russian budget.
In 2021, prior to the invasion, half of oil exports and even more so of gas exports headed to the EU.
What about now? As the war drags on, a bulk of arms, supplies, and equipment is wrecked.
The country is spiraling down to an economic crisis, and the EU that used to ship tons
of currency to Russia doesn’t want to pally up anymore.
Can China replace the EU and ship in as much cash? Does China even need the goodies offered by Russia?
How beneficial is it to brown-nose China, if at all? Let’s delve into it.
RUSSIAN GAS!
Before the war in Ukraine erupted, China had been buying Russian gas already.
But China’s share in Russia’s pipeline gas exports amounted to a mere 5%.
Germany alone snatched almost a quarter, while the EU combined bought almost 75%.
For gas supplies to China to reach at least the level of German consumption,
it’ll require several years of work on the only existing eastbound pipeline, Power of Siberia.
Let alone the necessity of investing in new projects.
Propagandists may yell out, “Putin and Xi have arranged the Power of Siberia 2.0 construction,
and its capacities are top-notch!”
However, they would omit the fact these capacities would match Germany’s pre-war consumption at best.
As well as the fact that such a pipeline would be ready by 2030, or when Hell freezes over.
At the same time, China has other gas suppliers in mind. Before the war, its main partner wasn’t Russia
but Australia that accounted to a quarter of Chinese imports in 2021.
The runner-up was Turkmenistan, which left Russia in 3rd place with its 10% share.
Moreover, China received gas from the U.S., Uzbekistan, Kazakhstan, and Myanmar.
Such fierce competition forced Russia to drop the prices for China. In 2021, 1,000m3 of pipeline gas
was shipped to Europe for $270, while China got it for $200 tops, with prices in H1 ranging from $120 to $140.
China used to pay half of what Europe did, and sometimes even less than Belarus whose mates rates were at $130.
Lukashenko wasn’t too stoked about it, by the way.
As the war kicked off, China immediately demanded discounts on liquified natural gas (LNG) as well.
In this state, gas may be transported by sea. As early as April 2022,
China enjoyed a 10+ percent discount on LNG from Russia.
While other countries raced to cold turkey their relations with Russia,
Chinese companies pushed for even bigger discounts.
So, does China need Russian gas at all? It does, but there’s a catch. China needs it on very different terms than Europe did.
That’s why China is unlikely to help Putin cover even half of his losses after the EU called it off.
Russia will have to adopt a sleazy business approach of a dollar store announcing its closure and offering its range
at half the price. In this case, it won’t be shoddy goods, though, but rather valuable natural resources.
RUSSIAN OIL
Let’s talk about oil now. In 2021, China amounted for a third of Russian oil exports, bringing in a substantial $35 billion.
That may seem like an eye-watering amount, except the EU paid $50 billion, accounting for half of exported oil.
What has changed since the war started?
The EU couldn’t go cold turkey on Russian oil, as it heavily depended on it.
They bought it in bulk for the future and, on December 5, refused Russian oil supplies by sea,
effectively cutting off over 60% of their imports.
The remaining oil headed to Germany, Hungary, the Czech Republic, Poland, and Slovakia via the Friendship Pipeline.
As of January 1, 2023, Germany shunned those supplies, too.
In February, Russia stopped pumping it to Poland due to alleged non-payment.
That is, the two largest customers quit buying pipeline oil. The pipeline also saw temporary issues with other countries.
As a result, the supplies through the Friendship Pipeline slumped threefold over the past year.
Also, a part of the pipeline going to the Czech Republic, Slovakia, and Hungary lies through Ukraine.
According to Russia, Ukraine occasionally sabotages this branch, essentially causing the pipeline to pipe down.
All in all, Putin has only China and a handful of other countries to legally sell oil to. It’s a buyers market.
Since the war broke out, China and India have been enjoying up to 30% off.
China pouts every now and then and refuses some shipments. Why wouldn’t they?
In December 2022, the EU set a price cap on crude oil from Russia at $60 per barrel,
and barred its companies from insuring Russian tankers if they sold it for more.
So, China simply spurned some of the oil. Who needs it without the insurance from the West?
Russian insurance companies didn’t jive with China even in the face of the discounts.
After all, if oil spills all over the coast of China, it’ll take heaps of money to fix.
And China trusts Western companies much more than the Russian ones.
Not only does China save a lot on our oil — it makes bank by refining and reselling it.
Some experts believe that happens to most of the Russian raw materials going to China.
Russia could have made a mint on diesel, fuel oil, and other petroleum products.
We have our own refineries, we don’t need China as a middleman.
Correction: we didn’t need it up until February 5, when the EU ceased to accept tankers with Russian petroleum products.
Putin doesn’t have much choice, though. It’s rather selling raw materials to
Asia on the cheap or mustering up a fleet of rusty tankers and selling oil on the sly.
As The Economist revealed, such practice does exist. It does until the first major oil spill incident.
That would leave Russia with the only choice
of official supplies to China, India, and possibly a few other buffer countries.
This calls for an obvious conclusion: shipping oil to Europe without any discounts was much more profitable.
Now, Putin has made the country dependent on China.
There are no other options. India, the second-largest partner, has increased their import from Russia almost tenfold last year.
Still, it struggles to compensate for even a third of former supplies to Europe.
OTHER RESOURCES
Remember “I need more gold?” Last July, Russia’s supply of gold to China shot up eightfold within a month.
This amount jumped 50 times YoY. Awesome, right?
But China only boosted its purchases after Russia had lost its markets in the U.S., the EU, and the U.K.
The latter proved the most significant loss: the export to the U.K. used to account for almost 90%
of all Russian gold exports.
In 2021, $15.5 bn out of $17.5 bn gold export revenue came from the Brits.
London is the world's most important hub for the circulation and storage of precious metals.
Gold is being actively traded and resold to the third parties from there.
That’s it, folks, we have no hub anymore. We’ve got China that shot up its gold import from Russia,
and not without a reason
Before the war, China purchased a tad over 1% of Russia’s gold export.
There’s the same old trite explanation for its aroused interest. Russia provides massive discounts.
Experts believe they can reach as high as 20%–30% off stock prices.
It resembles the situation with oil and gas, but there’s a difference.
In times of crisis, oil and gas prices tend to plummet, as countries seek ways to cut back on consumption.
Gold, however, generally holds its value, especially in times of crisis, when it protects the ruble, yuan, dollar,
and whatever pound to be found, from inflation. It’s hard to imagine an oversupply of gold in China,
Russia, or any other country these days.
Still, Putin sells out what he has to keep bankrolling his war.
Moreover, he agrees to get paid in yuan, which may crash as well as the ruble any moment, if, say,
China wages war on Taiwan which it considers its territory.
By the way, we discussed the odds of such an outcome in one of our previous videos.
If this war does break out, investors will stop purchasing yuan and Chinese stocks, making the yuan plummet.
It may also go down if the U.S. and the E.U. sanction China for any other reason.
China may even lower the exchange rate itself to sell more goods overseas. These outcomes aren’t imaginary.
Putin’s stash of yuan may well turn into red wrapping paper soon.
Getting paid in yuan isn’t the brightest idea.
It’s as if Russians started selling their savings in dollars and euros for rubles,
that may turn into Cinderella’s pumpkin in a year or two.
Some analysts predict the dollar may increase its current value in rubles up to three times.
As I said before, Putin doesn’t give a jack about the economy anymore. And the riches he’s promising
to citizens are likely to end up in China.
Another instance of squandering Russia’s natural resources is the platinum market.
In January and February, Russia’s supplies to China skyrocketed almost 300-fold.
Can you even start imagining the bargain! In early 2022, we only sold 13 lbs. In early 2023, soared to over 1.5 tonnes.
A hell of a selling spree. And that’s true of other commodities, too.
Not all positions are on the rise, however.
For example, the first half of 2022 saw a rapid 20% decline of iron ore supplies to China,
while the income plummeted by 40%.
That’s because one of the points of the iron ore trade logistic chain was the Ukrainian city of Odesa.
As a result, Russia blew a fortune again.
But when it comes to selling out other resources on the cheap, we’re unmatched. Putin’s on a roll.
BUDGET CONCERNS
What about the bigger picture?
It may seem that thanks to berserk discounts, Russia must have gotten enough dough
for Scrooge McDuck to go green with envy.
Russia’s budget must be overflowing with cash that’ll be more than enough for the war, salaries, retirement money,
and even healthcare investments.
But this isn’t the case. In 2022, China paid Russia $35 bn more for goods and services than in 2021.
Does it come close to compensating for the lost European market? Natch, no!
In January and February, Russia’s government expenditure exceeded the revenue with a staggering deficit of $37 bn.
So not only the excess gains from trading with China for a year were wasted in two months,
that amount was a net loss of the geopolitical geniuses’ budget. In two crummy months.
Let the Guinness World Records adjudicators in!
As the budget deficit bulges, it becomes less and less clear where Putin will find the dough to buoy up his corny “stability.”
He can’t be bothered, though. He’s busy with “4 hours of tea by the fireplace” discussing the future with Xi.
And as he sips his libation, prices in stores are rising, salaries are dropping, meds are running out,
doctors are being draft or fleeing the country.
Some Russian villages have no medical professionals left. Same goes for qualified workers in other fields,
who’d contribute to the economy in a parallel universe.
And China did nothing to help. It has simply pumped out heaps of resources for chump change, and will continue to do so.
We’ll be rewarded with waning yuans, a nominal friendship, and parallel imports of shoddy consumer electronics.
If some of your beloved ones still believe in the brave new world where glorious Russia alongside China
confronts the West, show them this video.
There’ll be no stability and equal partnership with China.
They’ll only give away the country’s resources to scrape together more money to fight Ukraine.
The only other way is to stop the war and restore relationships with wealthy countries
that are seemingly still ready to deal with us.
See you tomorrow!