[0:00]So now it looks like Cuba is next, and the United Arab Emirates, which was a founding member of OPEC since 1967, just told the world that they're leaving the oil cartel effective May 1st. The United Arab Emirates says that it is withdrawing from OPEC and OPEC Plus. OPEC is a decades-old cartel of the world's largest oil producing exporters. The energy minister says that it will make it easier for the UAE to meet changing demand. But it is a major blow to OPEC at a time when the Iran war has triggered a global energy crisis. So the markets are now reacting to the supply shock, and gas at the gas pump is now at a record high, and the paper price for a barrel of oil just went up over $100. But the most interesting part about this story is that for the first time in over 50 years, the US is actually being threatened by one of its closest allies. How's it being threatened? It's because just a few days before the UAE announced it was leaving OPEC, they put out a warning. That warning said, they may be forced to use yuan or other currencies if they run low on dollars amid the Iran war. Basically, they're saying, hey, you guys started this war, and if we run short on dollars, we're going to start pricing our oil in yuan and potentially start selling off your assets. Now, in response, the US was like, please don't do that. And Scott Bessent, who's the Treasury Secretary said that giving them the dollar swap lines would quote, prevent the disorderly sale of US assets. Mr. Secretary, can you talk about this request and whether or not uh you expect to support it? Many of our Gulf allies have requested swap lines. Uh you would have just read about the UAE and swap lines, whether it's from the Federal Reserve or the Treasury are to maintain order being in the dollar funding markets and to prevent the sale of the US assets. uh in a uh disorderly way. Now, hold on. How much US assets do those countries have? And it turns out the GCC collectively holds over $2 trillion in US assets. That is a lot. Which means the US basically just admitted that the Gulf states hold enough American assets that if they were to sell them, that could destabilize US markets. And because the US does not want to destabilize the market, the US is going to give them access to cheap dollars and make sure they don't sell their US assets. And as a distraction to all of this, we're seeing the president setting his sights on taking over Cuba. The president also speaking about the prospect of the US taking over Cuba, quote, almost immediately. What do we know about that? Well, I've one of our big, maybe the USS Abraham Lincoln aircraft carrier, the biggest in the world, we'll have that come in. Stop about 100 yards offshore, and they'll say, thank you very much, we give up. So, even though this story seems like a story about oil, it's actually a story about power and leverage. And in this video, I want to explain exactly what's happening and what it ultimately means for our portfolios, because this affects gas prices, gold, Bitcoin, the US dollar, and the next phase of the global monetary system, which at least for now, looks like is being negotiated right now. So, with that said, let's get into it. Hi, my name is Andre Jick. I hope you're doing well. Come for the finance and stay for the next phase of the Petro dollar. To understand why all of this is so important, we got to go back 50 years. And that's because the story of the UAE leaving OPEC is actually the story of a financial system that was supposed to be built in secret. Which now, for the first time in half a century, is sort of starting to come apart. So let's start at the beginning. In 1971, President Nixon closes what's called the Gold window. What that means is the US dollar, which used to be backed by gold, is now backed by nothing. It's just paper. Now here's a question. If you're a country sitting on a finite resource, like oil, why would you sell that for a currency that can be printed in infinite supply? Only a fool would sell something real for something that's not, right? And the oil producing nations of the world were not fools. So in 1974, Secretary of State Henry Kissinger flew to Saudi Arabia and made a deal. And this deal was never publicly announced. There were rumors of what the deal was, but no one knew for sure. Until, a Bloomberg foyer request in 2016 finally revealed the details of what was actually agreed to. And the agreement was Saudi Arabia would price its oil exclusively in US dollars. Those dollars would be recycled back into US Treasury bonds. Essentially lending money back to the United States because that's how the US borrows money, it creates bonds that other nations buy. And in return, the US would give Saudi Arabia military protection and weapons. The arrangement is called the Petro dollar system. And it was a really good deal for the United States because it meant that every country in the world that needed oil, which is every country in the world, right, had to first get dollars to buy that oil, which created a permanent, what economists call structural, global demand for the US dollar. Even though the US dollar was not backed by gold anymore, it was now backed by oil. And OPEC, which stands for the Organization of the Petroleum Exporting Countries, was what became the enforcement agent for that system. OPEC's job was to manage supply of oil discipline among the oil producing nations to keep the dollar denominated pricing system intact. Basically, OPEC's job was to manipulate the global price of oil. And now it's 2026. And the whole idea of the dollar as the world's reserve currency to pay for oil is being challenged. That's why economists like Luke Roman say, OPEC is only needed in a world where the reserve currency has no other anchor. Because in a world where the dollar had a real backing, like back when it was backed by gold, or some other hard anchor, you would not need a cartel that artificially manipulates oil to make that system work. Countries would just accept dollars because dollars are something real. But in a world where the dollar is pure fiat and it's infinite, and it's only backed by trust, that's when you need something like OPEC to keep those oil prices stable and high enough that selling oil for dollars still feels like a reasonable thing to do. And the moment oil producers decide, hey, your dollars are not worth much. And your competitor over here is giving us a better money backed by something real like gold. And when I trade my finite resource, they're going to give me something finite too. But if not, OPEC's whole reason for existing is gone. And so is the dollar's anchor. So that's what the UAE is starting to test. Now, believe it or not, this whole arrangement I just described, this Petro dollar agreement system between the US and Saudi Arabia, that actually expired in 2024. After 50 years, Saudi Arabia was like, okay, we're done. Let it expire. And in June 10th of 2024, I made a video about it. The media started saying it was all misinformation. Turned out it wasn't. And it actually did expire, and it was a very big deal. And then the Iran War started. And this is where things get a little more complicated. When the Iran war started on February 28th of this year, it created an economic crisis for the countries that the Petro dollar system was built around. And this is where the Straight of Hormuz comes in. Again, it handles about 20% of the world's entire oil and gas supply every single day. Ships from Saudi Arabia, the UAE, Kuwait, Qatar, Iraq, they all have to pass through Hormuz to get their oil to the market. And Iran closed it. And when they closed it, the whole economic model of the Gulf states stopped working. Think about what this actually means for Saudi Arabia specifically. Before the war, Saudi Arabia needed oil at around $100 a barrel. just to cover its basic government spending, like its imports and its social programs. And they were exporting close to 7 million barrels a day to pay for it. Now, there is a math problem here. How high would the price of oil have to be to generate the same revenue to pay for their country? One economist did the math, and they said Saudi Arabia would need oil at $170 a barrel. Oil is not at $170 a barrel. At least not the paper price of it because it's intentionally being suppressed using the futures market, which means Saudi Arabia is bleeding money. They are externally borrowing, and it's hit over $100 billion in the trailing four quarters, which is a level that's never happened before in their entire history. The world's biggest oil exporter is now having to borrow dollars to survive. And remember that the Gulf countries, their money is still fixed to the US dollar. And so to prevent their currencies from collapsing, that peg means they need a huge buffer of dollar reserves. When those reserves start going down, it becomes a huge threat to their whole monetary system because they're running low on dollars. And because they're not able to export oil, their economy is now shrinking because oil is a perfect correlation to the growth of an economy, as you can see in this chart. The more your economy grows, the more oil you use. And the less oil you start using, your economy starts to get smaller.
[10:49]So they're watching their economies slowing down right now. And the war that put them in this position was started by their ally, the United States. So what do you do when your ally starts a war in your backyard, cuts off your income, drains your dollar reserves, and manipulates the paper price of oil? What you do is, you make a phone call and say, yeah, look, we need more dollars, and we own a lot of your assets, like your treasuries and your stocks. We could get a lot of dollars by selling them to pay for our economy, but I don't think you'd want us to, right? Want to give us some money, call it a swap line, right? That's what they're doing. So the bottom line about all of this is that China is now winning, and let me explain how. But first, everything I've explained up to this point, this is the kind of story where the framing you get depends completely where you're reading it. And that's where today's sponsor Ground News comes in. Ground News is an app that shows you the same story from hundreds of different outlets at the same time, and it tells you which ones are left leaning, right leaning or center, so you can see how the framing changes depending on the source. For example, take this oil story. Oil prices surge to highest level since 2022. But here's what Ground News shows. Left leaning outlets are framing this as a crisis, using words like quote fears of escalation. Right leaning outlets are calling US energy exports quote soaring to record highs to make it almost sound like it's a win. And center outlets are just saying oil went up 7% with no drama and no spin. It's the same story but with three completely different narratives. That's what Ground News makes visible. I like to use it when I'm researching for my videos, so I can know what's actually happening versus what's being told. If you want to see the full picture of global events and not just one side, go to ground.news/jikh or click the link down below. You'll get 40% off the vantage plan, which is the one I use, and you'll be supporting independent journalism and the channel. Thank you Ground News for sponsoring this segment, and now let's get back to it. Okay, so how is China winning? Let's look at the timeline of what's happened so far. On April 14th, the UAE Crown Prince meets personally with Xi Jinping in China. April 15th, the UAE and China sign 24 deals to push their trade over $100 billion. On April 19th, the Wall Street Journal publishes the yuan threat. On April 22nd, Scott Bessent agrees to this swap line before the Senate. And on April 28th, the UAE leaves OPEC. So what they did was, the UAE locked in that China relationship first, which is basically like putting a loaded gun on the table, right? They call Washington and say, hey, look what we just did. What are you willing to offer us? That's how they were able to get concessions from the most powerful financial system of the world. That's why Trump went on CNBC and said, and this is almost word for word, that the UAE is quote, a good country and a good ally, Is there some type of swap possible, uh to uh currency swap with the UAE to help if they need it? And do you think there would be backlash because it's such a wealth or perceived to be such a wealthy country? Is that under consideration? It is, but it's been a good country, it's been a good ally of ours. You know, they're very good for this country. So, yeah, if I could help them, I would. Then the next day, Scott Bessent goes in front of the Senate and endorses the swap line. So you can understand then how optically speaking, to the rest of the world, that doesn't make the US look good. That's why there's a positive spin to this. Scott Bessent says the swap lines were needed to quote maintain order in the dollar funding markets and to prevent the sale of US assets in a disorderly way. Treasury Secretary is admitting that a Gulf state holds enough American assets that if they were to sell them, it would be really bad for the US. And then the same Scott Bessent, who just handed the UAE the dollar lifeline, went on record and called China a quote, unreliable trading partner. And that is most likely a reference to China not wanting to sell critical rare earths to the US, which the US military relies on. Why wouldn't they want US dollars for their rare earths? The best explanation is, of course, from Luke Gromen. You're trying, hey, China, I need you to speed up the rate at which you're making missiles for me to point at you. Right. And by the way, buy our bonds to finance the missiles that you're making so we can point them at you. The US has essentially been telling China, hey, I need you to speed up the rate at which you're making missiles for me to point at you. And by the way, buy our bonds to finance the missiles that you're making so we can point them at you, right? That sort of shows you what's happening. There is a dependency on China to make stuff, and China knows it. The US military runs on these rare earth minerals and tungsten, which is the stuff that goes into missile interceptors and fighter jets and precision guided weapons. China controls roughly 60% of global rare earth mining, and an even bigger share of processing. Which would mean the reason Trump keeps extending the ceasefire is not just for diplomacy reasons. It might be because the US could be running low on missiles that it needs to fight, and it can't make new ones without Chinese materials. CNN has learned that the US military has significantly depleted its stockpile of key missiles during the war with Iran. And it can't replace those stockpiles for another five to six years at minimum. And even though the US is extremely financially powerful, the bottom line is, you cannot fight a war with paper assets.
[16:47]that war has consumed large amounts of precision munitions that the United States relies on. We're shooting bullets and missiles at a rate that exceeds our ability to produce them. China made things. They bought copper mines. They built ports. They invested in rare earth processing. They built their own payment system alongside Swift. They just waited. That's how they're winning right now. Okay, so if China's winning, what does that mean for the US dollar? And what it means is that this just speeds up the decline of the dollar as the world's reserve currency. In 2001, for example, the US dollar made up about 72% of global foreign exchange reserves. Think of these foreign exchange reserves as the pile of assets that every central bank in the world needs to hold to back their own currency for international trade. 72% means almost three quarters of the world's financial safety net was held in dollars. Today that number is in the 50s, which is still the biggest single share of any currency in the world, but it's not really a monopoly. And the question is, okay, well, what's replacing it then? And what's replacing it is gold. Which now represents a bigger share of reserves held by central banks on an adjusted basis, even more than Treasury bonds. What that means is Central Banks around the world, which are the institutions that are supposed to be the most conservative and the most risk averse financial powers on the planet, they're now picking to hold gold over US government debt. They've been buying gold at the fastest pace in 50 years. And they've been doing that because treasuries are losing trust. Why did they lose trust? They lost trust because the world watched what happened to Russia. When the US froze Russia's foreign exchange reserves in 2022, essentially stealing $300 billion in assets that Russia saved up, Every Central Bank on Earth had the same thought. They were like, that could be us. Right? And if you hold your reserves in dollars and Treasuries, you're holding them at the say so of the United States. And the US showed that it was willing to use that privilege as a weapon. And that's why Central banks have been rotating into gold. That's why China has been building the alternative plumbing system to international trade. Yuan clearing banks now operate in London, Dubai, Singapore, Hong Kong, and Switzerland. And BHP, which is one of the biggest mining companies in the world, just signed a deal shifting commodity sales to yuan based pricing with a Chinese state buyer. Iran has also been selling oil to China in yuan for years. India has been experimenting with it. Russia, right? The alternative is already built and it's running. And because that trust is gone, and investors are saying, okay, even though I don't really trust you, I'll still buy your debt. Right? I'll still buy your Treasuries, but in exchange, if I'm going to park my money in your Treasuries, I want a higher interest rate. Pay me more money. That's why we're seeing the 10-year US Treasury yield going up right now. And when this 10-year bond goes to 4.4%, Luke Groman noticed some very interesting things start to happen. For example, on March 22nd, 10-year yields went up toward 4.4% after Trump threatened to bomb Iranian electrical infrastructure. Investors got scared and said, pay me more money. Then Monday morning, Trump backed off. March 24, yields hit 4.4% again. Trump talked about a peace deal. March 25th, Iran denied the talks. Yields moved higher again. March 26th, yields hit 4.4% again. Trump immediately extends the pause on military strikes. Every single time the 10-year touched this 4.4% level, investors were like, pay me more money. And Trump was like, okay, just kidding. Everyone calm down, right? And what that tells you is the bond market is actually running US foreign policy. And that's because above this 4.4% level, the Treasury market starts to dysfunction. And a dysfunctional Treasury market, where the US government can't borrow at manageable rates, is very bad for the US economy. But guess what? There's still an energy crisis. And it's not just the Gulf countries that want dollars. It's also Asian countries. And when you inject those countries with more dollars, it stabilizes bond markets in the short run. But if Hormuz stays closed, that liquidity turbo charges commodity inflation. And commodity inflation is the one thing that makes bond markets revolt because investors don't want to hold bonds that are being inflated away in real terms. So Scott Bessent is essentially buying time by trading short-term Treasury market stability for a potentially much bigger problem down the road if the war doesn't end. And Iran, of course, knows all of this. And that's the war that's being fought. It's an economic war, not a military one. Okay, then. So how does this all end and what happens to the markets? And there's two ways this ends, and both of them are bad. Either Iran collapses, which means Iranian oil goes offline for a long time, causing an oil spike that triggers a global recession into bond markets that don't look good and can't afford it. Or the global supply chain collapses before Iran breaks, which means global inflation spike that also triggers a recession into bond markets that don't look good. And the US plan, which is basically extend the ceasefire and blockade Iran into submission, assumes that Iran is going to break first. But Iran's allies, like Russia, supplying it. China, buying its oil. And a very simple strategy. Keep that Hormuz straight closed. And while it's closed, the food inflation in the US will continue to go higher. And that's just from higher fuel costs. The fertilizer impact, Urea, has not reached us yet. The Straight of Hormuz handles roughly a third of the world's fertilizer trade. The same trade that, according to data from Our World in Data and studies like Erisman et al. (2008), synthetic nitrogen fertilizer, created via the Haber-Bosch process, supports approximately 3.5 to 4 billion people, or about half of the current global population. Without this technology, roughly 3.5-4 billion people could not be fed, indicating a direct link between chemical fertilizer and modern population growth. Congress was briefed this month that clearing all the mines in Hormuz could take another six months. And six months of this is going to be very bad for inflation. But as far as how all of this affects investment markets, the best metric I was able to find that sort of explains all this is Luke Groman's at FTT, which runs a version of the Warren Buffett metric to see if the stock market is overvalued or not. And that metric takes the total value of the stock market, aka the market cap, divided by the GDP. But adjusted to subtract the federal debt, because in a time of infinite money printing, the Fed is basically backstopped all this debt. And when you run his adjusted version, you get three moments in the last 70 years where this indicator went up above 100% of GDP. Which was the peak of the Dot-Com bubble in the year 2000, the everything bubble peak in the year 2021, and right now. And then the only two other times in history, the markets went down between 25 to 47% peak to bottom, and they took between 2 to 13 years to recover. Both times were exceptionally good for gold relative to the stock market, and we're kind of at that level again. Hormuz is still effectively closed, food inflation is going up, and with the US running low on missile interceptors, with China signing yuan denominated commodity deals with Gulf States, while the US is giving dollar swap lines to keep those same states from selling Treasuries. The market is basically pricing in perfection. It's pricing in an AI productivity boom and a super fast end to the Iran war. And if any of these assumptions are wrong, that is going to change the market's assumption and its value by a lot. Personally, I'm of the opinion that investors are very complacent and the stock market is being overly optimistic. So for me personally, I'm very cautious and I hold more cash than usual, but I'm still invested in the market. If you want to see how I have personally prepared, you'll be able to find that in the premium membership, which is in the link down below. Sometimes I want to make smaller update videos like what's happening at the next Fed meeting, which was accurately predicted, or how I'm personally invested, but since not everyone is interested in watching those videos, sometimes it hurts the algorithm to put them out publicly, and future videos just don't perform as well, which is why I wanted to make them a separate part of the channel. The premium memberships will also give you access to my videos earlier, and in some weeks, I'm going to release additional videos that explain things in more detail. So if that's interesting to you, I'll leave the link down below to join. In the meantime, we'll see what happens, but I'd love to hear your thoughts. I hope you have a wonderful rest of your day. Smash the like button, subscribe if you haven't already. I'd love to see you back here next week. I'll see you soon. Bye-bye.
