Here’s Jim explaining the basics to Steve Bannon’s audience:
“We had a carrot and stick approach. Bill Simon, who was Secretary of the Treasury, went to the Saudis and said ‘everybody in the world needs oil, and if you price oil in dollars, then everybody needs dollars.’
And that basically underpins the role of the dollar today as the world’s reserve currency.
The stick was, if you don’t do it we’re going to invade Saudi Arabia and take over oil production.
The carrot was, if you price oil in dollars, we’ll give you a security umbrella.
It’s rare to hear such candor coming from someone who was directly involved in the formation of the petrodollar system.
Needless to say, the petrodollar system was successful and led to a resurgence in the American dollar as the world’s key reserve currency (despite Nixon ditching the gold standard just 3 years earlier).
At this point, Steve Bannon interrupted with an insightful question (paraphrased):
“Wait, you say the petrodollar system is still in place, but the Saudis are now selling oil to China for yuan. Aren’t cracks showing in the petrodollar system?”
Jim responded that yes, cracks are starting to show in the system, and that’s why Trump was in Saudi Arabia, to seal a “Petrodollar 2.0” agreement. Jim also points out that, at least for now, the amount of oil Saudi Arabia is selling for yuan and other currencies is miniscule compared to dollar-based sales.
Jim proceeds to lay out the purpose of Petrodollar 2.0:
“The U.S., by strengthening its relationship with Saudi Arabia, and creating Petrodollar 2.0, puts the pressure on China to reduce their tariffs and meet Trump’s requirements. Otherwise they don’t have a source of dollars.”
This time around, Trump is using a strictly carrot-based approach. He’s on a charm offensive and looking to build strong, lasting ties with Saudi Arabia and the broader Middle East. This is a smart approach and we expect it will bear fruit in the near future.
Had President Trump taken a threatening approach to Saudi Arabia, it almost certainly would have driven the country into China’s waiting arms. And America can’t afford to let that happen.
It’s an excellent interview, and you can watch the entire thing here (free) on Rumble
And now you know why the Saudis are treated so well and have never had to answer for supporting terrorists.
ReplyDeleteWhich followed the oil embargo caused by the US siding with Israel against Egypt. The price of oil never dropped significantly after that.
ReplyDeleteI remember Nixon boasting in his second Inaugural Speech in 1972 that "we have finally mastered how to manage a modern economy", referring to having taken us off the gold standard.
ReplyDeleteIf this has been mentioned this week, then I've missed it, but it was puzzling to me why Trump ended the sanctions on Syria. Assad was awful and entirely deserving of our sanctions, but from where I sit, we have good reason to not embrace those that ousted him. Iran supported Assad, but al-Jolani is a jihadist. I think that both Trump and the Saudis are hoping to influence Syria into a more moderate path, but frankly, this feels like the nation-building fallacy that I fell for with regard to our invasion of Iraq.
ReplyDeleteazlibertarian
Qatar, Syria, Iran, Hamas and Hezbollah are all in the same bag.
DeleteTrump is lifting sanctions on Syria and talking about a deal with Iran because Qatar gave Kushner 2 Billion dollars, they are giving Trump a $400 million plane, Syria offered a Trump tower in Damascus, Qatar is making a $2 Billion dollar acquisition that uses Trump coin to pay for no reason... They could pay in dollars but for some reason they are paying in Trump coin (talk about weakening the dollar)
Trump is doing all these things for Qatar and Syria because they give him money. Clear and simple.
Qatar was sponsoring terrorism during the first Trump administration and they are still doing it today
This guy is incorrect. Pricing of oil in dollars is just a convenience. FX markets are highly liquid, you can exchange the dollars for yen or euro with ease. The key to the agreement is that Saudi would keep all of its reserves in US Treasuries.
ReplyDelete