Paul Wong on how China benefits from the West's energy policy of ESG and sanctions

Since the peak of the last secular bull market in commodities in early 2011, chronic underinvestment driven by cyclical factors and attention to ESG concerns (environmental, social and governance) have created structural supply shortages and tighter supply-demand balances than prior investment cycles.  And now, spillover from sanctions has taken a bigger bite from the supply.  For example, the U.S. has sanctioned countries accounting for 40% of the world's oil reserves (Russia, Iran and Venezuela), resulting in much of this oil trade flow going to China at steep discounts.  Furthermore, China continues to make inroads with the GCC (Gulf Cooperation Council, an economic union of six oil producers, notably Saudi Arabia, UAE, Kuwait, etc.) for long-term oil purchases and investment in its upstream sectors (refining, storage, transportation, etc.).  The GCC accounts for another 40% of the world's oil reserves.  Facilities for settlement systems have been created (or nearly) for renminbi (RMB) settlement,10 currency swaps and foreign exchange transaction systems.  In short, we appear to be in the early days of an emerging "petroyuan" and another step in long-term de-dollarization.

~ Paul Wong, "2023 Top 10 Watch List," Sprott Monthly Report, January 9, 2023