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The Petro-Dollar’s Shaky Future: How the Biden Admin Alienated Saudi Arabia

In late 1973 a deal was struck between the US and The Kingdom of Saudi Arabia that changed the future of both nations and the U.S. dollar for the next 50 years.

The importance of the deal has been downplayed, and the Biden administration’s near destruction of this deal has almost been outright ignored.

However, I have had a front row seat to the sentiment changes I am writing about, and I recommend that the reader consider this political game a concerning matter for the long-term stability of the U.S. dollar. 

In summary, it appears that the Kingdom of Saudi Arabia is open for new alliances outside of the US that would have never been considered before this time.

The History

In October of 1973, the US, UK, Netherlands, Canada and Japan were the targets of an OPEC oil embargo that increased the price of oil from $3 a barrel to $12 a barrel in a matter of months after they chose to support the Israelis in the Yom Kippur War. In the four years prior, Nixon price ceiling policies had doubled our dependency on foreign oil and 83% of that oil came from the Middle East. To make matters worse, in the three prior decades, US industry and consumers had become drunk on stable cheap energy, built an entire infrastructure and prosperous economy that was dependent on prices remaining low, and had firmly closed the door on any form of alternative energy options (nuclear). The sudden 4-X spike in oil prices over a 3-month period from this embargo created a real shock to the US way of life and threatened to cripple the US economy. OPEC had our attention and its un-official leader, Saudi Arabia, was in a good position to listen to proposals from the US.

In late 1973, A deal was made to end the embargo in early 1974 and pull the United States out of the Oil Crisis. Despite the US being in a tight spot, the negotiations created a deal that benefited both countries unimaginably over the following 5 decades that was described,

The gist of this deal can be summarized in the following two reciprocal agreements:

  • Agreement 1.
    • The Al Saud family, the ruling family of the Kingdom of Saudi Arabia, agreed to sell the US oil at a price that we could live with if we agreed to become their defender and supplier of military equipment – This helped ensure the family and the kingdom’s position in the region and provided a great customer for the US military industrial complex over the next 50 years.
  • Agreement 2.
    • The Al Saud family also agreed to buy an unfathomable amount of U.S. treasuries with some of the proceeds from the annual oil purchases – This helped back the Saudi Arabian currency with dollars while providing the U.S. economy with a very healthy and regular dose of liquidity.

This two-part mutually beneficial deal allowed the US to continue to spend money and have the stability of OPEC’s energy reserves behind it, while providing support for the kingdom and its ruling family. This deal has been active for multiple administrations up until this very day despite some rough waters, but as you will read, it appears to be changing.

Recent History

In 2015, a freedom of information act was filed in the 9-11 investigations that sought reparations from the Kingdom of Saudi Arabia based on the participation of some of its citizens’ roles in the bringing down of the twin towers. During the following years the Obama administration maintained the position that the KSA government could not be held responsible for the action of a few of its people, and the treasury / petrol dollar deal maintained its mutually beneficial terms. The PR troubles of the deal were then inherited by the Trump administration, who quickly realized the value of maintaining the trade relationship and worked hard at continuing to have the kingdom recognized as a pro-US ally and one of our primary supporters in the region against the backdrop of an unstable nuclear Iran. Officials from the Kingdom suggested that the US get its political house in order rather than bring the 1973 deal to light for the full scrutiny of the general public to digest; and the Trump administration saw an opportunity to ask the kingdom to be the fulcrum for a “Peace in the Middle East” deal.

In 2017, the then 32-year-old Mohammed Bin Salmon “MBS”, the emerging leader of the kingdom, was in the process of both fully securing his leadership position and managing a country-wide corruption clean-up campaign. In many discussions with Saudi nationals the prince’s cleanup exercise was seen as a god-sent action that put the country back on track. However, in the U.S. the press chose to cover the event from the point of view of an old-school coup playing out on live television, which served the press well and renewed U.S. / K.S.A. tensions. Despite another round of disturbances in the optics between the countries, the deal survived and continued on. 

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