The Saudis, however, for their part have learned the lessons well what happens when you get into a price war with Russia. You lose. So, instead of fighting Russia for market share, they’ve decided to coordinate production for the big win-win for everyone while the U.S. continues to grapple with the reality that its empire is not only crumbling, but being actively dismantled from within.

https://www.zerohedge.com/geopolitical/luongo-breaking-empire-means-breaking-saudis

by Tyler Durden

Authored by Tom Luongo via Gold, Goats, ‘n Guns blog,

For more than fifty years the Saudis have helped prop up U.S. foreign policy by exporting their oil to the world and taking only dollars in return.

Their currency, the Riyal, has been pegged to the U.S. dollar since then Secretary of State under President Nixon, Henry Kissinger, brokered that deal that built the so-called petrodollar system.

Now, in the intervening decades the petrodollar has been a buzzword thrown around by many, including myself, to explain the architecture of the U.S.’s imperial ambitions. In many ways, it has served a crucial part of that, at times. But, it was most needed during the early years of the dollar reserve standard, helping to legitimize this new currency regime and provide a market for U.S. debt around the world to replace gold.

After that it was just one aspect of a much bigger game built on the ever-expanding Ponzi scheme of fake funny money. In reality, the eurodollar shadow banking system is just a lot bigger than the petrodollar.

That said, I don’t discount it completely, as I understand this is real money changing hands for real goods, rather than the vast quantities of dollars out there supporting an increasingly creaky financialized system. Real trade matters and what currency that trade occurs in, also matters.

The U.S. closely defended the petrodollar famously going to war with any country that dared to offer oil on international markets in any currency other than the dollar, c.f. Iraq under Saddam Hussein. But, times change and so do the structure of capital markets.

So, when evaluating the health of the petrodollar system and its importance today it’s important to realize that the oil market is far more fragmented in payment terms than its been since the early 1970’s.

As a system, the petrodollar was always going to die a death of a thousand cuts. To my reckoning the first inklings of this began in late 2012 after President Obama finally used the financial nuclear weapon, expulsion from the SWIFT payment system, on Iran for pretty much no reason.

Earlier this year I wrote a piece describing why in negotiations you never go nuclear and how Obama made the biggest strategic blunder, possibly in U.S. history, by first threatening the Swiss over bank secrecy and then Iran.

The fact that the Obama administration politicized SWIFT when it did ended an era of international finance. The world financial system ended any illusions it had over who was in charge and who dictated what terms.

The problem with that is once you go there, there’s no going back, which was {Jim} Sinclair’s point over a decade ago.

Threatening Switzerland with SWIFT expulsion wasn’t a sign of strength, however, it was a sign of weakness. Only weak people bully their friends into submission. It showed that the U.S. had no leverage over than the Swiss other than SWIFT, a clear sign of desperation.

And that’s what the U.S. did when it pushed the big red ‘history eraser’ button.

The Swiss knuckled under. Its vaunted banking privacy is now a part of history.

Iran, however, in 2012, facing a similar threat from Obama, didn’t knuckle under and forced Obama to make good on his threat. Once you uncork the nuclear weapon you can’t threaten with lesser weapons, they have no sway. This is a lesson Donald Trump would learn the hard way since 2018.

Iran bucked the petrodollar to sell its oil by making a goods-for-oil swap arrangement with India. Iran was laughed at by U.S. foreign policy wonks at the time. Then we found out that Turkey was laundering oil sales for Iran through its banks using gold.

Its currency, the Rial, since then has been under constant attack by the U.S., most viciously under President Trump who sought to do what Obama couldn’t do, drive Iran’s oil exports to zero. The goal was regime change.

I chronicled this in detail, over these past four years, saying explicitly that the strategy was stupid and short-sighted. It didn’t work. It couldn’t work.

Iran’s resistance to Trump’s bullying only further entrenched the existing power structures there and hardened the Iranian people to become more disagreeable, more disdainful of America and, likely, Americans.

All it did was force Iran to develop alternate plans and find new markets. Those alternatives meant courting better relations with China, Russia and Turkey, which the U.S. tried hard to sabotage. As long as Iran was as good as its word, supplying oil and acting as a reliable partner in diplomacy, eventually deals would come to them.

See the rest here

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