Saudi Arabia has a key decision to make that is crucial to the future of our national security and our economy: Will it continue its policy since 1945 of pricing oil exclusively in dollars or will it accept other means of payment, specifically Chinese Yuan?
If the Saudis join Russia in accepting Yuan as payment for oil, it will undo the dollar supremacy on which our entire financial system has been predicated for eighty years. If the dollar is no longer the preferred global currency, for example, the US may have to convert its dollars into Yuan to conduct international trade and may not be able to borrow money and run deficits with impunity. (Our ability now to do so is unique in the world).
Our current rate of inflation is due to a traditional interaction of too much demand and too little supply. But, if the dollar is dethroned as king, we will begin to see inflation due to a possibly permanent loss of confidence in the value of the dollar, a catastrophic economic consequence.
The future of the dollar rests in the hands of the current de facto Saudi leader MBS, (Saudi Arabia’s Crown Prince Mohammed bin Salman Al Saud). MBS is terrified of the potential of an Iranian nuclear bomb — as we all should be — and is opposed to the giveaway deal Biden is trying to conclude with Tehran. He hopes to use his leverage over the dollar in the good cause of stopping the deal.
Further, he is alienated by US antipathy toward Saudi Arabia stemming, in part, from the murder of Saudi dissident and Washington Post columnist Jamal Khashoggi by the monarchy’s secret police while he had been lured to the Saudi consulate in Turkey by promises of the paperwork he needed for his wedding. He was suffocated and his body dismembered.
(The subtext here is that with the increase in U.S. energy production, the Saudis are afraid of losing their leverage over the US. Now they are hoping that their flirtation with China and the threat to dethrone the dollar can restore Saudi leverage).
The background of the U.S. so the relationship is interesting. On his way back from the Yalta conference in 1945, a sick and dying FDR ordered his vessel to make a stop in Saudi Arabia so he can confer with the king. FDR understood the coming importance of oil in the global economy and got a pledge from the king to only deal in dollars. Based on this decision, The whole global economy oriented itself to dollar supremacy and has remained there ever since. Perhaps until now.
Just as FDR’s prescience in understanding the importance of oil and the dollar, helped create America’s dominance in the world, so, now, Biden’s profligacy in spending and taxing has so undermined confidence in the tower that FDR’s work is being undone. This development might prove to be the greatest lasting damage of the Biden presidency to American power and prosperity.
In what world would the United States side with Iran against Saudi Arabia while serving Chinese imperial interests? Joe Biden’s world.
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