One of the key underpinnings of US global economic power is the use of the US dollar for global trade transactions, but sanctions make that a far less attractive setup for other powers. It is no coincidence then that we are starting to see a de-dollarization drive from a variety of players. After much talk about Russia switching to the Euro, Russian oil giant Rosneft is taking the first concrete step toward this reality: Traders have told Reuters that Rosneft has informed them that future tender contracts for oil products will be in euros, not dollars - as soon as Q4 of this year. It’s a hedge against future US sanctions, and a hedge against, well, hegemony. For now, consider this more significant in terms of a hedge against sanctions rather than the dollar’s hegemony. In reality, the dollar will be very difficult to dethrone.
The back channels between the UAE and Saudi Arabia are many and deep, and while the Saudis might not have blinked at first when UAE-backed separatists seized Yemen’s southern port of Aden from the internationally recognized Hadi government, this was not done without some sort of back-channel discussion. The UAE wants out of the Yemen conflict, which is costing it, on a monthly basis, billions of dollars. The biggest question for investors right now is whether these Gulf relations are even sustainable, or whether we’re about to see a major shift in Mideast strategies.
Last week, we discussed the UAE-backed separatist takeover of Aden, and since then, it has become clear that the UAE is trying to split Yemen into north and south and there are rumors that it has even agreed to a ceasefire with the Iranian-backed Houthis. This is a highly significant development considering that the UAE continues to view Iran as a threat. Threat or no, the fact is that Gulf relations are cracking, and Iran isn’t necessarily the odd man out here: It’s biggest support right now is Qatar; but Oman is also moving closer and Kuwait seems to be less interested in its previous alliances. That leaves only Saudi Arabia and its stooge, Bahrain, and the UAE as staunch anti-Iranian policymakers. With the UAE backing out of Yemen, that further diminishes the anti-Iran alliance.
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