Where would the Saudis be without the United States?
I don't think "puppet state" is an accurate description, but their fate is heavily dependent on our mutual relationship.
I don't think "puppet state" is an accurate description, but their fate is heavily dependent on our mutual relationship.
Our military needs their money to create and sustain critical jobs here and buy billions worth of military tools most of which they barely know how to use.
You're thinking of Israel.
The US relies on Saudi oil.
Saudi Arabia relies on US protection.
Each benefit mutually from petrodollar pricing -- the US guards against devaluing its currency (and reducing the value of dollar-denominated assets within its financial system), Saudi Arabia, and virtually every oil-exporting nation, benefits by not having their currencies appreciate in the absence of any meaningful domestic demand for foreign goods.
There are other elements, though those are the large ones.
Actually the US does not need Saudi oil. Yes, we do import from them, but we can easily replace them. We get almost 4x as much oil from Canada as we do from Saudi Arabia, by the way.
So, while the US may not burn Saudi oil directly, it is absolutely dependent economically on Saudi Arabia supplying a critical share of global oil.
More significantly, as the global surplus producer, Saudi Arabia took over the role the US had played from 1930 - 1971 in setting and establishing global oil prices. The result hasn't been quite so, ahem, well-oiled as the TRO's production quota and certificates of clearance (US Dept. of Interior), but it's been the one handle on extraction volumes, and hence, price, that's been available.
The other thing is that while the US isn't necessarily dependent on Saudi oil, key allies and trading partners are. Places like Japan, China, EU states, etc. That gives them a lot of strategic leverage.
https://www.washingtonpost.com/news/worldviews/wp/2016/04/05...
Also they are largely running their own war in Yemen against the Houthis. And it the Saudis that are flying those sorties.
http://www.independent.co.uk/news/uk/politics/uk-has-sold-56...
Things like additional human stampedes during the Hajj have the potential to end Saudi rule far faster than any relaxation of US support, or even attacks from powerful neighbors.
http://energydesk.greenpeace.org/2016/01/15/data-how-guns-an...
It's as clear as it gets. The United States guarantees the House of Saud'a rule in exchange for military and regional policy concessions.
If the KSA quits, America can pull its security guarantee and the regime falls. If the United States quits, the KSA can...sell Treausries and stop selling us oil?
The United States was 61% energy independent in 2013, with net energy imports falling [1]. We also import lots of oil from Mexico and Canada. The energy threat isn't existentially potent.
Regarding Treasuries, the accounts could be frozen and sanctions levied. Again, power is asymmetric.
[1] https://en.m.wikipedia.org/wiki/United_States_energy_indepen...
Well, that's a pretty shitty outcome for the US, so the KSA has a ton of leverage here and they know it.
> The United States was 61% energy independent in 2013, with net energy imports falling...
Yes, and this might be one of the reasons that Saudi oil prices were pushed down. Shale oil and fracking was becoming a problem and they moved to correct that. This also took care of the Canada problem as well, setting back development by another decade.
Don't forget the oil market is world-wide. The US could be self-sufficient but if oil is crazy expensive because Saudi Arabia is on fire that will wreck the economy.
No, they don't. It's an existential question versus inconvenience. Trashing the KSA could be spun as a national security or human rights decision.
> the oil market is world-wide
Trashing the KSA would be expensive, but not catastrophic. Rising oil prices would help American exporters. Furthermore, we have laws on our books to ban the export of crude; WTI could be low while Brent soars.
My fundamental point is that American influence over the Saudis shadows any Saudi influence on America.
US policy is set by politicians, bureaucrats, and military leaders. And STC has them well into its palm. That's why the STC can attack us on our own soil, kill thousands of us, and get thanked and rewarded by our leaders.
Interest rates are stupidly low now, borrowing trillions has never been easier. If they get as high as they did in the 1980s there will be blood in the streets.
Every nation state stockpiles pallets of $100 bills as a result. Cut that requirement and allow purchases in Euro, Rmb, etc and the people start unloading dollars.
Compare that with the Euro, which has France threatening to withdraw, and the Renmimbi, which Chinese will sell at fire sale prices for access to international markets their government prohibits them from accessing.
Petrodollars once played a role, but no more. Frankly, it seems like an unnecessary liability held over from when the American economy was dependent on foreign oil.
I've uncovered some interesting references on the UK monetary crisis of the 1970s -- the UK required an IMF bailout, though revenues from North Sea oil sales helped considerably as well.
There is a bit of similar discussion about US monetary policy from the early 1970s, and I've a stash of J. Econ Rev. or similar articles from economics conferences of about that time which touch on the question, though I'm not sure the information's good.
Steve Keen has good insights in a few areas, as does David Graeber. I've got Keen's book handy, and will take a look through it.
Otherwise, there's the story of devaluations of other currencies throughout history. Joseph Tainter, whom I've mentioned elsewhere in this thread, has a long bit online (YouTube) on the devaluation of the Roman denarius -- specie coin which fell from 99.9% purity to less than 4%. Adam Smith talks of the inevitable debasement of coin in Wealth of Nations. And Robert Newman (a comedian, not an economist, though his work here is excellent) touches on petrodollars and sensitivity regarding them in his History of Oil: https://m.youtube.com/watch?v=GIpm_8v80hw At 21m30s.
Hrm. Nothing in Keen on "petrodollar" or "Bretton Woods", and only a brief, 1929 reference, to the gold standard.
I'd suggest looking up J.K. Galbraith or Philip Mirowski as possible sources, though I'm not aware of anything specific to either of them. Highly-regarded and unorthodox economists.
They made a deal way back that the US would keep House of Saud in power, in exchange for their Oil at market prices. That - and the fact that they are allies on 'terrorism' means a degree of mutually beneficial transactions.
Strategic partners, that's it.
The US does things that massively piss of the Saudis - particularly the removal of Iran sanctions. That is pretty much #1 worst thing that the US could do, outside of withdrawing support for them unilaterally.
It's a very important deal considering how much Oil they have, and that they could chose to use it as a geostratgic weapon - but really, if the US did not protect them they would have been invaded long ago.
It's not so apparent in 2016, but it was more important way back.
Saudi Oil is sweet, and very easy to access with old-school technology. Nowadays you have off-shore, deep-water, Oil Sands, horizontal drilling etc. etc. that didn't exist.
So may be it's more about protecting the interests of American Oil companies rather than direct consumption.
I think you put the quotation marks in the wrong place. The Saudi government are "allies" with the US on terrorism - that is, they nominally support the US efforts to combat terrorism, which means that the US overlooks Saudi-originating terrorism and instead directs its attention elsewhere.