Japan Joins the Party, Ditching Pact With U.S.A. to Buy Russian Oil On the Cheap

This week the news is dominated by the historic arraignment of former President Donald Trump. No doubt big news demands attention, but as usual, international engagements that signify a much more significant future impact on the United States go largely unreported.

Unless you are a dutiful resident of Twitter, you are likely blissfully unaware of the latest news in the oil and international economics spheres. But trust me when I tell you, dear reader, that the world is indeed still turning despite the political intrigue within our borders… and we are at risk of missing out as we continue to take our eyes off the ball.

Like most international conflicts, the proxy war against Russia in Ukraine has brought intriguing second and third-order effects. So buckle up and get ready to feel those repercussions at the gas pump, and without further ado, let’s dive into the latest moves on the global chess board.

They Could, But They Won’t

When Russia invaded Ukraine, the United States convinced the “Group of Seven” (G-7) to cap Russian crude purchases at $60 per barrel. The U.S. has long touted this maneuver as key to crippling the Russian economy and isolating the Russian government.

However, this week one of our closest allies in the East and a member of the G-7 received an exception to this rule: Japan. Citing economic and energy needs, Japan received permission to purchase Russian crude at just below $70 per barrel.

Interestingly, Japan is the only member of the G-7 to increase their rate of Russian natural gas purchases in the last year. While voicing support for Ukraine, they are also the only G-7 nation not to supply lethal weapons to Ukraine. (Japan has had a “strictly” defensive military posture since WWII.)

All of these actions highlight why Japan was the most tentative to voice overwhelming support for Ukraine and condemnation of Russia. However, what is interesting about Japan’s request and approval to purchase Russian crude above the cap is that they don’t need it, unlike some of their European counterparts, like Germany.

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Russia only accounts for about one-tenth of Japan’s imports. As Temple University professor James Brown points out:

“It’s not as if Japan can’t manage without this. They can. They simply don’t want to.”

And therein lies the golden egg of this story.

Cancel Your Summer Plans

Springtime is full of rebirth, warm days and cool nights, and travel planning for summer. But for those of you, like my family, who tend to go on many road trips, you might want to rethink how you spend this summer.

Thanks to Saudi Arabia surprising the world by announcing plans to cut oil production, we can expect those gas prices to creep back up. Experts predict that prices at the pump will increase between five and 15 cents per gallon in the next two weeks.

With that rate, we can expect summer gas to cost around the $4 per gallon range. You don’t have to be a student of economics or energy policy to understand how these two actions relate.

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As AAA spokesman Mark Jenkins illustrates:

“The primary reason we saw gas go up last week was because of falling domestic oil supplies. … Because of OPEC’s announcement to reduce oil production, there’s less oil in the market, so that raises the price of gasoline.”

How incredibly inconvenient for Uncle Joe. Just when he needs the average American to be focused on the circus in New York, all of us plebian citizens will instead be whining about gas prices again.

Who is ultimately behind this move? Our ‘competitor’ China, of course.

The Dragon Behind The Curtain

China has been a very busy little dragon as of late, working its long-game magic while the West snoozes under the comfort of assumed dominance. China, Russia, and Saudi Arabia have cozied up quite nicely as a tricky little trio of mischief.

Chinese President Xi Jinping has been racking up his frequent flyer points bouncing worldwide, spreading ‘good will’ in the most unlikely places. He even managed to broker peace between Iran and Saudi Arabia.

If you think that brokerage didn’t come with some suggestions from the Red Giant in the East that may have touched on oil production, you live in a blissful fantasy world. Additionally, last month China clinched its first-ever yuan-settled energy deal with the United Arab Emirates for $65,000 tons of liquified gas. 

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Xi also spent some time in the Kremlin visiting his dear friend Vladimir where they discussed various economic plans for the future.

Secretary of Defense Lloyd Austin said of the trip:

“I believe Xi’s visit to Putin and his multi-day stay there sends an alarming message, a message of support.”

However, former New York Times correspondent James Brooke thinks:

“Russia is emerging as an economic satellite of China.”

It doesn’t matter which one is accurate, and both probably have some truth; the point is China is making big moves… while we aren’t.

If I Had A Dollar…

While I am no fan of China, you must admit their long game is strong. While countries like Russia and North Korea lack patience and strategy, the ancient civilization of China has mastered reading the board and biding its time. 

Like Russia and our other adversaries, China wants to see our country in ruins. Still, their strategy is much more elegant than just brute force. The most significant blow to the United States internationally would be to devalue what our politicians and our country value most – the greenback.

China and Brazil recently agreed to ditch the U.S. Dollar as its intermediary currency for trade and financial transactions. What does that mean? 

Instead of converting their currencies into the U.S. Dollar for cross-country transactions, they will use the yuan. It’s important to note that Brazil is the largest economy in Latin America. 

This same conversation took place in Russia with Putin, who agreed to do the same with the ruble.

China has made these agreements via its Shanghai Cooperation Organization (SCO) with the following countries:

• Russia
• Brazil
• India
• Pakistan
• Uzbekistan
• Kazakhstan
• Tajikistan
• Kyrgyzstan

Perhaps it won’t be the dollar that makes the world go round, but the yuan. Some argue that toppling the dollar would take decades.

To China, decades can be weathered in a blink of an eye. So it’s time to up our game because while we continue to play checkers with foreign policy, our ‘competitor’ is about to seize our king on a three-dimensional chess board.