The Commodity Crisis Will Weaken The Eurodollar System

Zoltan Pozsar, investment strategist at Credit Suisse, said in a report on Monday that a "perfect storm" had emerged in commodity markets as the Crisis in Ukraine intensified, which could weaken the Eurodollar system, fuel inflation in western economies and threaten financial stability.

"We haven't seen a crisis like this since 1971 when President Nixon de-pegged the dollar from gold [referring to the end of the Bretton Woods system]. When this crisis (and war) is over, the dollar should be even weaker."

The third round of russia-Ukraine talks in Belarus has not achieved the expected results, but the talks between the two sides will continue, Russian delegation chief Dmitry Medinsky said Thursday, Xinhua reported.

The conflict, which has escalated almost two weeks ago, has sent global commodity prices soaring, with nickel hitting a record high and oil hitting a 14-year high. The United States and its European Allies are discussing a ban on Russian oil imports, SECRETARY of State Antony Blinken said Sunday. Mr Novak, Russia's deputy prime minister in charge of energy, warned that a ban on Russian oil imports could push prices to $300 a barrel.

Russia is an important part of the global commodity supply chain. In addition to oil and gas, it is also a major exporter of wheat, palladium and nickel.

"Russian commodities today are like subprime mortgages in 2008, and non-Russian commodities are like Treasuries in 2008," Pozsar said. One price collapsed and the other soared, and both required margin calls no matter which side you were on."

Mr Pozsar added that western central banks were unable to close widening commodity price differentials because their countries were the ones pushing for sanctions. They will have to deal with the resulting inflationary impact and try to cool it by raising interest rates, but western central banks will not be able to provide the external price differential or the balance sheet to close the gap between Russian and non-Russian goods.