The US-Saudi Dilemma

In her vision 2030, Saudi Arabia would be spending major portion of its budget on raising its own defense and manufacturing war planes of its own for which aircraft manufacturing industry is on the way taking shape
File Photo
File Photo

The US president Donald Trump's statement that Saudi Arabia could not have survived even for two weeks without its support followed by the Jamal Khashoggi incident, in the Saudi consulate in Turkey, apparently seem to be in the alignment of scheme of things.

The Prince Mohammad bin Salman's reply to Trump was uncompromising. This brought about the first ever diplomatic hassle between the two all weather allies. The American media and the President launched a tirade against Saudi ruling dynasty and the Prince, blaming them of Khashoggi's murder. To many political analysts it seemed that US was perhaps all set to repeat Iraq, Libya or at least Egypt in the Kingdom of Saudi Arabia whereas others pleaded it to be an act to cow down an arrogant Prince who started manifesting political courage to deal sternly with Canada on one side and Germany on the other side.

His firmness to contain powerful Iranian influence in the Middle East had alarmed certain quarters in the West and Israel. But according to authentic media sources in Tel Aviv the US-Saudi dilemma did not favour Israel that enjoyed close relations with the powerful Arab Monarchial state for the first time ever, particularly since the Saudi journalist Khashoggi had raised questions on Saudi regime and denunciated the Saudi-Israel ties at the cost of Palestinians from time to time. The fact that both Israel and Saudi Arabia want to see Iran out from Syria, supported duly by the US is not unknown where as the rebellion in Yemen construed as Iran's expansionist volition, counter foiled by Saudi Arabia and supported by the US and Israel is yet a political compulsion for the later.

The question that did Jamal Khashoggi's cold blooded murder, who was well known for his pro-Palestine ideas and was a critique of Trump's closest ally Al-Saud's Monarchial policies in KSA, really perturb Trump, has no casual answers.  China is emerging as the largest oil buyer from Saudi Arabia over the past few years and it has vehemently expressed will to replace US dollar with Yuan in all oil consignments with the oil producing countries. More over the recent development in the bilateral relations between Saudi and Pakistan was seen marked with the Saudi's inclination to join CPEC and make Gawadar an oil city that received a warm welcome from China; however deteriorating diplomatic relations between Saudi and US prompted Pakistan to deny Saudi's involvement in CPEC.

This has obviously raised concerns in Trump administration about the future of its petro-dollar. Towards the end of Second World War when the economy of Europe was shattered, its infrastructure and man power was razed to ground but the US economy and army power remained by and large unaffected. A Martial Plan was conceived in the name of imparting development all over the world and England was made the centre of world trade and financial transactions in 1944 in which the US dollar received the central position as world currency which could be used in trade of world commodities including gold, silver and oil. This was Bretton Woods Agreement which placed US dollar as precondition to world trade.

The US dollar was fixed at 35 dollar per ounce of gold. It was decided that US would print paper currency according to its gold reserves in the federal bank and would release gold in exchange to dollars as and when asked. But practically US never allowed world nations to let know the real figures pertaining to printing of its dollars plus the exact number of dollars in the market circulation. No audit was conducted. This system remained effective till 1971. It was during Vietnam war when the US economy started deteriorating and the member nations found that dollars were printed in excess than the gold reserves in the US federal reserve bank.  Then US president Richard Nixon refused to release gold in exchange to dollars at the behest of France.

The US president suspended the agreement of releasing gold in exchange to dollars temporarily, which got never reinstated till date. On the other side right from 1948 Arab states were on a losing spree in all the wars fought against Israel. This led to widespread concerns of insecurity among Arabs who desperately searched for a powerful ally. In 1973 the US imposed an agreement on Saudi King Shah Faisal that only the US currency would be used to purchase oil from the kingdom and succeeded in motivating the King that all types of trades done in the Kingdom in US bonds was highly beneficial to the Arab nations.

In return US provided security to the KSA and established its army bases on its soil. It did not end here but in 1975 all OPEC countries entered into the same agreement with several US army bases connecting them all to one security network. This agreement paved way for establishing Petro-dollar. The OPEC was virtually transformed into the America's economic war zone where even the oil producing countries were not free to exercise their will. Think tanks in the West including Jerry Robinson, William de Clarke and William Angedal has considered the US petro-dollar as the basis of the American wars in the Middle East. The world has witnessed Sadam Hussain's fate who practically sold oil and gas in Euro in 2000 instead of petro-dollars.

This was perceived perhaps as the real weapon of mass destruction in the hands of Iraq by the US. The year 2011 witnessed Arab awakening in the form of Arab Spring which emanated from Tunis that spread through Egypt, Libya and Syria.  Colonel Muamar Gaddafi managed to survive at a time when his political colleagues King Shah Faisal and Zulfiqar Ali Bhutto were eliminated. But he could not avert his merciless death while he unveiled his plan of making an African economic union where in all business transactions would have been made in a common African currency including sale and purchase of oil and gas instead of petro-dollar. It is thought that he had rather taken some initiative in this direction. Not only Libya witnessed an apocalyptical aftermath but he too was dragged to roads only to be killed.

The petro-dollar as of now is facing an entirely different and changing scenario. The China-Russia factor is strong enough to rebuff the strong American hegemony on the rule of Petro-dollar and the OPEC leaders might be looking unto them with a ray of hope. This has given Arabs a renewed hope and if Saudi Arabia joins CPEC to form its largest oil refinery at Gawadar, the decisive battle may be fought in Pakistan. The feeling of discrimination at the hands of the owner of Petro-dollar has been haunting oil producing Arab nations particularly KSA, though US is no more the largest oil buyer from Saudi. This position has been occupied by China now. The KSA has been observed to purchase armour worth of billions of dollars from US giving a strong indication that this Arab nation no longer wants to rely on US defense.

The Saudi is slowly garnering strength and self reliance in security. The Yemen and Syria have proved to be contributory in providing impetus to the need of self reliance in Arab defense. In fact both Yemen and Syria are naked live wires made to hang over their heads by the foreign masters. The present Saudi defense budget amounts to 70 billion dollars, of which only 2-3% is spent on its own local defense and rest amount is spent on the maintenance of US army bases and purchase of weapons and war planes. In her vision 2030, Saudi Arabia would be spending major portion of its budget on raising its own defense and manufacturing war planes of its own for which aircraft manufacturing industry is on the way taking shape.

The Kingdom has also entered into a deal with Russia to purchase anti-missile system.  Iran and Russia have already agreed to use Chinese currency Yuan in the sale of oil and gas. Pakistan and Turkey besides North Korea may be other partners. China has already been able to make its currency Yuan as the component of world currency basket and IMF has agreed to sanction loans in Yuan. The situation is becoming somewhat difficult for petro-dollar to retain the position of uncrowned King in the world of economics. Saudi Arabia has already signed an agreement in 2016 with china to sell oil in Yuan.

Dr. Muzaffar Shaheen is Professor at SKUAST – K

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