China, Russia, and Iran Complete Joint Naval Drills

 China, Russia, and Iran completed five days of joint naval exercises in the Gulf of Oman. 

China's engagement with Iran accelerated rapidly. In February, Chinese President Xi Jinping invited the Iranian delegation to Beijing. It was the first official Iranian visit to Beijing in over 20 years. Within 24 hours of President Jinping's phone call, the Iranian delegation was in Beijing for three days. After the conference, China and Iran released a joint statement about shared security concerns. The statement included language guaranteeing each other's territorial integrity, conducting joint military drills, bilateral military training exercises, and strengthening military communication. The two countries signed at least 20 new security and economic agreements. 

Following the conference, the state-run Islamic Republic News Agency stated that Iran’s BRICS application was “now successful.” The BRICS have not confirmed or denied Iran's claim that the BRICS accepted it. The BRICS has three meetings later this year to decide on more than a dozen applications. The applicants include Saudi Arabia, Egypt, Iran, Turkey, Argentina, Indonesia, Algeria, Kazakhstan, Nicaragua, Senegal, Thailand, and the UAE. Less than one week after Iran's claim it was now a member of the BRICS, despite protests from Washington, Brazil allowed two Iranian warships to dock in Rio De Janeiro. Two weeks later, China hosted an unannounced summit between Iran and Saudi Arabia and brokered a peace deal. The two countries will reopen their embassies within two months. 

Look at the map below. The five circles represent strategic shipping lanes for Middle Eastern oil to reach the U.S. What would a naval blockade at each point mean for U.S. shipping lines? China is playing chess, and the U.S. is playing checkers. The Chinese war philosophy is "don't attack what is strong." The strength of the U.S. is military strength. China is positioning itself to attack what is weak. 

The U.S. has outsourced almost everything, including energy production, which became a liability decades ago. The U.S. dependency on foreign oil is an extreme vulnerability. China was happy to watch us buy the rope we would hang ourselves with. The BRICS is not just an economic alliance. It is becoming a military force to oppose NATO. China is setting up strategic choke points to control oil shipping lanes for checkmate.

The BRICS could defeat the U.S. by shutting off access to Middle Eastern oil. The BRICS are engaging in joint military exercises near strategic oil trade routes. The training sites are not random. The Gulf of Oman sits at the base of the Persian Gulf and is a critical shipping lane for Middle Eastern oil passing the Persian Gulf. The exercise came three weeks after China, Russia, and South Africa performed a similar joint naval exercise off the coast of South Africa. 

The South African waters represent the southern trade route. Brazil represents one-half of a wall with West Africa. Iranian warships are currently docked in Rio De Janeiro. China needs port access in West Africa. China has built ports with the Belt Road Initiative and created attractive financing options for Senegal. Senegal has applied to join the BRICS and has a port in the prominent section of West Africa. What a coincidence!

Egypt has also applied to join the BRICS. The Egyptian central bank publicly stated it is committed to moving away from the Dollar. I am not one for making predictions, but Senegal, Egypt, Iran, and the UAE are almost guaranteed to be accepted to the BRICS for their strategic geography and oil reserves. The BRICS actively trying to overturn the Dollar hegemony is only half the threat. The BRICS are also preparing for war. 

Here is one terrifying scenario of how it could go. China plans to kill the U.S. through hyperinflation. As more countries choose alternative currencies to trade, more Dollars will repatriate to the U.S. The U.S. will feel the pressure of rising prices and try sending cash abroad to slow inflation. Around that time, China invades Taiwan and closes off U.S. oil supply lines. The U.S. cannot send the cash abroad and faces an oil shortage. Both supply and demand inflation run rampant. The Fed won’t have any tools left to slow inflation. Higher interest rates will have created a credit crisis and multiple bank failures. The Fed will use the reverse repo as a last-ditch effort to save the economy. However, the market will not respond favorably to the action. Instead of a run-up, the action will create a massive sell-off that will get a scary name like “the Great Depression Amplified” or “the Catastrophic Collapse.” 

Ignore the warning if you want, but if history teaches anything, it teaches that this won't end well for the primary reserve currency. 

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