Why is Saudi Arabia Defying the US?
Why is Saudi Arabia suddenly defying the United States, after five decades of a strong alliance? It’s a question I’ve been asked frequently in recent days.
Here’s the answer.
I describe in my books the deal that I helped forge in the early 1970s that created this alliance. Known as the Saudi Arabian Money Laundering Affair (SAMA), it can be summarized as consisting of the following five agreements:
Saudi Arabia will invest most of the petrodollars made from selling oil to the world in US treasury securities;
The US Treasury Department will use the interest from these securities to hire US corporations to modernize (“westernize”) Saudi Arabia, building petrochemical plants, ports, highways, and entire cities;
Saudi Arabia will maintain oil prices at levels acceptable to Washington and American oil companies;
Oil will be traded on international markets only in US dollars (the power of the dollar had been jeopardized when President Nixon took it off the gold standard in 1971 because the US was unable to pay foreign debts in gold – this fourth agreement essentially established a new standard for the dollar, the Petro-standard); and
The US will guarantee to defend and protect the royal family of Saudi Arabia and keep it in power as long as the above four agreements are honored.
For 50 years Saudi Arabia honored the first four agreements.
As is well known — the US honored the fifth. It flew members of the Saudi royal family out of the United States after 9/11 when all flights had officially been prohibited. It turned a blind eye to evidence that the royal family had sanctioned the assassination of Jamal Khashoggi, a Washington Post columnist and critic of the Saudis. It launched Operation Desert Storm against Iraq when Saddam Hussein threatened Kuwait and, by implication, Saudi Arabia. And it took many other less known, behind-the-scenes actions to maintain the alliance forged by SAMA.
So what happened? Why is Saudi Arabia no longer responding to Washington’s wishes and instead cutting back on petroleum production and thereby helping Russia earn income vital to its war in Ukraine? The answer is more complicated than the obvious one – that Saudi Arabia simply wants to increase the price of oil.
First of all, it’s important to recognize that SAMA was established in the early 1970s when the United States was the world’s most powerful economic and military power. As I write in my new book, Confessions of an Economic Hit Man, 3rd Edition: China’s EHM Strategy; Ways to Stop the Global Takeover:
For us in those days (the 1970s), the threat to America’s global dominance was Communism and the Soviet Union. Most of the Middle East (including Saudi Arabia) opposed both. Kings and dictators were not about to accept Marxism. Muslims were against atheism. The Soviet invasion of Islamic Afghanistan further encouraged Middle Eastern Muslim leaders to partner with the US.
Today, US hegemony is seriously threatened by China’s skyrocketing economic and military power, the Communist Soviet Union has been replaced by a monarch-like regime in Russia, and US wars in Islamic Afghanistan and Iraq have angered traditional Muslim leaders in Saudi Arabia and elsewhere. The US is no longer trusted to keep its previous agreements because many were discarded during the Trump administration. Furthermore, the ability of the US Congress to reach compromise is seen by the Saudis, as well as much of the rest of the world, as proof of America’s inability to perform as a functioning democracy.
Adding insult to injury, the Petro-standard is being threatened for the first time in fifty years. China is already buying oil from Russia with yuen. And, according to the Wall Street Journal:
Saudi 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. dollar’s dominance of the global petroleum market and mark another shift by the world’s top crude exporter toward Asia.
Another important factor: Although the alliance between China and Russia is somewhat fragile, this alliance impacts many other countries. Five nations that are major economic drivers on their continents are united under the very powerful BRICS bank (Brazil, Russia, India, China, and South Africa). Saudi Arabia is dependent on these five countries and their neighbors through a complex network of oil and other trade agreements. Riyad is not likely to jeopardize these agreements by continuing to bend to Washington’s wishes.
Why is Saudi Arabia defying the US?
A cartoon shows a Saudi prince holding an old-fashioned balancing scale in one hand. Hanging from one arm is a pan holding the US flag; from the other, China’s flag. China’s clearly outweighs the US’s.
Unfortunately, the Saudi prince could be replaced by leaders in many Asian, African, Latin American, and Middle Eastern nations.
From Saudi Arabia’s standpoint, its decision to abandon SAMA is pragmatic. It is also a symbol of the shifting sands of global power.
China’s EHM strategy has just begun.
How did it start, how is it different from America’s EHM model—and what can we do?
Confessions of an Economic Hit Man, 3rd Edition is coming soon…