Russian President Vladimir Putin has recently cajoled, threatened and intimidated Ukraine and by extension Western European allied forces and the US interests in the region.  None of it has provoked a US military response. But what Putin recently said to threaten the US dollar may have crossed a line.

petrodollar

Putin targeting the US petrodollar

With a convoy of Russian “aid” workers really thought to carry military cargo designed to boost Ukrainian separatists heading towards the region and fresh off the suspicious downing of a Malaysian airliner over the region comes fighting words fighting words from Putin targeting the US petrodollar.

Putin said today that Russia should sell its oil and gas in Russian roubles, its domestic currency, rather than doing so in US dollars. While this might strike neophytes as a tame statement when compared to the invasion and consequent takeover of the Crimiea region from Ukraine or potential involvement in terrorist activity or – even worse in the eyes of the Washington intelligence community – providing cover to that traitor Edward Snowden, it is this little action, challenging the US petrodollar dominance, that could trigger real action and concern.

Putin taunts US

In his short remark reported by Reuters, even the barrel-chested Putin acknowledged that the insider topic should be treated with care.  “We should act carefully. At the moment we are trying to agree with some countries to trade in national currencies,” Putin said as he visited the Crimea region, as if taunting the US to take action while feet brazenly planted on conquered soil in defiance of the international community.

The US petrodollar battle is one of several key issues being eyed by certain risk managers in the hedge fund community. Although the topic is rarely mentioned in the mainstream press, insiders observe the US petrodollar dominance is a key linchpin to keeping the US economic engine – and its unnatural gymnastics with government debt and artificial economic stimulus – from crumbling.

One key to US world dominance is to have all international trade transacted in US dollars.  This is particularly true of oil.  When the world trades in dollars, it holds the US currency in reserve, most often purchasing US Treasury bonds. To threaten this system is to threaten US economic security to an important degree.

Russia and China planning to displace the US dollar

As previously reported in ValueWalk, Russia & China along with other nations have been strategizing on how to displace the US as the dominate world reserve currency for years and continue to chip away at the long term project.  Some inside the hedge fund community have used quantitative methods to model various economic situations – none of them particularly attractive for western interests – in an effort to hedge their risk.

For investors and traders, keeping an eye on the important behind the scenes news that isn’t reported, such as the fight over the US petrodollar dominance, can be most interesting and important. Its a discussion you likely won’t see explained in the mainstream, but it is worth watching.