US Hegemony Threatened As Saudis, UAE, India Ignore Threats of Sanctions, Turn to Russia/China
Saudi Arabia, the UAE, and India appear to be distancing from western powers as they expand their relations with Russia and China
This article is a follow up to my previous publication, âUkraine Crisis Triggered a Massive Shift in Fundamentals for Bitcoinâ. The synopsis being that Bitcoinâs fundamentals were positively shifted as a result of sanctions and a splintering of the world financial system, the potential postponement or mitigation of expected upcoming contractionary policy by the Fed, along with rising energy prices(main cost of expense in mining) and bitcoin being partially viewed by many as a digital commodity(commodities are booming as a result of the geopolitical and economic turmoil). Furthermore, the article discussed the significance of a world powerâs reserve currency status relative to its total power and influence, the declining reserve status of the US dollar, and the possibilities of what a new potential world economic order can look like.
Saudi Arabia and UAE Signal Possible Breakaway From US, Growing Relationship with China/Russia Alliance
Saudis and UAE Decline Calls With Biden, Pick up For Putin
A week ago, a story broke with headlines reading âSaudi, Emirati Leaders Decline Calls With Biden During Ukraine Crisisâ and âSaudi, UAE leaders ignore Biden when he calls to talk gas prices: reportâ. In the latter, the NY post states that, âThe leaders of Saudi Arabia and the United Arab Emirates would not come to the phone when President Biden tried to call them to discuss boosting oil exports to offset price hikes linked to Russiaâs invasion of Ukraine, according to a report.â The leaders of both countries did how ever pick up for Putin.
WSJ, who broke the exclusive that everyone else ran off of, subtitled their article, âPersian Gulf monarchies have signaled they wonât help ease surging oil prices unless Washington supports them in Yemen, elsewhereâ. It is worth mentioning that the UAE are close allies with the Saudis, and have been for some time, well before the Yemen conflict. The New York Post additionally reported Bidenâs rebound attempts to Iran and Venezuela, both of whom the US has been sanctioning for years.
âBiden is attempting to woo an array of oil-producing autocraciesâââincluding Iran, Saudi Arabia and Venezuelaâââto offset the impact of Russiaâs invasion of Ukraine on energy markets. âŚ
US diplomats, meanwhile, are working to broker a new nuclear deal with Iran in exchange for sanctions relief and other diplomats were dispatched to Caracas to smooth over a rift with Venezuelaâs socialist strongman Nicolas Maduro, who the US government does not recognize as the countryâs legitimate ruler. âŚ
The white house did not respond for comment.â
Days later, Caitlin Mcfall reported for Yahoo News in an article titled, âBlinken Downplays Reports of Saudi, UAE Distrust of Biden Adminâ:
âSecretary of State Antony Blinken on Wednesday downplayed the suggestion that the Biden administration was snubbed by oil-leading nations in the Middle East as the U.S. looks to counter surging oil prices amid Russiaâs war in Ukraine.
The report also said Saudi Crown Prince Mohammed bin Salman and the UAEâs Sheikh Mohammed bin Zayed al Nahyan spoke with Russian President Vladimir Putin, despite declining to talk with Biden.
âThere was some expectation of a phone call, but it didnât happen,â a U.S. official reportedly said of the planned discussion between the Saudi Prince Mohammed and Biden. âIt was part of turning on the spigot [of Saudi oil].â
Mcfall pointed out later in the article that in a joint press conference Wednesday with Blinken, U.K. Foreign Secretary Elizabeth Truss urged other countries to âget on board with our sanction effort.â This attitude of urging other countries to support and partake in broad measures against Russiaâs entire population is counter productive to the USâs national and economic security.
To surmise the US is pressuring other governments to comply with sanctions against their own diplomatic interests. This is having a negative effect. Countries caught in the middle are becoming enamored with Putin and China who is taking a less aggressive stance with neutral nations. We are witnessing this with Saudi Arabia, UAE, and Indiaâââthe focus of this article. In âUkraine Crisis Triggered a Massive Shift in Fundamentals for Bitcoinâ, I wrote about how âA senior US diplomat was quoted on record saying that the Biden administration hopes âIndia will find itâs now time to further distance itselfâ from Russia.â The US went as far as to threaten sanctions on India, if they did not sanction Russia. What was the outcome of such attempted coercion? Blowback that negatively impacted the financial security of the US, and the strength of the dollar. India just bought 3 million barrels of oil from Russia . They are even considering abandoning the dollar for trade with Russia, which thus far has been the standard.
Yesterday Wapo published the headline, âAs sanctions over Ukraine war mount, Russia turns to India to buy oil and armsâ. The headline is slightly misleading, as Russia turned to India to *sell* oil (at a 20% discount from global prices). Keep in mind, India imports 85% of its oil, and the countryâs overall demand is expected to jump over 8% this year. Economically, buying discounted oil from Russia is undisputedly in Indiaâs best interest.:
â..The volume could increase in the coming months and reinforce a growing perception that India is determined to preserve its extensive trade and military ties with Moscow, even as the United States and its allies urge governments around the world to isolate Russia.
Aside from the oil deal, the Indian government is also exploring ways to maintain trade with Russia by reviving a Cold War-era arrangement called the rupee-ruble trade, according to two other Indian officials with knowledge of the matter. The mechanism, which would be akin to a ledger of trade between the two countries, would let Indian and Russian firms do business while bypassing the need to use U.S. dollarsâââthe predominant currency of international tradeâââand lowering the risk of potential U.S. sanctions.
The last sentence there is particularly important, as bypassing the US dollar for international trade is a concrete demonstration of the threat the dollar faces in being phased out as a reserve currency. It also supports my last publicationâs thesis that our unilateral sanctions are expediting the fall of the dollar as a reserve currency, and critically damaging to not just the countries sanctioned by the US, but critically damaging to America itself as well.
Al Jazeera further reported on Indiaâs recent oil purchase from Russia in a piece titled, âRussian Oil Sale to India Complicates Bidenâs Effortsâ:
Although India is not alone in buying Russian energyâââseveral European allies such as Germany have continued to do soâââthe decision conflicts with Bidenâs efforts to isolate Russiaâs economy with sanctions.
The increased flow of oil could further strain the relationship between Washington and New Delhi, which has already been tested by Indiaâs recent procurement of advanced Russian air defence systems[Lockheed and Boeing are PISSED].
It is worth noting, this 3 million barrel deal is just the beginning. Al Jazeera noted that the Indian government official who broke the story to AP, said that âthe country will increase its imports of Russian oil, allowing it to boost energy supplies at a discount as its economy struggles to recover from the coronavirus pandemic [that very possibly was a result of a US-funded biolab leak].â
When reporters reached out to Indian diplomats for comment, a spokesman for Indiaâs External Affairs Ministry, Arindam Bagchi, pointed out that many European countries import Russian oil and gas.
âIndia imports most of its oil requirements. We are exploring all possibilities in the global energy market. I donât think Russia has been a major oil supplier to India[as it has for much of Europe],â Bagchi said.
This development of state relations revolving around India is a microcosm illustrative of the macrocosm of the US pressuring allies and neutral countries alike to do what is not in their respective interest, pushing these countries into the arms of Russia and China. India isnât the only country seeking to phase out the dollar in its international trade, Saudi Arabia is seeking to start accepting the Yuan for their oil in place of the dollar. Being that Saudi Arabia set the foundation for the petrodollar, this is particularly significant, with the forex marketâs evaluation of the Yuan responding positively in the past 4 days since this news broke.
Fast forward from the Saudis and UAE giving Biden the cold shoulder, and just a few days ago it was widely reported that UK Prime Minister Johnson was tapped in the ring to get the Saudis and UAE to boost production. In an article titled âJohnson faces uphill task to convince Saudis and UAE to boost oil productionâ, the Guardian reported that âNeither Saudi or the UAE are keen to boost oil production since it would break up their oil pact with Russia known as Opec+.â
âThe Saudis have said they will not pump more than they agreed to last year as part of a deal with Russia.â
There is additional geopolitical complexity to the dynamic between the US and western powers concerning the Gulf countries, given the Biden administration distancing itself from their brutal campaign on Yemen as public backlash mounted, partially withdrawing US support for the 6 year war.
â Joe Biden, has poor relations with Crown Prince Mohammed bin Salman, making Britain one of the most plausible western powers to persuade Saudi and the UAE to boost production.â
5 days ago, Haaretz reported that âJoe Biden seemed to have found a path to the Gulf statesâ hearts. He got the United Arab Emirates to agree to urge members of OPEC+ (which includes Russia) to increase oil production.â
âFor a moment, the announcement by the UAE reduced oil prices. But on Thursday, they resumed their surge.â
Obviously, the production hike wasnât satisfactory to keep the market at bay. When the UK prime minister got around to his trip to the Gulf and conducted talks with Saudi Arabia and the UAE, he failed to secure additional public oil rise pledges. Similarly in alignment with the US, the British government has sought to put pressure on India, being âvery disappointedâ in Indiaâs neutrality.
Strained Relations
The 650 million dollar arms deal Biden approved in Nov. 2021, among other deals and forms of support, does not disguise the fact that relations are strained. Bidenâs campaign messaging had him calling the Kingdom a pariah because of the Khashoggi killing, the impact of the war in Yemen, and the jailing of rights activists and the boycott of Qatar. In an article titled âWhite House faces oil standoff with Saudi Arabia and UAE as prices soarâ, the Guardian reported,
Beyond that, though, there is a strong feeling in both capitals that Biden has approached the region with a deeply critical view of countries that had long been security allies, and lenient on Iran, which remains a foe.
Having attempted last week to recruit Venezuela to the cause of isolating Russia, the White House views efforts at repair work on the relationship with Saudi Arabia and the UAE as an acceptable price to pay.
The administration in February sent Brett McGurk, the White House coordinator for Middle East policy, and Amos Hochstein, the state departmentâs special energy envoy, to Riyadh for a meeting with the crown prince. On the eve of the invasion of Ukraine, the Treasury announced sanctions on an alleged Houthi financing network[in an attempt to appease the gulf states].
As the US has been playing both sides, so has the UAE. Al Jazeera reported on the 12th that Russians were âliquidating crypto in UAE in hunt for safe havensâ
Crypto firms in the United Arab Emirates (UAE) are being deluged with requests to liquidate billions of dollars of virtual currency as Russians seek a safe haven for their fortunes, according to company executives and financial sources.
Some clients are using cryptocurrency to invest in real estate in the UAE, while others want to use firms there to turn their virtual money into hard currency and stash it elsewhere, the sources said
Dubai, the Gulf regionâs financial and business centre and a growing crypto hub, has long been a magnet for the worldâs ultrarich and the UAEâs refusal to take sides between Western allies and Moscow has signaled to Russians their money is safe there.
The thesis and focus of my last article was focused on Bitcoinâs positive shift in fundamentals as a result of the current events surrounding the Ukraine Crisis, and this story plays right into thatâââbut that is not the focus of this article, although worth mentioning as this specific case demonstrates that the UAE is defying US wishes and sanctions, and appeasing Russia. A consequence of which is that âThe UAE was put on a âgrey listâ this month for increased monitoring by financial crime and money laundering watchdog the Financial Action Task Force (FATF).â
Two days following the article referenced above, Al-Jazeera published a related article titled, âAnalysis: Can the UAE be a safe haven for Russian oligarchs?â.
As financial warfare against Russia intensifies, Putinâs administration has articulated its stance that the sanctions against it are tantamount to declaring âwarâ. Moscow is taking note of which countries are backing the Westâs financial fight against Russia, and which countries have not.
Ultimately, the UAE and some other Arab states do not want to burn bridges with Moscow in response to the war in Ukraine. These countries see their national interests best served by maintaining close partnerships with Russia long after the war ends.
But, as the piece implies, the US does not seek to tolerate this neutrality, the US government seeks subservient allies, not sovereign and equal partners. While âAbu Dhabi has signaled that it is trying to pursue a balancing act between the United States and its European partners on one side, and Russia on the other,â the US is scrambling as it is not used to having its unilateral authority challengedâââespecially during such dire circumstances.
If Washington becomes increasingly convinced that the UAE is an enabler of Moscowâs foreign policy agenda, helping Russia to bypass sanctions, the Biden administration will consider what actions it can take.
To pressure the UAE into sanctioning those in Putinâs circle, the US could warn banks and other financial institutions in the Gulf country that they might face sanctions or penalties if they continue doing business with them. Yet with the White House seeking Emirati cooperation in terms of oil production and other areas, it is not clear that the Biden administration would do so at this delicate time.
The subtitle of the article sourced above read: âThe UAE has toed a middle line over Ukraine, but can the Biden administration put the pressure on it to change?â
âŚthe subtitle could alternatively be read, in-between-the-lines, as follows:
âThe UAE has remained neutral, should the Biden administration threaten the country in order to gain its allegiance?
Will threats of sanctions on the neutral gulf states and India, as weâve already seen take place, be productive, or counter productive to Americaâs own security and stability? Just as Biden threatened India with sanctions, and it seemed to only push India into Russiaâs arms, threatening the gulf states with sanctions will likely do the same, encouraging them to strengthen ties with China and Russia who are less (if at all)aggressive and imposing to neutral nations. Chinaâs arms are openâââeven to India, with whom China has a notoriously tense relationship with. Just a couple days ago, China proposed peace talks with India, seeking to strengthen relations. The day before publishing this piece, Syrian president Al-Assad traveled to the UAE and conducted diplomatic talks in an effort to expand relations. The trip went well.
Reuters reported the following:
âThe leaders discussed the expansion of bilateral cooperationâââparticularly in terms of investment and economic relationsâââto promote the âaspirations of the two brotherly peoples,â Assadâs administration said.
Bin Zayed reportedly confirmed the UAEâs support for Syriaâs territorial integrity and affirmed the need for the withdrawal of âall foreign forces which exist illegitimately on the Syrian lands.â Assad said that, given increasing instability around the world, âwe must continue with adherence to our principles, the sovereignty of our countries and the interests of our peoples.â â
Food for thought: Is the UAE seeking to grow relationships with governments we view as our enemy a result of US policy? Are Western powers pushing neutral countries into the arms of China and Russia by not tolerating neutrality and attempting to force neutral parties to take sides?
Metaphor: If someone in the dating scene was talking to multiple potential partners, would it be in their general best interest to opt for the abusive, possessive person who wants to control all aspects of their life, from finances to what friends they can and canât talk to, or would they be more likely to choose to partner with someone who seeks a more respective relationship built with more equitable terms that is less controlling and more cooperative? Instead of a domestic abuser, America is a foreign abuser. This metaphor demonstrating the US playing the role of an abuser shouldnât be needed, but Americans and Europeans can be quite oblivious as to how their governmentâs actions are perceived by the rest of the world.
Hunting for Oil, Biden Turns to Long-Sanctioned Venezuela, Iran
Biden has been scrambling to gain the Saudiâs favor, with efforts to appease such as turning over to Saudi custody the â20th hijackerâ who spent 20 years in Guantanamo on the 7th. However, Biden was hedging his bets, reaching out to not just Venezuela (worldâs largest oil reserves), but Iran as well, who has also been subjected to crippling sanctions for years. Attempting to restore relations with Venezuela, as referenced by the excerpt above, was regarded by many as being primarily motivated by the need to access alternative oil supplies to offset the energy crisis. Although the Guardian framed it as for the purpose of isolating Russia, albeit that certainly is an interplaying factor. On the 10th, WSJ published âUkraine War Pushes Biden Toward Venezuela, Iran and Saudi Arabia in Oil Huntâ, in which they summarized:
âThe war in Ukraine has added urgency to the Biden administrationâs months long search for new oil supplies, as it seeks to contain surging energy prices through talks at home and diplomacy abroad with friends and foes alike.
The rush to fill gaps from Russiaâs rapidly shrinking contribution to the global energy markets has led the White House to oil-rich nations in the Middle East, countries under U.S. sanctions and private-sector oil giants meeting this week in Houston. But the quest has been complicated by several factors, including President Bidenâs vow to take a tougher line against Saudi Arabia over human-rights abuses, domestic political pressure and post-pandemic supply-chain disruptions.â
On March 8th, Maduro announced that he had met with a delegation from DC over that weekend in what were the âhighest level American visit to the country since 1999sâ. Maduro even agreed on an agenda for future talks, saying to the press: âLast Saturday night a delegation from the government of the United States of America arrived in Venezuela, I received it here at the presidential palace. We had a meeting, I could describe it as respectful, cordial, very diplomatic.â Al-Jazeera would point out that a month before the meeting, the US had hinted it would review the general sanctions it has placed on the country if talks between the Maduro government and opposition advanced. It was reported that during the meeting, the possibility of easing US sanctions on Venezuelan oil exports was discussed. While some might see this as a dangling a carrot in front of Maduro, this case the carrot is simply a relief from the metaphorical stick.
Likewise Iran was approached, who has also been suffering under general sanctions for years. During this time period, as the US explores the idea of reestablishing relations with Iran during a time of need, they are still partaking in piracy by seizing Iranian oil tankers as Reuters reported last week in âU.S. seizing tankers has failed to stop Iranâs oil exports, minister saysâ.
The United States has on several occasions in the past months violated Iranian oil tankers to prevent export of shipments,â Javad Owji said in an interview carried by Iranian media.
âWhen the enemy realised it could not stop our exports and contracts, they went after our ships,â Owji said.
To reemphasize my thesis.. This overbearing encroachment on the trade, property, and sovereignty of foreign nations, a product of American exceptionalism and entitlement, is going to be the downfall of US, economically and diplomatically, as the countries we seek to control realize it is not in their interest to continue allowing the US to remain the dominant power of the world.
Meanwhile, in anticipation of a renegotiation of the Iran nuclear deal, the UAE has been lobbying for stronger protection from Iran, who recently âtemporarily suspendedâ direct talks with Saudi Arabia as global tensions mount. As significant US allies look to be abandoning ship, the US has sought out enemies, governments who have been subjugated to crippling sanctions for years, for comfortâââif they have oil. One should not have to read too much between the lines to realize that this is a sign of the US empireâs decline; the dynamic does not bode well for the long term diplomatic stability of the US. A sign of desperation, even.
Upheaval of Current World Economic Order, Petrodollar To Be Challenged
Saudi Arabia and the UAE appear to be distancing themselves from Western Powers as they explore bolstering their relations with Russia and China. While the US pressures neutral parties to sanction Russia, or possibly face sanctions themselves, Russia and China are building an alternative economic system to that which has dominated the globe for decades. Russia being kicked off the SWIFT international payment system expedited this into a rapid development by necessity. Lynnwood Times published on March 6th, âChinese Yuan at the precipice to becoming an alternative Global Reserve Currencyâ, in which it was reported:
âToday, Russian banks announced a plan to issue credit cards using Chinaâs UnionPay system after Visa and Mastercard moved to suspend operations in Russia over Moscowâs military intervention in Ukraine. UnionPay is now the second largest and fastest-growing global credit card network. Major Russian lenders Sberbank, Alfa Bank, Rosbank, Tinkoff Bank, and the Credit Bank of Moscow (MKB) have confirmed that they are immediately working on a rollout of UnionPay cards.â
âChinaâs CIPS system is the alternative to the Euro-centric SWIFT banking systemâââa messaging network that financial institutions across the globe use to securely transmit information for monetary transactions. Todayâs announcement of Russian banks issuing millions of credit cards able to transact under Chinaâs UnionPay global credit card network, the second largest in the world, further erodes the Euro-centric western control of the worldâs central banking system.â
âWhat we could be witnessing in real-time is the âexcuseâ by the BRICS nations to move away from the US dollar as the Global Reserve Currency that went into effect in 1944 as a result of the Bretton Woods Agreement.â
BRICS, composed of Brazil, Russia, India, China, and South Africa is a term coined byOâNeill, Goldman Sachsâ head of economic research in 2001. BRICS nations are those developing countries expected to be the dominant suppliers of manufactured goods and raw materials by 2050. South Africa joined India and China in abstaining from the UN resolution condemning Russia. The president of South Africa also recently pointed blame at NATO for provoking the Russia-Ukraine war with its eastern expansion. Speaking to parliament, president Ramaphosa said the, âThe war could have been avoided if NATO had heeded the warnings from amongst its own leaders and officials over the years that its eastward expansion would lead to greater, not less, instability in the region.â He also clarified that South Africa âcannot condone the use of force and violation of international lawââââreferring to the invasion itself.
âThere are those who are insisting that we should take a very adversarial stance against Russia. The approach we are going to take (instead) is ⌠insisting that there should be dialogue. Screaming and shouting is not going to bring an end to this conflict.â
As Lynnwood reported, âAccording to BRICS 2021 Economic Bulletin, BRICS nations account for 41% of global population, 24% of global GDP, and 16% of global trade. BRICS nations signed a Contingent Reserve Arrangement to meet short-term liquidity needs of its fellow members. This financial safety net is now front and center as Euro-centric western banks are threatening the economic stability of Russia, a BRICS member, with economic sanctions.â
Chinese state-run media announced yesterday that Chinese president âXi Jinping says Chinaâs ready to work with South Africa to advance BRICS cooperationâ.
âChina stands ready to work with South Africa to promote the BRICS cooperative mechanism and maintain its momentum of development, Chinese President Xi Jinping said during a phone call with South African President Cyril Ramaphosa on Friday afternoon.
Noting that China is this yearâs chair of BRICS, Xi called for member countries to build a more comprehensive, close, pragmatic and inclusive partnership of high quality to realize their own development and promote a stronger, greener and healthier global development.
The Chinese side is also ready to work with all the other members to uphold genuine multilateralism, safeguard international fairness and justice, and protect the legitimate rights and common interests of emerging markets and developing countries to contribute to a stable world economic recovery and advance the building of a community with a shared future for mankind, said Xi.
Ramaphosa said South Africa supports Chinaâs work as the chair of BRICS and looks forward to a successful BRICS Summit.
Zerohedge noted in their coverage regarding the economic splintering (that is a result of economic warfare) that âUnionPay is the dominant payments handler in China but has a small market share outside of the worldâs second-largest economy.â In other words, they have a lot of room to grow.
Russia isnât the only one looking to grow relations with China. RollCall published âChina-UAE ties raise US technology safety questions for lawmakersâ just days ago.
âCongress has directed U.S. intelligence agencies to take a closer look at the growing relationship between China and the United Arab Emirates, raising questions about American military technology leaking to Beijing via a close ally.
In a fiscal 2022 intelligence authorization bill that was tucked into an omnibus spending measure passed last week, lawmakers asked U.S. spy agencies to assess and provide details on the âcooperation between China and the United Arab Emirates regarding defense, security, technology, and other strategically sensitive matters that implicate the national security interests of the United States.â
Just days ago, WSJ published an exclusive titled, âSaudi Arabia Considers Accepting Yuan Instead of Dollars for Chinese Oil Salesâ. The subtitled elaborated that âTalks between Riyadh and Beijing have accelerated as the Saudi unhappiness grows with Washingtonâ.
âSaudi Arabia is in active talks with Beijing to price some of its oil sales to China in yuan, people familiar with the matter said, a move that would dent the U.S. dollarâs dominance of the global petroleum market and mark another shift by the worldâs top crude exporter toward Asia.
The talks with China over yuan-priced oil contracts have been off and on for six years but have accelerated this year as the Saudis have grown increasingly unhappy with decades-old U.S. security commitments to defend the kingdom, the people saidâ
The Petrodollar Systemâs Significance
This move by Saudi Arabia is significant in terms of the world energy market which, as this conflict thus far has demonstrated, impacts nearly all extraneous markets. The Petrodollar system, the global standard of trading oil in US dollars which has been a major factor in keeping the US dollar the dominant world reserve currency, was established largely with the support and help of Saudi Arabia. Investopedia summarizes:
âThe emergence of the petrodollar dates back to the early 1970s[1974] when the U.S. reached an agreement with Saudi Arabia to standardize the sale of oil based on the U.S. dollar.â
Notice how the agreement happened in the early 1970âs, beginning in 1974, directly following the total collapse of the Bretton Woods system 1972Â , in which Nixon removed the gold-standard and turned âGoldbacksââââdollars backed by gold–into âGreenbacksââââdollars backed by nothing. The Petrodollar is infamous for being the backbone of the dollarâs dominant reserve currency status. While many, like Ray Dalio who was featured in the first article, are pointing out the world economic order seems to be on the brink of a massive transition, many experts are calling for a new Bretton Woods conference, which in 1944 established the IMF and the original Bretton Woods system.
Bretton Woods, And Its Collapse
According to the IMF itself, between 1968 and 1973, the Bretton Woods paradigm started collapsing as the dollar struggled and gold reserves were plundered as many redeemed their dollars for gold. 1971, Nixon announced the âtemporaryâ suspension of the dollarâs convertibility into gold, which was as temporary as the inflation we are experiencing is to be transitory.
âThe Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent states. The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained its external exchange rates within 1 percent by tying its currency to gold and the ability of the International Monetary Fund (IMF) to bridge temporary imbalances of payments. Also, there was a need to address the lack of cooperation among other countries and to prevent competitive devaluation of the currencies as well.â
Setting up a system of rules, institutions, and procedures to regulate the international monetary system, these accords established the IMF and the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group. The United States, which controlled two-thirds of the worldâs gold, insisted that the Bretton Woods system rest on both gold and the US dollar.
The system that would replace it would be characterized by floating exchange rates, which value currencies relative to other world currenciesââârather than being pegged to gold and the dollar. The Bretton Wood systemâs success depended on âlow international capital mobility, tight financial regulation, and the dominant economic and financial position of the United States and the dollar.â The collapse of the system lead to cascading debt resulting from the economic fallout, and ultimately a debt-based economy revolving around debt-based currencies backed largely by faith- rather than gold or anything remotely tangible. The petrodollar, however, basically backed the dollar by the global demand for oil, as oil demand had a concrete correlation with buying pressure on the dollar.
Shifting Economic Order
Saudi Arabia, the UAE, and India appear to be distancing themselves from Western Powers as they explore expanding their relations with Russia and China. This is significant in terms of the world energy market which, as this Ukraine conflict thus far has demonstrated, impacts nearly all extraneous markets. According to the most recent statistics released by the Energy Information Administration Statistics, Russia, Saudi Arabia, and the UAE collectively control roughly 27% of the worldâs oil production. Brazil, a BRICS member along with Russia and China, contributes another 4%, Iran another 3%.
As referenced in the introduction, the UAE minister recently said that the UAE is keen to cooperate with Russia on energy security. The Wall Street Journal published four days ago the headline, âSaudi Arabia Invites Chinaâs Xi to Visit Kingdom Amid Strained U.S. Relationsâ
âSaudi Arabia has invited Chinese President Xi Jinping to visit Riyadh as the kingdom looks to deepen ties with Beijing amid strained relations with Washington, people familiar with the plan said.â
On the same day the WSJ published the aforementioned article, Al-Moniter published âSaudi cooperation with China continues with finalization of long-planned refinery dealâ
Saudiâs state-owned oil company, Aramco, finalized a [10 billion dollar] deal yesterday to built a major refinery and petrochemical complex in China. One Aramco executive said that China is key to their plans to expand in Asia.
âChina is a cornerstone of our downstream expansion strategy in Asia and an increasingly significant driver of global chemical demand,â said Mohammed al-Qahtani, per the agency.
Aramco has held the title for the largest company in the world on-and-off for nearly two decades, and is nipping on the heels of Appleâs market cap. The significance and influence of the company cannot be understated. Of course, this development by Aramco is parallel and connected with the Saudiâs recent consideration of breaking away from the petrodollar standard and accepting the Yuan. In the face of shifting allegiances, and defiance of US expectations, the future of geopolitical relations is uncertain, although the trend paints a picture of the US losing allies as Russia and China gain momentum.
Just 7 years ago, in 2015, the Asian Infrastructure Investment Bank(AIIB) launched, which Chinaâs leader Xi Jinping had proposed in 2013. Many economists have interpreted the AIIB(should be self-evident in this authorâs opinion) to be a rival to international lending bodies such as the International Monetary Fund (IMF), the World Bank and the Asian Development Bank, âwhich some consider too reflective of American foreign policy interestsâ.
Investopedia reports that âChina controls half of the bankâs voting shares, which gives the perception that the AIIB will function in the interests of the Chinese government.â Naturally, the US has not been thrilled about the world economic institutions under its thumb being challenged by China, âpressuring allies not to apply for membership.â Investopedia summarizes: âHowever, despite American objections, approximately half of NATO has signed on, as has nearly every large Asian country, with the exception of Japan. The result is widely considered as an indicator of Chinaâs growing international influence at the expense of the United States.â
Conclusion
The AIIB and BRICS will likely play a large role in the new economic world order discussed in my last publication from a week ago. The AIIB already has half of NATO signed on, and is gaining traction with the Silk Road Belt and Road initiative. China is this yearâs BRICS summit leader, for the 14th summit. BRICS members South Africa and India have remained relatively neutral, although in this authorâs opinion they are looking to cozy up with the Russia/China axis and its emerging economic network as they realize that their neutrality makes them out to be an apparent enemy of the US and the NATO allianceâââjudging by the threats of sanctions by the latter. The same goes for the gulf states, although they are not BRICS. Threats of unilateral sanctions are to be taken seriously. Putin said the sanctions imposed on Russia are akin âto an act of warâ. This author thinks, âThank God. Finally someone called it how it is!â
Lots of people on the left will talk about how poverty kills, how humans need money to survive. They admit how essential money is to peoplesâ literal lives, yet turn around and defend sanctions that target an entire populationâs economy/lifeline. As Caitlin Johnstone wrote in âStarvation Sanctions Are Worse Than Overt Warfareâ:
âSanctions Are Worse Than Overt Warfareâ, and I mean it. I am not saying that starvation sanctions are more destructive or deadly than overt military force in and of themselves; what I am saying is that the overall effect is worse, because thereâs no public accountability for them and because they deliberately target civilians.â
To reintroduce the domestic abuser metaphor, if an abuser goes far enough as to make a serious threat to a victim, such as threatening to kill them. The abused, if they realize they have to escape or the cycle will continue, will likely try to keep their heads low and appear complacent and bide their time until they have an opportunity to leave for good. Letting someone, who is making unhinged threats towards you, know that you have had enough and are leaving, could be dangerous and result in the threats being followed through on. India, Saudi Arabia, UAE, South Africa, and others yet to be as entangled, could simply be biding their time as they seek a smooth transition. While India and the Gulf have been scolded and threatened by the US for continuing to trade with Russia, many countries on the peripheral, such as Germany, continue importing Russian oil.
As Saudi Arabia is seeking to abandon the Petrodollar, India is seeking to phase out the dollar as a reserve currency in trade with Russia (and likely its trade partners such as China in the future), the dollarâs reserve currency status faces a great threat. Saudi Arabiaâs departure from the standard it was instrumental in creating could embolden other countries to follow suit. Likewise, as multiple countries bolster relations with Russia and China(Or allies of theirs, such as the UAE meeting with Syrian president Assad), and defy the USâs wishes and implicit or direct threats, this could embolden others to do the same in the future-dismantling US hegemony. We could be witnessing the fall of the US empire, and its reserve currency, coincided by the rise of an emerging power structure and world economic system in which BRICS nations rise as the new dominant power of the globe.
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