It's as clear as it gets. The United States guarantees the House of Saud'a rule in exchange for military and regional policy concessions.
If the KSA quits, America can pull its security guarantee and the regime falls. If the United States quits, the KSA can...sell Treausries and stop selling us oil?
The United States was 61% energy independent in 2013, with net energy imports falling [1]. We also import lots of oil from Mexico and Canada. The energy threat isn't existentially potent.
Regarding Treasuries, the accounts could be frozen and sanctions levied. Again, power is asymmetric.
The bigger issue is that thanks to our alliance, oil is mostly transacted in dollars.
Every nation state stockpiles pallets of $100 bills as a result. Cut that requirement and allow purchases in Euro, Rmb, etc and the people start unloading dollars.
Petrodollars don't underwrite demand for American dollars. American consumption does. People have dollars because Americans buy with them. This wide base of dollar holders produces a deep and liquid international market.
Compare that with the Euro, which has France threatening to withdraw, and the Renmimbi, which Chinese will sell at fire sale prices for access to international markets their government prohibits them from accessing.
Petrodollars once played a role, but no more. Frankly, it seems like an unnecessary liability held over from when the American economy was dependent on foreign oil.
Good question, and it's one I'm interested in as well.
I've uncovered some interesting references on the UK monetary crisis of the 1970s -- the UK required an IMF bailout, though revenues from North Sea oil sales helped considerably as well.
There is a bit of similar discussion about US monetary policy from the early 1970s, and I've a stash of J. Econ Rev. or similar articles from economics conferences of about that time which touch on the question, though I'm not sure the information's good.
Steve Keen has good insights in a few areas, as does David Graeber. I've got Keen's book handy, and will take a look through it.
Otherwise, there's the story of devaluations of other currencies throughout history. Joseph Tainter, whom I've mentioned elsewhere in this thread, has a long bit online (YouTube) on the devaluation of the Roman denarius -- specie coin which fell from 99.9% purity to less than 4%. Adam Smith talks of the inevitable debasement of coin in Wealth of Nations. And Robert Newman (a comedian, not an economist, though his work here is excellent) touches on petrodollars and sensitivity regarding them in his History of Oil: https://m.youtube.com/watch?v=GIpm_8v80hw At 21m30s.
Hrm. Nothing in Keen on "petrodollar" or "Bretton Woods", and only a brief, 1929 reference, to the gold standard.
I'd suggest looking up J.K. Galbraith or Philip Mirowski as possible sources, though I'm not aware of anything specific to either of them. Highly-regarded and unorthodox economists.
> If the KSA quits, America can pull its security guarantee and the regime falls.
Well, that's a pretty shitty outcome for the US, so the KSA has a ton of leverage here and they know it.
> The United States was 61% energy independent in 2013, with net energy imports falling...
Yes, and this might be one of the reasons that Saudi oil prices were pushed down. Shale oil and fracking was becoming a problem and they moved to correct that. This also took care of the Canada problem as well, setting back development by another decade.
Don't forget the oil market is world-wide. The US could be self-sufficient but if oil is crazy expensive because Saudi Arabia is on fire that will wreck the economy.
No, they don't. It's an existential question versus inconvenience. Trashing the KSA could be spun as a national security or human rights decision.
> the oil market is world-wide
Trashing the KSA would be expensive, but not catastrophic. Rising oil prices would help American exporters. Furthermore, we have laws on our books to ban the export of crude; WTI could be low while Brent soars.
Seriously... we just ate upwards of $6 trillion on a couple of wars that changed nothing for the better, and frankly people already seem largely over it, even as those wars are far from over. Clearly the public is not above being led by the nose when it comes to bombing people they've never met, don't identify with, and maybe even are a bit scared of.
I don't see why dropping support for the House of Saud would require we bomb anyone. We'd garrison Israel, the UAE and Kuwait and let Saudi Arabia consume itself from within. The Kingdom depends on American arms. If we cut those sales off, their security infrastructure starts failing within weeks.
My fundamental point is that American influence over the Saudis shadows any Saudi influence on America.
I agree with you completely. I only mean that since Americans have shown willingness to commit to far more in the name of far less, this would be a trivial thing to lead them into.
The Saudi Terror Clan spends tens of billions of dollars every year on bribing US politicians and retired politicians and military men. It's true that the US people would be fine without any alliance with the STC, but US policy isn't set by the American people.
US policy is set by politicians, bureaucrats, and military leaders. And STC has them well into its palm. That's why the STC can attack us on our own soil, kill thousands of us, and get thanked and rewarded by our leaders.
It's easy to say everything's fine now when the ramifications of this have not played out.
Interest rates are stupidly low now, borrowing trillions has never been easier. If they get as high as they did in the 1980s there will be blood in the streets.
What is a new regime going to do significantly differently? No matter who rules, they are going to pump and sell the oil. Heck, even the ISIS does that with oil under their control.
House of Saud are not vassals of the US, and they don't control the US.
They made a deal way back that the US would keep House of Saud in power, in exchange for their Oil at market prices. That - and the fact that they are allies on 'terrorism' means a degree of mutually beneficial transactions.
Strategic partners, that's it.
The US does things that massively piss of the Saudis - particularly the removal of Iran sanctions. That is pretty much #1 worst thing that the US could do, outside of withdrawing support for them unilaterally.
> That - and the fact that they are allies on 'terrorism'
I think you put the quotation marks in the wrong place. The Saudi government are "allies" with the US on terrorism - that is, they nominally support the US efforts to combat terrorism, which means that the US overlooks Saudi-originating terrorism and instead directs its attention elsewhere.
In exchange for selling their oil at market prices? That's not much of an exchange, given the Saudis have to sell their oil at market prices to someone and the market is entirely fungible. If they sell it to different countries we can just buy the oil those countries no longer need.
"That's not much of an exchange, given the Saudis have to sell their oil at market prices to someone and the market is entirely fungible"
It's a very important deal considering how much Oil they have, and that they could chose to use it as a geostratgic weapon - but really, if the US did not protect them they would have been invaded long ago.
It's not so apparent in 2016, but it was more important way back.
Saudi Oil is sweet, and very easy to access with old-school technology. Nowadays you have off-shore, deep-water, Oil Sands, horizontal drilling etc. etc. that didn't exist.
The ties surely go deeper than just oil, for example helping to keep the area stable or as least as stable as is beneficial. However I wonder if the recent boom in shale oil in the US might have tipped the relationship in US favor.
