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"The war in Ukraine is a war for the dollar" - part 2

by Oleg Nesterenko
Moscow has really threatened the U.S. dollar on the international stage, and with it the entire U.S. economy behind it. Since Putin took office, well before 2021 and even before the anti-Russian coup in Ukraine in 2014, Russia, a leading energy power, has begun the process of liquidating U.S. dollar-denominated bonds. Russia halved the number of U.S. bonds it held.
"The war in Ukraine is a war for the dollar" - part 2 of 3

[This article posted on 7/7/2023 is translated from the German on the Internet, https://www.nachdenkseiten.de/?p=100483.]

Within five years, from 2010 to 2015, Russia halved the number of its US Treasury bonds. Pretext for the outbreak of the war we know today in Ukraine? This is the second part of the interview with Oleg Nesterenko, President of the European Center of Industry and Commerce, granted to the publication L'Eclaireur des Alpes. The first part of the interview series can be found here.

Echoing Carl von Clausewitz's famous aphorism, it is often said that "economics is only the continuation of war by other means." But what if it is the driving force? Oleg Nesterenko, a man with experience in economics and international politics, holds this view. Unlike the Western media, we have chosen to let him speak, not to present and defend a particular view of the conflict, with the risk of propaganda - that is not our role and will not be - but so that this other point of view allows us to better illuminate all facets of a war that is also a war of information.

While there is a question about the end of the dominance of the dollar, you say that the war in Ukraine is not only a war of the U.S. dollar, but it is also not the first....

In fact, this is not the first, not even the second, but the third dollar war[1]. The first was the war against Saddam Hussein's Iraq. The second was the war against Gaddafi's Libya. And the third one, i.e. against Moscow on the territory of Ukraine, is waged in a third country, simply because you cannot wage war against the Russians directly in their own country. And so only a hybrid proxy war against Russia can take place.

As for the first two dollar wars, the first thing to understand is that countries like Iraq and Libya are major energy powers - powers that dared to challenge the American currency. In 2003, Saddam Hussein had made good on his threat to stop using the U.S. dollar for Iraq's international transactions. He was the first to question the legitimacy of the petrodollar and, more importantly, to act accordingly. In doing so, he signed his death warrant.

In February 2003, Saddam Hussein sold three billion barrels of crude oil for an amount of over 25 billion euros. This sale was in euros, not U.S. dollars. One month later, the U.S. invaded Iraq. The exact numbers are not known, but the casualties are estimated at one million, one in two of whom were minors. This is not to mention the additional hundreds of thousands who died in the following years as a result of the complete destruction of the country's social and economic infrastructure.

Libya also went to war over the dollar in 2009. Muammar al-Gaddafi, at that time president of the African Union, proposed a real monetary revolution to the entire African continent: He wanted to escape the dominance of the U.S. dollar and establish an African monetary union. With it, exports of oil and other natural resources from the continent would be paid for not in dollars, but in a new currency he would call the gold dinar. He had also signed his death warrant.

Had Burkina Faso, which is rich in gold but has no proven hydrocarbon reserves, made such declarations, there would have been no war. But because Iraq and Libya were energy powers with gigantic reserves, they posed an existential threat to the U.S. economy. Both leaders had openly announced that they wanted to get rid of the U.S. dollar. They were also two countries where the U.S. had no negative consequences to fear in the event of aggression. Therefore, they had to be destroyed. And that was done immediately.

This was not possible with Moscow. Russia is not Iran, Iraq or Libya. With Russia, the U.S. could only act indirectly.

But what does the war between Ukraine and Moscow have to do with the US dollar?

Moscow has really threatened the U.S. dollar on the international stage, and with it the entire U.S. economy behind it. Since Putin took office, well before 2021 and even before the anti-Russian coup in Ukraine in 2014, Russia, a leading energy power, has begun the process of liquidating U.S. dollar-denominated bonds. In five years, from 2010 to 2015, Russia halved the number of U.S. bonds it held. While it used to be among the largest holders in the world, it now owns hardly any.[2]

In parallel, the Russian Federation also began to gradually move away from the petrodollar system by entering into trade agreements in which payment in local currency was agreed upon, starting with China. It began paying for large quantities of energy products in Chinese yuan and Russian rubles.

These were the beginnings of the beginnings of the new war we have known since February 2022.

"The value of the dollar is supported only by the printing press and the military dominance of the United States."

In parallel, there is an unofficial agreement between Russia and China to synchronize their actions against the US. In this way, China is also and gradually getting rid of U.S. debt. In 2015, China held U.S. government bonds worth over $1.270 trillion. Today, it holds about 950 billion - the lowest level in more than a decade.

China has been called the U.S.'s greatest adversary, but it is the Russian Federation that has begun the process of ridding the world of the petrodollar.

With the outbreak in February 2022 of what I call the active phase of the war that has been going on for nearly a decade, Russia and China are working in tandem - officially this time, since the masks have come off - to urge central banks around the world to rethink the wisdom of their holdings of U.S. Treasury bonds and thus their investments in the U.S. economy.

The U.S. dollar is a currency without an equivalent[3]. There is nothing behind it. There is nothing tangible. The value of the U.S. dollar today has, for the most part, nothing to do with real assets that should be backing it. Its value is supported only by the money printing machine and U.S. military dominance, a dominance that makes it possible to suppress all malcontents.

Could the euro, which no one seems to be promoting, have been an alternative to the dollar in the face of de-dollarization?

One should not underestimate the weight and potential role of the euro. In the past, for example, Saddam Hussein wanted to sell his oil not in dollars but in euros. And that was, as mentioned, also the main reason for the Iraq war and the execution of Saddam Hussein. The euro may, or rather could, play a more important role than it does today. However, I do not believe in the least that this will happen - simply because European policy is deeply subordinated to the will of the USA.

The U.S. will never allow the currency of its vassals to endanger it. And given the mediocrity of those in charge or, rather, the irresponsible in Europe like the majority of its heads of state, the Americans and their currency really have nothing to fear from the euro. In most cases, the initiatives of European leaders are so anti-European and anti-national that they seem more like honorary U.S. consuls on the old continent.

And as if that were not enough, practically tomorrow - in 2025 - the presidency of the Council of the European Union will go to Poland. Poland is a direct agent, virtually an employee, of the US in the EU. The Poles will take over the leadership of the EU from Hungary and will do everything to destroy the smallest sovereign achievements of the Hungarian rebels. They have already announced that their top priority will be to strengthen EU "cooperation" with the US. In the coming years, the very modest remnants of European autonomy - military and economic - will be further dismantled and will become merely symbolic.

"On the international stage, officials in Brussels have no political weight and play only an extra role."

It is not for nothing that no power in the world, including the U.S. and even more so Russia and China, recognizes the EU as a serious interlocutor, preferring to negotiate only at the level of individual member states. On the international stage, officials in Brussels have no political weight and play only an extra role.

But I don't believe in the worst-case scenario of the European currency disappearing. After all, the ship of the euro has already gone far too far out to sea and has no fuel left to return without sinking the member countries' economies. But that aside, I am more than a Euroskeptic. Not that I am against the unification of Western countries around a European center, far from it: the history of mankind shows that everything comes down to the unification of similar forces that have the same view of things, similar values and goals.

The ideal of the project is one thing; the reality is different. Observing the "degeneration" of the originally beautiful European project in recent decades, and especially since 2004, it is no longer possible to ignore the fact that the European Union has become a kind of dysfunctional hydra, with each head having its own ideas. It is amusing to see that Russia alone has managed to bring them closer together. Fear, hatred and phobia have welded them together more than all the rest of the European project.

How is the Russian economy doing in the face of the sanctions introduced by the West?

The short- and medium-term impact of Western sanctions on the Russian economy is relatively small. They are simply non-existent for the standard of living of a large majority of the population. Nevertheless, one should not be naïve, because in the long run there will of course be certain sectors of the economy that will suffer to some degree. The extent will depend on a variety of variables.

When we talk about the consequences of the Western sanctions against Russia, we must not lose sight of the real purpose of the sanctions. In any business plan, the investments, but also the expected returns within the given time frame, are well defined. The first good question to ask is: did the sanctions achieve their goals within the timeframe and resources allocated?

The facts are known, even if they are carefully downplayed and distorted by the originators of the sanctions in order to save face: The goal pursued by the sanctions was the collapse of the Russian Federation's economy, which should have led to Russia's capitulation in the Ukrainian conflict. The result of this endeavor has been a complete failure. There has been no collapse at all. There is no collapse today, and there will be no collapse tomorrow. Talking about this is pure wishful thinking disconnected from reality.

The sanctions with the greatest chance of success were imposed at the very beginning of the confrontation. In particular, those in the second and third waves targeted the very foundations of the Russian financial system, the ability of public and private actors to raise capital on global financial markets, and the disconnection of hundreds of Russian banks from the Swift system, including "systemically important" banks. These sanctions were part of the original "business plan" and were deemed entirely sufficient to achieve the pre-determined goal of collapsing the Russian economy within a period of less than twelve months. All subsequent and future waves of sanctions are not in the least as dangerous to Russia's economic and financial stability, nothing more than rather chaotic gesticulating due to the failure of the original Western plan.

"Sanctions have no chance of stopping the continuation of Russian military operations in Ukraine"

Are the consequences of these actions harmful to the country in the long run? The answer is no. Let me remind you that Russia has been the target of significant sanctions by the West not only since 2022, but since 2014. There is no longer any talk of these "original" sanctions in "Atlantic" propaganda, and for good reason. Not only was the Russian economy not shaken in any way despite Barack Obama's jubilant arias - "The Russian economy is down" when the exchange rate of the Russian currency fell sharply but only once - but the sanctions even acted as a catalyst and significantly strengthened the sovereignty of the Russian economy.

There is no need to comment on Bruno Le Maire's March 1, 2022 remarks about the imminent destruction of the Russian economy[4]. They are even more ridiculous than Obama's and once again only show the blatant dilettantism of this gentleman.

Nature abhors a vacuum. In countries that have little involvement in international cooperation, embargoes can maintain the artificially created vacuum; this does not work in the case of great powers whose economies can never be kept in isolation in the long term. Alternatives are always created at the national and international levels.

Declining food imports as a result of sanctions led to the growth and consolidation of Russia's agri-food sector, and to a significant extent. In just a few years, Russia has gone from being a major importer of agri-food products to an exporter. Other sectors are becoming independent and will be virtually inaccessible to European business after the end of Russian-Western hostilities.

Energy and defense companies are effortlessly circumventing sanctions by simply refusing to use the U.S. dollar in international transactions and instead using Russian currency and the currency of the partner country. This simultaneously accelerates the process of de-dollarizing the world, this currency that has become highly toxic.

In the financial sector, as early as 2015, the Central Bank of the Russian Federation anticipated the risk of one day being cut off from the Western-controlled SWIFT international banking messaging system and created its own transmission system, the SPFS, as well as its own payment system for bank cards, MIR. Both systems can be used internationally and are already linked to China's Chinese Union Pay banking system. More countries will join SPFS. The great instrument of constant threats and blackmail from the U.S.-led camp to the rest of the world to be cut off from their SWIFT is no longer seen as fateful and existentially dangerous.

At the same time, today we are discussing very seriously not only the creation of a new common currency of the BRICS countries, but also a digital currency: the digital ruble. This currency will be an excellent additional means of getting rid of the coercion of illegal sanctions, as it can be used without the services of banks, which, in turn, might fear becoming the object of Western hostility.

So in your opinion, the West has more to fear, especially the boomerang effect of its own sanctions?

If German-Russian economic relations are destroyed, this will have a dramatic impact on the German economy. Energy-intensive German industry is already in deep trouble because its production costs have simply exploded and its direct non-European competitors, starting with the U.S., do not have the problems that the Germans have just created for themselves.

In the European Union, which is actually the second major collateral target of U.S. anti-Russia sanctions, most joint projects in science, technology and energy have already been downgraded. In the medium term, the total losses of all EU countries due to the sanctions against Moscow are estimated at several hundred billion euros.

As for the already mentioned restrictions on food imports to Russia, it should not be forgotten that European farmers in Russia lose billions of euros every year and will lose tens of billions more in the long run, as the Russian market will remain closed to them for a very long time. And even in the distant future, when the Russian restrictions are lifted, the market shares they will be able to regain will be ridiculously small compared to before.

As far as tourism is concerned, France in particular is footing the bill in Europe. There is no more tourism between Russia and France. If you ask around the hotel and tourism industry in the south of France, it's a disaster for them as well as for the real estate sector. For the last 30 years, Russian customers have been significant in terms of turnover. The mass media very carefully conceal this fact.

As for the energy sector, it is not even worth talking about. We all know the scale of the disaster. The catastrophe is concealed as best as possible by gigantic state compensation payments, which further increase the already excessive national debt and which will certainly not be repaid.

"In the economy, as in business, everything is about alternatives. And Russia has alternatives that the European Union countries don't have and won't have."

As of today, it is the U.S. that will not only regulate the production costs of energy-intensive industries, but also decide the price of a baguette or the heating bill for households. And anyone who thinks that the Americans will give gifts to their vassal competitors, the Europeans, should give up their bad habit of dreaming, it's not going to happen....

In general, all those who followed the U.S. plan have felt and will feel negative effects on their economies - on a much worse scale than Russia will in the coming years. Because in economics, as in business, everything is a matter of alternatives. And Russia has alternatives that the countries of the European Union do not have and will not have.

For the situation to change, especially in France, French foreign policy must change radically. But given the propaganda spread by the mainstream media in a very forceful way and the conditioning of the French electorate, it is clear that even the future elections in 2027 have no chance of bringing to power someone who would allow a significant improvement in relations with Russia.

For you, the sanctions moves (currently the 11th) are no longer effective?

The full range of serious sanctions that the Atlantic camp can control has already been exhausted.

One of the most important sanctions introduced was against Russian oil. What is the result? Russia sold even more oil in the first quarter of 2023 than before the war in Ukraine began.

The embargo against Russian gold is not working either. And this time, I actually regret it. Because tomorrow gold will play a much bigger role in the world economy than it does today. Instead of the Russian government, I would have severely restricted Russian gold exports, and have been doing so for some time. It's important to know that national gold reserves in the U.S. and Germany have barely changed since 2000 - in fact, they've declined sharply in France - while in Russia they've increased sixfold over the same period. However, it is important to continue to increase them.[5]

In terms of serious sanctions, the only ones that remain are those imposed on Russia's partners via blackmail and threats. However, since each time they involve strategic or even vital interests of the target states, the chances of success are close to zero.

Now there is talk of sanctions against nuclear energy. These plans are completely unrealistic. What the responsible, or rather irresponsible, people in European politics want will never work. The bureaucrats in Brussels are demanding that Hungary, which is highly dependent on Russian nuclear fuel, give it up,[6] even though almost half of the country's energy comes from nuclear power plants built by the Russians. And now new nuclear power plants are being built there to increase Hungary's energy independence. When I hear von der Leyen telling Orban to get rid of that... The losses for the Hungarian people would be significant. If they bow to Brussels, they would turn back time by 30 years. And it is pure wishful thinking to imagine that the Hungarian government would be crazy enough to do that.

Josep Borrell (EU's chief diplomat) also talked about sanctions against India and Russian oil products refined there. Imposing such sanctions would be pure madness and would cost Europe very dearly, as India has a variety of levers at its disposal to retaliate against the European economy.


Editor's note: References to German articles in the text and footnotes are by the translator.

More on topic:

Voices from Ukraine: the current main confrontation is between trans-speculators and representatives of a state-political world order

Let's go. Eradicate Tchaikovsky, Tolstoy and Co!

Voices from Ukraine: End the war immediately and sit at the negotiating table!


["1] The importance that the dollar has for the U.S. as the largest trade and reserve currency was, for example, succinctly described by the SZ in 2018 with: "The power of the U.S., however, is based on the power of the dollar."

["2] After the halving mentioned, Russia massively reduced its U.S. bonds, especially in spring 2018, presumably also because of the sanctions policy (see e.g. here).

["3] In the original "Monnaie de singe", literally monkey currency. The term originally referred to a type of payment in kind. Today it means to use a currency that is not convertible into money, or even "not to pay."

["4] Le Maire is minister of the economy and finance. He has made similar comments to Baerbock.

["5] The BRICS countries are discussing a new trade currency, to be backed (in part) by commodities.

["6] France also buys uranium from Russia.
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