When I visited the memorial at Pearl Harbor, I briefly wondered if the Japanese were simply suicidal.

Why start an uncertain battle with a much more powerful opponent?

Japan’s leaders knew the US military was far superior when they attacked Pearl Harbor, Hawaii on December 7, 1941. The attack killed over 2,400 people and brought the US into World War 2.

But Japan’s leaders had a powerful reason to gamble with their nation’s fate…

Access to energy.

For Japan—an island nation totally dependent on imports—access to oil was a matter of life and death. The country needed to secure its energy supply. That made attacking Pearl Harbor a practical proposition.

Turns out, the Japanese thought not attacking Pearl Harbor was suicidal.

Here’s why…

In the early ’40s, Japan had big plans to dominate East Asia. The imperial Japanese military was on the march. And the US was the only country that could stop it.

The US wanted to block Tokyo and protect its geopolitical position in the region. So it moved to restrict Japan’s access to oil, which Japan needed to feed its economy and war machine.

Not surprisingly, the Japanese considered this hostile and aggressive. The US government didn’t expect it to provoke an attack, though.

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The Assistant Secretary of State for Economic Affairs at the time, Dean Acheson, said, “No rational Japanese could believe that an attack on us could result in anything but disaster for his country.”

The Japanese disagreed.

They knew they would run out of vital commodities soon. So they had two choices… let the US slowly strangle their country and ultimately surrender… or take their chances on a risky war against a vastly superior opponent.

In Japan’s samurai culture, surrender was the ultimate disgrace.

Death in battle was better. So they chose option two. It was the only honorable choice.

Japan’s leaders thought the Pearl Harbor attack could knock the US Navy out of the Pacific for at least six months. This would give Japan a sizable window to secure its energy sources without US interference—and to fortify its military positions across the Pacific.

By the time the US could respond, it would face a deeply embedded opponent and decide it was best to leave East Asia to Japan.

That was Tokyo’s plan, at least.

In reality, Japan did successfully capture Singapore from the British. It was an enormous victory. Winston Churchill called it the “worst disaster” in British military history.

And, after a string of big wins during their six-month window, the Japanese were entrenched. They appeared unbeatable. Their leaders hoped this would sap US morale so much that Washington would seek a compromise.

But President Roosevelt did not want to compromise.

Many believe he was actually waiting for the perfect pretext to sell a hesitant US public on another world war. Some even claim the US had deciphered Japan’s military code and knew the Pearl Harbor attack was coming.

In any case, the Japanese could not have been more wrong. Ultimately, their decision to strike Pearl Harbor culminated in the atomic bombings of Hiroshima and Nagasaki, total defeat, and unconditional surrender. Even today, the US still maintains military bases in Japan.

Today, Japan is in the midst of another energy security crisis.

Right now, it depends on imports for over 90% of its energy needs. Tokyo won’t go to war over it this time. But this crisis could lead to enormous profits in the world’s most hated resource market.

Earlier this year I traveled over 25,000 miles to Japan—and Kazakhstan—to find out how to profit from this historic opportunity.

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The World’s Most Hated Commodity

On March 11, 2011, one of the largest earthquakes in history hit off the coast of Japan. The earthquake, and the tsunami that followed, killed thousands of people and caused over $200 billion in damage.

The tsunami also caused a nuclear meltdown at Japan’s Fukushima power plant, which released radioactivity into the air. It was the worst (and only) nuclear disaster since Chernobyl. Afterward, Japan took all 54 of its nuclear reactors offline.

Japan suddenly needed a major new source of energy.

The country has a law dating back to the 1970s that requires it to stockpile at least five years’ worth of energy supplies. Uranium, which fuels nuclear power plants, is the only feasible way for Japan to do that. It’s simply not practical for Japan to stockpile enough coal, oil, liquefied natural gas (LNG), etc.

For now, Japan is making an emergency exception to its five-year law because of Fukushima. But this puts it in a very vulnerable geopolitical position, especially since tensions with China, its historical rival, are increasing.

The Japanese know that relying on the kindness of foreigners for their energy security is foolhardy. This situation can’t continue indefinitely.

Eventually, Japan will have to bring most of its nuclear power plants back online. However, restarting idled plants is not as simple as flipping a switch. And, with LNG prices near recent lows, they haven’t had an immediate need to do so.

Nonetheless, Japan recently stated that it would like nuclear power to account for as much as 22% of its energy mix by 2030.

Japan is just one factor driving the coming uranium boom.

Even if Japanese demand for uranium doesn’t return soon, the enormous amount of new demand from China’s new nuclear plants will more than offset it.

Before Fukushima, Japan was a major source of demand for uranium. The country had embraced nuclear energy in the 1960s, despite being devastated by nuclear weapons in World War 2.

Not surprisingly, global demand for uranium tanked after Fukushima. A global supply glut followed.

The uranium price crashed from around $85 to under $30. Then it continued sliding to around $18 per pound, far below the cost of production.

That was last November, and it appears to have been the bottom.

That same month, I said uranium had entered a new bull market and recommended a “best of breed” uranium company in Crisis Investing.

Uranium is now on a confirmed uptrend, but it’s still far below the cost of production. It’s still near the moment of maximum pessimism.

No other commodity has more upside and less downside right now.

The uranium market is one of the best crisis investing opportunities I’ve ever seen.

Psychology plays a big part in all this. After Hiroshima, Nagasaki, Chernobyl, Three Mile Island, and of course Fukushima, it’s easy for certain media and politicians to villainize uranium.

Besides that, investors are terrified that uranium prices have fallen over 85% from previous highs. I don’t know of a market where the sentiment is worse.

This is all good news for us.

Nuclear power delivers immense value to its users, there’s no substitute for it, and production is falling while demand rises.

This situation only has two possible outcomes:

1. Uranium prices don’t go up. Miners have no incentive to produce. Nuclear power plants run out of uranium, and the lights go out for billions of people.
2. Uranium prices go up and incentivize enough production to meet the demand.

There are no other options. Which one do you think is more likely?

Right now, the current uranium supply/demand imbalance is setting the stage for the next uranium boom.

Now is the time to get positioned for the same kind of explosive returns we’ve seen in previous uranium bull markets.

Until next time,

Nick Giambruno
Senior Editor, International Man

Nick’s Note: Todd Scattini isn’t your typical marijuana entrepreneur.

He graduated from the United States Military Academy at West Point in 1996, and became an Army officer.

But Todd recently hung up his fatigues to serve as CEO of Harvest 360, a marijuana consulting and management firm.

My colleague Justin Spittler, editor of the Casey Daily Dispatch, met Todd at Harvest 360’s headquarters in Denver a few weeks ago. There, they discussed how he’s using cannabis to solve one of the military’s deadliest problems.

Todd’s story could completely change how many people think about cannabis.

Below is a transcript of their conversation. I encourage you to share it with anyone who still sees marijuana as just another “street drug.” It may just change their mind…

Justin: Todd, I’m not used to seeing “cannabis” and “Army officer” in the same sentence. So, can you tell me how you became interested in the plant?

Todd: I became interested in 2011. I was in Paris at the time, and I was asked to serve as a special advisor for General John Allen. He was the Commander of the International Security Assistance Force (ISAF) back then.

ISAF was a NATO-led security mission. It’s the largest military coalition ever assembled. At the time, it was 51 nations.

Its main purpose was training the Afghan National Security Forces and assisting Afghanistan in rebuilding key government institutions. It was also engaged in the war with the Taliban insurgency.

I was helping manage the General’s relationship with the Coalition through bilateral engagement and normal security cooperation functions.

One evening, our special staff was asked to come up with creative ways to engage with the Afghans using the domestic resources they had so that they could create an industry without relying on outside assistance.

And I thought, “Geez. The Afghans don’t have many resources.”

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They had minerals, but the Chinese had purchased the rights to them long ago, and it would take nearly a decade to build the infrastructure to mine them effectively.

They had heroin, too, but I certainly didn’t think that could be the basis for an industry.

And they had cannabis. A lot of cannabis that they grew was smuggled outside of the country and sold on the black market for huge profits to fund terrorist operations.

So, I thought, “why don’t we transition them to a hemp industry?” It has 25,000 different uses such as food, fuel, fiber, and medicine. And humans have been using it for 8,000 years. We have essentially evolved with this plant.

Justin: How’d that suggestion go over with your supervisors?

Todd: It was not well-received. I don’t believe my concept was ever even briefed to the General. I was kind of laughed out of the room, to be honest. They called me “Major Cheech & Chong” and things like that.

But I learned so much about the plant by studying it, including its medical potential.

And I thought, “there are some military applications here.”

So, I continued to read, study, and talk to everyone I could about the plant. I learned so much that I became a master at talking to generals, other officers, and ambassadors about marijuana.

Justin: So, do they still call you Major Cheech & Chong?

Todd: I still get a giggle or pot pun when I talk about it. But I’m no longer laughed out of the room. So, yes, I’ve convinced a lot of people that this is a very interesting proposition and might be a way to address reducing suicides from post-traumatic stress disorder (PTSD), Traumatic Brain Injury (TBI), and chronic pain; all significant issues that often result from our service.

Justin: How did you change people’s minds?

Todd: I just became so passionate and well-studied about the plant, the roots of its prohibition, and its potential to help people.

So, now when speaking with generals and other senior leaders I tell them, “Sir, this is serious, and I think it could save soldiers’ lives.”

I always point them to the federal government’s patent on cannabidiol as a neuro-protectant, anti-inflammatory, and antioxidant. This is U.S. Patent 6630507.

Justin: Why’s that patent so important?

Todd: These days, many of our soldiers encounter improvised explosive devices (IED) on the battlefield. An IED strike can be devastating to multiple vehicles and soldiers in an instant.

And, if an IED goes off near you, there’s a good chance you’ll experience a TBI. TBI is a very serious concussion possibly leading to permanent or temporary impairment of cognitive, physical, and psychosocial function. We find that soldiers who have experienced a TBI are at a higher risk for PTSD and suicide.

Justin: How does an IED give TBI?

Todd: When an IED goes off near you, there’s a massive blast wave. The air from the blast creates a wall of pressure that hits a soldier’s hard skull and rattles the soft brain around inside of it, and a dangerous chemical process begins inside the skull.

This can lead to a stroke, which is what usually kills a TBI victim.

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Justin: How does the military currently treat TBI?

Todd: Today, there’s very little done to treat it. And, aside from improvements made to some vehicles, there’s really no protocol for preventing this sort of injury.

I want to change that with my project, The Athena Protocol.

I want to use formulations of non-psychoactive cannabinoids (especially cannabidiol) and a few added elements as a daily supplement to essentially “armor a soldier’s brain,” and help protect the brain’s neuroreceptors. Studies suggest that this approach could also increase the elasticity of the neurons, preventing them from calcification and potentially reducing the instance of PTSD among our soldier and veteran population.

Justin: How do you plan to prevent these sorts of things?

Todd: Well, we do this in two phases. The first is the prep phase. This happens “left of the boom,” as we say in the military. This means this is the preparation done prior to an IED strike. This includes the supplementation of cannabinoids which help “armor the brain” in preparation for a traumatic event.

Hopefully no one ever gets “right of the boom,” or experiences an IED strike. But, if they do, I would propose administering an immediate supplemental dose of non-psychoactive cannabinoids and other elements very, very rapidly.

Justin: What made you want to focus on TBI?

Todd: I became interested after I lost a platoon leader of mine. His name was Captain Andrew Houghton.

Andy was a fellow West Point graduate. He was class of 2001, and he was like a little brother to me.

In 2004, he was struck in the head with a rocket-propelled grenade (RPG) while deployed in Iraq. The RPG didn’t explode. But it did massive damage to his head.

The battlefield medics, which are so good today, performed a soldier-to-soldier blood transfusion on-site in his vehicle. They stabilized him in-country and transported him to the Army hospital in Germany.

There, his brain continued to swell.

The rocket did so much damage that they had to remove a large portion of his brain to release the pressure. He was then sent to Walter Reed Medical Center in Washington, D.C., where I was present when they pinned a Purple Heart on him. He passed away the next day.

If I can prevent something like that from happening again, I will be very satisfied and feel that I will have done my duty.

Justin: I’m terribly sorry to hear about your loss, Todd.

But it’s inspiring that you’re trying to prevent this sort of thing from happening to other soldiers.

That said, how can you be so confident that The Athena Protocol will work? After all, no one’s ever done anything like this before.

Todd: So, a portion of that is the federal patent I was telling you about. This study says cannabidiol is an effective neuroprotectant and anti-inflammatory.

More recent studies have also shown that victims of car accidents who have THC (an active ingredient in marijuana) have a higher percentage of survivability in TBI incidents.

Plus, we know that cannabinoids pass the blood barrier much more rapidly than most pharmaceuticals.

So, we’d be able to administer and see anti-inflammatory effects very rapidly.

But, you are right. Of course, this theory must be tested. The unfortunate thing is that we are prevented from testing this in the United States due to cannabis’ Schedule I status on the federal government’s list of Controlled Substances. I would propose to circumvent this by studying this outside of the U.S. or gaining special permission to do so in the U.S.

Justin: Would The Athena Protocol only be used to treat TBI injuries suffered in combat? Or are there applications beyond the military?

Todd: Absolutely. Soldiers aren’t the only ones who suffer TBI injuries. According to the Centers for Disease Control and Prevention (CDC), 2.5 million people go to U.S. emergency rooms every year for TBI. And about 300,000 of those people die from their injuries.

This includes everyone from car crash victims to people who slip and fall.

So, this kind of treatment could really be used everywhere. And the sooner first responders and hospitals can administer this, the better.

Justin: And how’s the project coming along?

Todd: Right now, we’re at the research and development (R&D) level, but we have submitted for a provisional patent for the entire protocol and sub-patents for each formulation and method of administration. Specifically, we’re working on jamming as much cannabidiol into a single drop of water as possible. And we’ve already gotten some incredibly high levels of concentration. So, it’s coming along very nicely.

Justin: Got it. You’re doing some incredible work, Todd. But I have to ask you one last thing before I let you go… Where’d the name, The Athena Protocol, come from?

Todd: The name, and I’m not kidding, came to me in the middle of the night. I shot out of bed and wrote it down.

Athena is the Greek Goddess of Wisdom, Good Counsel, and War. She also wears a helmet. And Athena’s helmet adorns the West Point crest.

Justin: Wow. It sure seems like you picked the perfect name.

Thank you for taking the time to speak with me. And best of luck with everything.

Anyone who’s ever played a pinball machine can attest to the fact that the player easily becomes wrapped up in it, to the point of the exclusion of all else happening around him. He hits the flippers rapidly, glancing up from time to time at his increasing score. It becomes irresistible to jiggle the table frequently, in an effort to get the ball to go where the player wants it to go.

And, of course, every player is familiar with the disappointment that comes when he’s overplayed his body English and the machine stops suddenly, lighting up a sign that says, “Tilt! Game Over.”

Much of the world is now embroiled in an economic game similar to pinball. The stakes are becoming ever greater, the flipper buttons are being pressed ever faster, and those who are desperately attempting to keep the collapsing system going are shoving the table ever more recklessly.

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At this point in the world economy, the number of possible triggers that could take the system down is growing ever more rapidly. And, for those who are paying attention, the list of dominoes that we’ll see fall is becoming ever more starkly apparent. Let’s have a look at just some of the more basic dominoes:

• Creditor countries dumping US Treasuries back into the US market. (This has already begun and will continue until the dollar crashes.)
• Cessation of the US dollar as the petrodollar. (This is about to begin, but will take several years to play out fully.)
• Economic sanctions by the US against Russia and China (that are unlikely to have the support of the US’s allies).
• Implementation of tariffs, resulting in a tariff war.
• A rise in interest rates (as was consciously created in 1929 by the Fed in order to trigger a timed crash).
• Bursting of the bond market bubble.
• A major stock market crash.
• Dramatic increase in mortgage defaults.
• A spike in commodity prices, coinciding with a drop in asset values (inflation and deflation at the same time—the worst possible combination).
• Collapse of the paper gold market.
• A switch to the new IMF cryptocurrency and a major effort to end the use of cash. (This will succeed to some extent, but will create a worldwide monetary black market.)
• US defaults on its debt. (This, too, will occur over several years.)
• Collapse of the dollar.

Many of these events will be black swans. As can be expected, some of the events will be sudden, whilst others will take time to play out. In addition, although they’re likely to occur roughly in order, several will be in play at any given time.

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Although each of these events can be anticipated, they won’t come with warning notices. Their actual occurrences will be unheralded. (As an example, when a stock market crash occurs, investors will wake up to discover that it’s occurred whilst they were sleeping.)

And, just as in pinball, the end of the game will come quite suddenly. The moment that the player will know that it’s “Game Over” will be when he goes to his ATM and finds that the screen is dark. The machine has been made inoperative overnight. Annoyed, he’ll go to the next-nearest ATM, but will find that that one, too, is shut down. He’ll go to others and, at some point, will realise that they’re all shut down.

Without spending cash in his wallet, he’ll then go to the local gas station or supermarket and attempt to pay with his credit cards but will find that they’ve all been made inactive. In trying to sort out the problem with the manager, he’ll be told that all credit cards for all his customers have been denied that day.

The realization will suddenly hit that money has ceased to flow. For how long? The television news programmes will state that it will be temporary, but they don’t define “temporary.”

Those few individuals who understood that an economic crisis was brewing will take inventory of how much cash they have remaining in their wallets and how much they’ve stashed at home, and realise that this total now represents their total purchasing power.

Overnight, wealth is no longer measured in saleable assets, since, if virtually no one has spending money, they have no means of payment. Therefore, the fellow who thought that, if he found himself in a pinch, he could always sell the Harley in the driveway, or perhaps the family boat, for some quick cash, can no longer locate a buyer who can pay him—at any price.

Of course, many people will do all they can to contact their bankers, demanding that they be allowed to remove their money on deposit and extract the contents of their safe deposit boxes, but they’ll receive a recording, saying, “We’re sorry for the inconvenience, but the bank will be temporarily closed until further notice.”

At this point, “wealth” will change its definition to include only the cash in hand, plus whatever might be bartered.

Recently, I received an email from an associate in Canada, who asked, “When will I know when I really have to make a move?” My answer was, “You won’t. But there will be an actual day when you’ll know that you’ve waited too long and it’s now too late. That day will be the day that you visit the ATM and find it closed.”

That’s it. “Game Over.”

So, are we all doomed? Well, no, not at all. Those who are proactive can remove themselves from the system now, before the system reaches the “Tilt!”

If the reader lives in one of the jurisdictions that’s likely to be the most impacted (EU, US, Canada, etc.), he would be wise to liquidate his possessions there and move the proceeds to a jurisdiction that’s less likely to be impacted and which has a long reputation for economic stability. He should place his wealth (no matter how great or little) in precious metals and real estate overseas—again, in a safer jurisdiction.

He should retain some money (in cash and precious metals) at home, or nearby—enough to cover a few months’ expenses.

If he can afford to, he should then create a bolt-hole in a jurisdiction that he can go to quickly, should the crisis overtake him.

However, even those who recognize that their home country may soon become an economic prison camp are likely to dither, failing to prepare adequately. Sadly, they’re likely to find themselves in the position of the fellow in the photo above, discovering that “Game Over” has arrived before he could ready himself.

As Doug Casey has correctly noted, the prime directive of any organism—whether it’s an amoeba or a person or a corporation or a government—is to survive.

That’s why the US government protects the petrodollar so zealously. It needs the system to survive.

World leaders who have challenged the petrodollar recently have ended up dead…

Take Saddam Hussein and Muammar Gaddafi, for example. Each led a large oil-producing country—Iraq and Libya, respectively. And both tried to sell their oil for something other than US dollars, before US military interventions led to their deaths.

In October 2000, Saddam had started to sell Iraqi oil for euros only. Iraq said it would no longer accept dollars for oil because it did not want to deal “in the currency of the enemy.”

A little over two years later, the US invaded. Immediately after Baghdad fell to US forces, all Iraqi oil sales were switched back to dollars.

Thanks to WikiLeaks’ release of Hillary Clinton’s emails, we know that protecting the petrodollar—not humanitarian concerns—was a primary reason for overthrowing Libya’s Gaddafi.

According to her leaked emails, the US (and France) feared that Gaddafi would use Libya’s vast gold reserves to back a pan-African currency. This gold-backed currency would have been used to buy and sell oil in global markets. Also, it would have likely displaced a version of the French franc that’s used in Central and Western Africa.

The US and France backed a rebellion, both militarily and financially, that overthrew Gaddafi in 2011.

After Gaddafi’s death, plans for the gold-backed currency—along with Libya’s 4.6 million ounces of gold—vanished.

Of course there were other reasons the US toppled Saddam and Gaddafi. But protecting the petrodollar was a serious consideration, at the very least.

Putin Is a Tougher Adversary

The dollar’s special status gives Uncle Sam tremendous leverage. So it’s no surprise that Russia wants to undermine the petrodollar system.

Russian President Vladimir Putin summed it up this way:

Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners to promote international financial regulation reforms and to overcome the excessive domination of the limited number of reserve currencies.

Essentially, Putin is saying they all want to ditch the dollar.

That’s largely because the US uses the dollar as a political weapon. For example, the US tried to sanction Russia for its actions in Crimea and Ukraine. These sanctions made it harder for Russia to access the US dollar–based financial system. So of course Russia is going to push for an alternative.

Shortly after the sanctions, Russia struck a massive deal to sell oil and gas to China for yuan. The deal totally bypassed the US financial system… and any sanctions.

China’s Permanent Bypass Around the US Dollar

Russia is the world’s largest energy producer. China is the world’s largest energy importer. Normally, they would trade with each other exclusively in US dollars.

But, as I’ve told you in recent weeks, China is now introducing a more permanent way around that.

I call it China’s “Golden Alternative” to the petrodollar. It’s a streamlined way for Russia and everyone else to sell oil to China for yuan—or effectively gold.

Bottom line, two of the biggest players in the global energy market are totally bypassing the petrodollar system.

Informed observers say Russia is already converting a large portion of its yuan earnings to gold.

Of course, other countries are interested in sidestepping the US financial system and US sanctions, too. China’s Golden Alternative will give anyone the option to do just that.

This will make the US dollar a much less effective political weapon.

Other countries on Washington’s naughty list are enthusiastically signing up. Iran, another major oil producer, is accepting yuan as payment. So is Venezuela, which has the world’s largest oil reserves.

I think others will soon follow. From the perspective of an oil producer, it’s a no-brainer.

With China’s Golden Alternative, an oil producer can participate in the world’s largest market and try to capture more market share. It can also easily convert and repatriate its proceeds into gold, an international form of money with no political risk.

But this doesn’t apply to one critical holdout… Saudi Arabia.

Twisting the Saudis’ Arm

Saudi Arabia is the world’s largest oil exporter. A lot of that oil goes to China, the world’s largest importer.

Beijing still reluctantly pays for Saudi crude in US dollars. The Saudis won’t have it any other way, at least for now.

This bothers China. It can only import Saudi crude by obtaining and then using US dollars. And that, of course, means it has to stay in Washington’s good graces.

Trump’s Treasury secretary really drove this point home recently. He threatened to kick China out of the US dollar system if it didn’t crack down on North Korea.

China would rather not depend on an adversary like this. This is one of the main reasons it’s launching the Golden Alternative.

Saudi Arabia, however, refuses to participate. It won’t sell its oil in anything but US dollars because that would break its longstanding petrodollar agreement with the US.

The truth is selling oil for yuan would cost Saudi Arabia a whole lot.

It would immediately lose American diplomatic and military protection. Then the media and think tanks would quickly start pounding the table for the US military to force democracy on Riyadh.

Last year Trump said, “If Saudi Arabia was without the cloak of American protection, I don’t think it would be around.”

He’s absolutely correct.

Of course, the Saudis know all of this. So they’ve been on a short leash… until recently.

In a surprise move, Saudi King Salman recently became the first sitting Saudi monarch to ever visit Russia.

Until recently, the visit would have been unthinkable. Saudi Arabia has been one of the US’ closest allies since the petrodollar system started in the 1970s.

Meanwhile, Russia and Saudi Arabia have been enemies for decades. Most recently, the Saudis and Russians have been on opposite sides of the Syrian Civil War.

That’s why King Salman’s historic visit to Moscow is so remarkable. The Saudis are clearly hedging their bets against the US and the petrodollar system.

Saudi Arabia is now drifting closer to Russia.

The Saudis have committed to invest up to $10 billion in various Russian sectors. But, even more significantly, they’ve agreed to buy the S-400 missile system, Russia’s top line air defense system, as part of a $3 billion weapons purchase.

This deal signals a geopolitical earthquake. The Saudis have neverbought Russian military equipment before.

Ever since the birth of the petrodollar, the Saudis have depended on American military protection. After all, it’s what they get in return for pricing their oil in dollars.

The S-400 system deal suggests the Saudis are hedging their bets. First, they’re not buying an American system. Second, they’re buying a Russian system that’s capable of deterring an American attack.

Saudi Arabia is making significant moves to give itself alternatives to American protection.

At the same time, China is cutting back on Saudi crude.

A few years ago, Saudi oil made up over 25% of Chinese oil imports. They were Beijing’s No. 1 supplier. Today, the Saudis’ market share has dropped below 15%.

In other words, the Saudis are losing massive market share and getting pushed out of the biggest oil market in the world. This is mainly because they refuse to sell oil to China in yuan.

China has made itself clear. It’s willing to expand business with anyone who will accept yuan as payment.

Today, Russia has overtaken Saudi Arabia as China’s top supplier. Its share of the lucrative Chinese market has grown from 5% to over 15%.

Russia’s enthusiastic acceptance of yuan as payment is the main reason for this shift.

In the meantime, Angola, an African oil producer, has also come on board. The country now accepts yuan as payment for its oil exports to China. It even made the Chinese yuan its second legal currency in 2015.

Chinese imports from Angola have shot up since. It’s now China’s No. 2 supplier, after Russia.

None of this bodes well for the petrodollar system.

The Saudis have two choices… rip up the petrodollar or get shut out of the world’s most lucrative oil market.

One way or another—and probably soon—the Chinese will find a way to compel the Saudis to accept yuan. The sheer size of the Chinese market makes it impossible for Saudi Arabia to ignore China’s demands indefinitely.

What to Watch For…

China might not convince the Saudis to ditch the petrodollar system tomorrow. But it’s making significant progress.

A few months ago, Saudi Arabia announced it was willing to issue Panda bonds to finance its government spending deficit. (Panda bonds are yuan-denominated bonds from non-Chinese issuers that are sold in China.)

This is remarkable. The Saudis’ currency is pegged to the US dollar. Up until this point, they’ve exclusively used US dollars for all of their major financial initiatives.

Issuing debt in yuan—instead of US dollars—is a significant move. It means Saudi Arabia is drifting closer to China.

Also, the Saudis recently inaugurated the massive Yasref refinery in the Saudi city of Yanbu. The refinery is an $8.5 billion joint venture between Saudi Aramco and China’s Sinopec.

These are noticeable steps. But the Saudis still haven’t given China what it really wants—oil for yuan.

However, it could happen soon…

The Largest IPO in History

In the coming months, the Saudis plan to float a 5% stake in Saudi Aramco, the state oil company.

Saudi Aramco is the most valuable company in the world. It will likely be the biggest equity offering ever. It could triple, or even quadruple, Alibaba’s current record initial public offering (IPO) of $25 billion.

The IPO’s success will depend on Saudi Arabia recruiting big cornerstone investors. But so far, Western investors haven’t shown a lot of enthusiasm.

For China, however, it could be the perfect opportunity to buy political influence in Saudi Arabia.

If China bought a large stake in the Aramco IPO, it would help cement its relationship with Saudi Arabia. It would also put more distance between the Saudis and the Americans.

And critically, it would give the Chinese more leverage to compel the Saudis to accept yuan for oil.

China is in the process of negotiating not just a 5% stake, but potentially a larger one.

Bottom line…the Saudis haven’t made a clean break with the US yet. However, they are drifting toward China financially and Russia militarily.

The Saudis are clearly setting up the option to dump the petrodollar.

If the Saudis sell oil to China in yuan, it would kill the petrodollar overnight. However, short of that, things still look very dire for the petrodollar.

The petrodollar system is facing serious erosion, thanks in large part to China’s Golden Alternative. That’s already baked into the cake.

And with that, severe inflation in the US is a certainty.