Saudi Arabia threatens to ditch dollar oil trades to stop 'NOPEC'
reuters.com
reuters.com
The US also has long-standing contingency plans to support Shia secessionism in the oil-rich Eastern provinces should the al-Saud stop doing as they are told. No invasion needed.
The average income in Cuba is $20 per month. Without regime change they were heavily neutralized as an influence in Latin America. Cuba's military could hardly be less of a concern. Once Raul Castro is gone, that's the formal end.
Venezuela is a failed state. The Bolivarian Revolution is over there. There won't be another Chavez any time soon. And if there is, there are no resources to be used to fund such a regime's agenda. The US didn't have to do anything in that case, Venezuela destroyed itself through typical Statist mismanagement. Ironically Chavez will have ended up helping to benefit the US considerably, by destroying what should have been one of the world's largest oil producers. It removed vast potential supply from the global oil market for decades, helping to an extent to make way for the US boom, keeping prices high enough to spur on the Permian shale build-out. If Venezuela were producing like it should be, that'd be ~4m more barrels per day the US producers would have to contend with on the global market, dragging on prices. Instead the US has a solid runway from here to 16m barrels per day of production in the coming decade.
The US is now a big oil competitor with Iran. So keeping them boxed in - no regime change needed - is a large win economically. The US can pretend it's for all sorts of reasons, while actually serving the purpose of furthering US oil production and exports. The US is 'convincing' South Korea to abandon Iranian oil right now, in favor of US oil. All the US has to do is keep Iran boxed in for two decades until oil demand begins to contract, then it's over (two decades merely being the time from here to 9/11). Iran's theocratic system will collapse in on itself as oil demand fades, they don't have enough of an alternative economy.
But the latter is not a problem for someone of Trump’s moral constitution — just bomb all the peasants to the Stone Age and take over the oil fields (which are already operated by American companies). They’re the best example I can think of as to what a “frenemy” looks like; and the petro-dollar is the only reason “fr” is part of that word. Their espionage activities show me they view America as a machine to be manipulated to serve their ends, not as a legitimate partner in anything.
The Saudi military is, by all accounts, corrupt from top to bottom and almost entirely reliant on American contractors to maintain and result their stockpiles of American weapons. We know where all their weapons are because we built the bases and bunkers they’re housed in. They wouldn’t put up much of a fight, at least not for long. I wouldn’t be surprised if we planned for this and had a back door into all their weapons systems.
Mind you, all of this would be an absolutely terrible idea and almost certainly start WW3 thanks to the cultural heritage around Mecca. But also keep in mind there are a non-zero number of voices in Trump’s base actively advocating our role in starting a biblical apocalypse somewhere around Israel / Syria — so that’s not necessarily considered a negative in the minds of Trump’s base.
But yeah, I think the Saudis may be overestimating Kushner’s influence and underestimating the influence of Trump’s base. That’s the danger of supporting a populist.
Anyway NOPEC will not happen as long as oil maintains is importance to the world economy. I doubt US is going to invade SA anytime soon.
It is not that simple. If an economy has a surplus, e.g. China, where does that surplus go? This is why we have a default world currency whether that be silver, gold or petro dollars.
When you work through it a bit more the more you realise a basket of currencies won't work, unless every currency is essentially the same. Capital is like water, it flows.
I would like to see discussion on how we can move on from the currencies we have to a measure of energy. Everything can be measured in energy terms, why not cut out the abstractions?
It's amazing how much stuff they get blamed for these days. I mean, what are you actually suggesting? That they've infiltrated Bloomberg? That they're controlling the Saudis?
I'm frankly just tired of all the evidence-free fearmongering about "The Russians", and at this point I just want to say, provide evidence or STFU.
Putin and his, erm, colleagues constantly use “multi-polar world” and “prevention of (implied US-American) hegemony” as a reason for their actions. This includes the desire to make Russian Rouble one of the world's currencies.
If anyone, I am extremely tired of US-Americans blaming their poor policies on “The Russians”, but in this case, the possibility of US Dollar losing some of its value does indeed align with the Kremlin's wants.
Its almost like the bully being afraid to take his foot off of his victim's neck because he might get up and then he has to actually fight him. I think the reason other countries may not be anxious to push things is because a global war is probably going to be much worse for them than just having a weaker currency and less resources etc.
The other aspect is that it seems like history very commonly ends up in a situation like this with hegemonic powers (otherwise known as Empires). So for now people some people may hate the United States, but sooner or later people will be resenting the Chinese or the artificial superintelligence that starts controlling everything. Personally the current paradigm benefits me so I hope it will continue for awhile, and that we can arrive at the next one without too many people dying. It would be nice to imagine an equitable world, but that doesn't seem feasible given the preponderance of propaganda despite democratized instantaneous mass communications.
That's not remotely plausible. Russia doesn't have an economy to support a serious global currency. It has an economy the size of Canada. The US could have never positioned itself to have the global reserve currency, without having the world's largest economy (or otherwise massive economy). That position dates back to ~1890. You can't acquire a superpower economy on the back of currency magic, it can only be done through actual economic production (an area where Russia is severely lacking).
Russia is also capable of this I guess.
It's roughly been Russian policy since the early 1800's and the Great Game/Bolshya Igra only then it was trying to undermine GB and Sterling, particularly over India. They seem to have been working the multi-polar angle since Tsarist days too. The internet obviously made things a little easier.
An awful lot that is blamed on Russian intervention sounds far too convenient.
The US openly describes itself as having and maintaining hegemony. With regard to state department representatives and public officials this would primarily be in spoken form. With regard to private media and academics you can find many references to US hegemony and how this relates to influence.
This is simply bluster. Russia’s economy is about the size of Australia’s. Even the EU, with GDP comparable to the USA (and 10X Russia’s) hasn’t made any headway in the oil market, much less as a reserve currency.
Actually the value of being a reserve currency is mostly overstated. The US still has that status mainly due to the size and liquidity of its debt, and to a lesser extent, equity market. Even when a comparable rival does eventually emerge, hysteresis will keep the dollar on top for a long while. The same history applied to sterling when it was the world’s reserve currency.
I'm currently reading books by Russian authors (Vladimir Sorokin, Andrei Kurkov) and there's constant talk about dollars and also roubles when the characters talk about money. It's like both are used to pay for stuff, dollars for black market goods, hitchhike rides, ransom etc. and roubles for regular stuff like alcohol, a taxi ride, a dinner at the Prague restaurant.
Given that, is the NOPEC thing serious, and if so, why would people propose it knowing how critical the Saudi relationship is?
Yes I am sure many a tear would be shed in the ranks of American elites many of whom are Muslim, Arab businessmen if the US decided tomorrow that they did not like the Saudis anymore and no longer wanted them to exist.
And going beyond just money, remember that the Saudis went after one of the richest businessmen in the US (Amazon's Bezos), you can expect they also went after other businessmen and politicians, many of whom are a lot less tech savvy and protected. That's a lot of things potentially held over important people's heads.
In that context what you are saying makes no sense.
That turned out well don't you think? Iraq was a historical enemy whereas Saudi Arabia is a key ally of the United States. This alone should give you the feeling that there's something happening behind the curtains to justify such an alliance with a... controversial country.
Before that, in the 70s it was a Baathist secular dictatorship that was an oil exporter and thus reliant on the US dollar, while Iran was a Kingdom with a US puppet as Shah.
Going from ally straight to enemy and war is probably a big step even for the US.
Since the US shale oil revolution, the US is essentially energy independent.
Basically all that is left is that Iran is more poisonous in US politics than Saudi Arabia for reasons that relate to the Iranian revolution and the - moderately reasonable - fears that Israel has of Iran.
https://edition.cnn.com/2018/10/15/investing/saudi-arabia-oi...
https://en.wikipedia.org/wiki/List_of_countries_by_oil_consu...
The US exports 3.6 million barrels of crude oil per day for other countries to blend with lower grade crude, making it easier to refine. The US happens to have some of the best crude oil for this purpose.
The US is also the world's largest refiner of petroleum, and the world's largest exporter of refined petroleum products. Many countries do not have the capacity necessary to refine crude oil. The US buys foreign crude oil, refines it, and then exports the refined products back to those and other countries.
You can't just look at crude oil imports in isolation to determine if the US is a net importer or not. In fact, the US has been a net exporter of total petroleum products for several years now due to both its increased production and critical role in global crude oil refining.
The refineries on the east coast are built to refine Saudi light crude oil. So, the east coast is dependent on middle eastern crude oil.
The US exports oil, and the domestic consumption includes gas and other consumption, which the crude production doesn't include.
This is the best explaination I've found: https://www.google.com/amp/s/www.forbes.com/sites/rrapier/20...
That is not what that article says. It says:
"The United States still imports 7.9 million barrels of foreign crude per day and a sizable chunk comes from Saudi Arabia, the world's largest oil exporter."
The US imported just less than a million barrels per day of crude oil + products from Saudi Arabia in 2017. It was down to 770,000 per day for January 2019.
Imports from Saudi Arabia have been cut in half since 2003. If the US wanted to it could easily entirely remove them from the oil import mix. They're no longer a required supplier for the US.
If you want to see a nation the US depends on for oil: the US imported four million barrels of crude oil per day from Canada in January.
Maybe we can go off the oil addiction. Plus Saudi Arabis is very unsavory especially what they did to Jamal Khashoggi.
The regime resorts to political assassinations on foreign soil even in petty issues that are insignificant at state-level. Do you have a problem understanding how that affects international relations?
That's just life. There should be a Hippocratic oath for geopolitical intervention.
Secondly, you don't have millions of refugees, genocide and an entire generation not in school, in Cuba. So there's that. Venezuela I don't know anything about.
Which is why all such regime changes bring no measurable increase in the quality of life of the local people. So then, from the perspective of the local Venezuelan or Cuban, what exactly is the difference between a festering cancer and a replacement cancer beyond looking at other countries getting richer / more powerful by extending their influence into yet another country?
We would be at 500 ppm if not for the irrational boycott of the West by King Faisal.
Dumb threat. Streisand effect, too—this bill just went, for me, from something I didn't know about to something that's on my radar.
Go ahead, sell in other currencies. Your buyers will bake in the swap costs to hard currency. It isn’t like Mexican oil isn’t sold for pesos or North Sea oil for pounds sterling or kroner. The petrodollar hypothesis is a myth. The United States, now [EDIT: nearly] a net oil exporter, does not depend on Saudi oil.
Until recently, the Euro electronic transmission system was far slower, and less immutable, than the Fedwire system. This has recently changed. Otherwise, the superior investment environment in the U.S. (i.e. higher yields) and broader international acceptance of dollars would be marginal issues. At this point, Saudi Arabia selling all its oil in dollars is a bit of an anachronism.
Pardon me, edited. Point being that the net oil imports the U.S. economy requires are too small to be entirely dependent on Saudi oil. As long as the KSA is selling oil, the critical factor to the American economy--oil prices--will remain roughly stable.
https://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0...
The notion that the United States does not depend on Saudi oil (or that it's energy independent) just because it's a net oil exporter is a myth. Not all crude oil is equal. The US has an abundance of light oil which it exports but it still imports a lot of heavy and sour oil from OPEC and Canada.[1]
One, this has nothing to do with the petrodollar hypothesis. The U.S. dollar is fine with or without the Saudis dollar denominating their oil. If anything, the causation goes the other way. The large American consumer base generates dollar supply, which creates dollar-investment demand, which leads to economies of scale across the dollar financial system.
Two, yes--switching from Saudi crude would be painful. But within the scope of foreign policy, it's not unprecedented. Moreover, switching the Saudi military and financial system off American support would likely cost the House of Saud its country. Long story short, NOPEC is a low-probability bill. The KSA should have ignored it instead of levying empty threats.
Wow! This is amazing. It changes my entire worldview! All a country needs to do to boost its currency and economy is to start consuming more! I wonder why more countries don't try that? Maybe they are just not ambitious enough. Hmm.
https://en.wikipedia.org/wiki/List_of_countries_by_oil_consu...
https://en.wikipedia.org/wiki/List_of_countries_by_military_...
The U.S. dollar was in global use preceding WWII. Going back to 1915, the Federal Reserve was pioneering electronic money transmission [1]. After World War II, the United States being the only developed country not bombed to the Stone Age helped it set the terms of the peace. But the Bretton Woods system catalysed an existing trend; it did not create it.
> All a country needs to do to boost its currency and economy is to start consuming more!
Yup. This was a foundational motivation for the creation of the Eurozone. It's also why we're seeing offshore renminbi financial markets. If you sell to a consumer in Europe or China, you'll tend to end up with Euros and renminbi. You can swap it into your own currency and lose the spread. Or you can invest it in assets in that currency. The latter drives down capital costs, which makes those currencies more attractive for fundraising. That, in turn, creates financial centers. As long as one has relative price stability, it's a relatively-difficult feedback loop to screw up.
TL; DR The petrodollar hypothesis has bad predictive value.
Countries with more resource control may be able to take that concept pretty far. But it doesn't come from them just deciding they want more stuff.
Value is subjective. Energy intensity of global GDP has been falling for decades [1]. Where I've seen estimates, it looks like material intensity has been doing the same.
Broadly speaking, most countries won't have a reserve currency. Neither their demographics nor economy can support it. But some countries punch above their weight. Canada, Switzerland and Japan have outsized influence for (a) being trading economies with lots of buying power (i.e. lots of overseas vendors end up with their currency) with (b) limited or no history of currency controls (i.e. people aren't in a rush to swap out of the currency, for fear of it getting trapped), and (c) stable governments and central banks.
Given (b) requires free capital flow, which through the impossible trinity [2] means giving up a fixed exchange rate or monetary sovereignty, reserve currencies aren't something most countries may even want. Using dollars tends to be fine. Having alternatives in Europe and China is probably for the best, for everyone, in the long run.
[1] https://yearbook.enerdata.net/total-energy/world-energy-inte...
Real energy intensity is falling. This is because of both increasing efficiency and [1] a greater fraction of demand being explained by immaterial factors [2].
In any case, leveraging an economy doesn't directly change its energy intensity. If it costs X kcal to produce $1 of goods, it doesn't matter if those goods were paid for with cash or credit.
[1] https://mpra.ub.uni-muenchen.de/13149/1/MPRA_paper_13149.pdf
[2] https://www.sciencedirect.com/science/article/pii/0140988382...
The Marshall plan provided a mechanism for the US to fund European rebuilding, which caused Europe to purchase industrial goods and machinery from the US, using those very same funds. The end result was a win-win through to the early 1970s.
At the same time, the USSR was rebuilding from an even more destroyed economy than Europe and could only leverage its domination of Eastern Europe. China was occupied with its own political upheavals and Japan was in the same state as Europe.
The post war "military industrial complex" warned about by Eisenhower, is a real thing. The US has a large military because the large military is a way to recycle taxation to defence employment. The US doesn't need a military that costs $750b per annum and is larger than the next 10 nations combined. However, US employment requires that military to keep the balls in the air. It provides industrial employment to people in places where it isn't financially prudent and the military itself provides employment for those that can't get employment in the general economy.
In essence, the US military is a giant social security network for the US. It consumes vast resources to do so and could be done at much lower cost, but the likelihood of that occurring is zero due to the vested interests.