One of the many things not resolved yet but equally important going into 2012, is the the geo-political issue of Iran. End of late November, we reported on this story and it seems that some options have already materialized, such as the US and European embargo on Iranian oil. Or on any one doing business with Iran, in real goods or financial transactions. We also had some marine drill exercises in the Gulf and the usual game of chicken tactics, mostly focusing on the Iranian threat to block the Street of Hormuz (see also http://www.econoshock.be/us-real-politik-boomerang-part-ii)
But there seems to be more brewing underneath. When yesterday’s new monthly numbers were released on the main holders of US debt, some trends have become visible over the past couple of months :
1) China : not really adding any more positions into US Treasuries, on the contrary, a gradual decline is moving in ; probably hoping this would be enough to convince people they are willing and allowing their currency to gradually appreciate (no more surplus $ recycling). On the other hand, we had a Chinese drop in foreign reserves last week, the first time since 1998 so it could be that China no longer disposes over the $ surpluses it used to have. Is the Dragon running out of fire in the mouth ?
2) Japan : With $/JPY still being very strong (76) and against the euro as well (<100 and still hovering around the all time strong level of 97), Japan changed tactics last autumn by increasing quantitative easing and most likely increasing purchases of USD denominated debt, also in the framework of "currency wars"
3) Opec, UK and Brazil not really adding exposure, nor decreasing exposure
4) Russia, the big surprise. Ever since late 2010 – start 2011, Russia has consistently decreased its exposure towards USD denominated debt. And it’s not a small number because the position was halved in 12 months time from 190 bio USD to less than 90 bio USD.
It could mean a thing or two. Either Russia is further diversifying its exposure towards other asset classes like Gold (affirmative) or other sovereign bonds (?). Or we should look upon this trend as a kind of geo-political game-play. And I can’t help the feeling that the Iran factor plays here, also in the interest of China for that matter. Both Russia and China have already announced – not in so many words – that they benign neglect the US/European sanctions towards Tehran. And in December, Russia has concluded some major cooperation deals with Iran and expressed the desire to continue their relationship on nuclear issues (note : Brushehr nuclear plant was constructed by Russians). So with tensions rising, Iran will most likely make an attempt to find support in Russia and China, both important neighbors and trade partners. And from their point of view, it’s indeed not a welcome thought that the West is pushing for more and more influence in the Middle East and East. Iraq was permissible, Iran might be a different story, right in Vladimir and Bejing’s backyard. To be continued