From ZeroHedge, March 29:
Rabobank: Don't RUB Me The Wrong Way
....MUCH MOREBy Michael Every of Rabobank
Now even the luvvies at the Oscars are suddenly violent, and the British phrase “Don’t rub me up the wrong way”, meaning don’t irritate me, is particularly appropriate.
The Financial Times, again, has an optimistic story about Russia’s demands of Ukraine, and this time it could be an Oscars’-host joke: “Putin claims what he actually said to Ukraine was ‘Don’t be nasty’.” The FT says Russia claims it no longer wants Ukraine to be “denazified” and is even happy with it joining the EU – provided it hands over Crimea and the Donbas. For those who feel like slapping someone in response, Ukraine has already underlined it is prepared to remain neutral, but it won’t give up any territory, demands security guarantees nobody is willing to give with territorial issues outstanding, and that any agreement must go to a referendum, closing off any backroom deals some in the US/EU/markets might like to do to make this all go away.
So, a plank towards an off-ramp? Perhaps. Or it could be Russian “Maskirovka” given the entire war effort has been predicated on the anti-Nazi line so far. Not a very good mask, if so, given newly promoted Chechen warlord/Russian Army lieutenant general Kadyrov reportedly just stated: “Very soon we will complete the assigned tasks in Mariupol and report to the President of the Russian Federation on our readiness to take Kyiv.” One thing we can be sure of is that any negotiators with Russia will do their own catering given the last set who tried to talk peace, including oligarch Roman Abramovich, reportedly then suffered symptoms of chemical poisoning.
Yet “Peace in our time” will continue to see wild market swings - on top of the wild market swings we were already seeing. In particular, oil plummeted once again due to Shanghai going into lockdown. Presumably this latest Chinese Covid closure is economically serious enough to justify Brent closing down nearly 7% on the day, despite the fact that it has leaped back up again after all the others. Nobody ramping oil markets again, honest.
Meanwhile, Russia is pressing ahead with plans to insist on a switch EU payment for its gas to RUB by Thursday. It has underlined it won’t export it for free, while the EU says it won’t pay in RUB. That is as binary a trade as you can get, and the potential outcomes should be obvious. The FX market seems to think so anyway, with EUR/RUB strengthening from 165 at its low to 105 at time of writing. But are we really going to see Russia “win” like that given the huge geopolitical and geoeconomic implications?
The much-vaunted Russia-India RUB-INR trade flaunted as the previous catalyst for “the end of the dollar!” is, according to the Indian press, looking far more mundane. The Business Standard reports India and Russia may keep RUB out of the proposed INR-RUB trade, given its high post-sanctions volatility: payments for the rising level of commodity trade that is indeed happening are likely to be settled in INR *pegged to the dollar*, and deposited in an Indian bank account. Under the proposed trade mechanism, when India imports goods from Russia, INR equivalent to the dollar value will be deposited in an Indian bank account. When India exports goods to Russia, Indian exporters can be paid from the same account in INR. You know who used a similar arrangement to work around sanctions? Nazi Germany. I’m sorry, I mean “Nasty Germany”.
The key points are that:
commodities will continue to be PRICED in DOLLARS, as we saw with the purported Saudi CNY oil sale;
Russia, for now, is still accumulating new USD and EUR reserves via its energy trade surpluses; and
nobody wants to touch RUB. Not even India, an emerging ‘neutral’ heavyweight in what article after article now say is a bifurcating world economy....
