The Petro-Dollar’s Shaky Future, How the Biden Administration has Alienated One of Our Crucial Allies

In late 1973 a deal was struck between the US and The Kingdom of Saudi Arabia that changed the future of both nations and the U.S. dollar for the next 50 years. The importance of the deal has been downplayed, and the Biden administration’s near destruction of this deal has almost been outright ignored. However, I have had a front row seat to the sentiment changes I am writing about, and I recommend that the reader consider this political game a concerning matter for the long-term stability of the U.S. dollar. In summary, it appears that the Kingdom of Saudi Arabia is open for new alliances outside of the US that would have never been considered before this time.

The History
In October of 1973, the US, UK, Netherlands, Canada and Japan were the targets of an OPEC oil embargo that increased the price of oil from $3 a barrel to $12 a barrel in a matter of months after they chose to support the Israelis in the Yom Kippur War. In the four years prior, Nixon price ceiling policies had doubled our dependency on foreign oil and 83% of that oil came from the Middle East. To make matters worse, in the three prior decades, US industry and consumers had become drunk on stable cheap energy, built an entire infrastructure and prosperous economy that was dependent on prices remaining low, and had firmly closed the door on any form of alternative energy options (nuclear). The sudden 4-X spike in oil prices over a 3-month period from this embargo created a real shock to the US way of life and threatened to cripple the US economy. OPEC had our attention and its un-official leader, Saudi Arabia, was in a good position to listen to proposals from the US.

In late 1973, A deal was made to end the embargo in early 1974 and pull the United States out of the Oil Crisis. Despite the US being in a tight spot, the negotiations created a deal that benefited both countries unimaginably over the following 5 decades that was described in a May 2016 Bloomberg article.

The gist of this deal can be summarized in the following two reciprocal agreements:

Agreement 1.
The Al Saud family, the ruling family of the Kingdom of Saudi Arabia, agreed to sell the US oil at a price that we could live with if we agreed to become their defender and supplier of military equipment – This helped ensure the family and the kingdom’s position in the region and provided a great customer for the US military industrial complex over the next 50 years.

Agreement 2.
The Al Saud family also agreed to buy an unfathomable amount of U.S. treasuries with some of the proceeds from the annual oil purchases – This helped back the Saudi Arabian currency with dollars while providing the U.S. economy with a very healthy and regular dose of liquidity.

This two-part mutually beneficial deal allowed the US to continue to spend money and have the stability of OPEC’s energy reserves behind it, while providing support for the kingdom and its ruling family. This deal has been active for multiple administrations up until this very day despite some rough waters, but as you will read, it appears to be changing.

Recent History
In 2015, a freedom of information act was filed in the 9-11 investigations that sought reparations from the Kingdom of Saudi Arabia based on the participation of some of its citizens’ roles in the bringing down of the twin towers. During the following years the Obama administration maintained the position that the KSA government could not be held responsible for the action of a few of its people, and the treasury / petrol dollar deal maintained its mutually beneficial terms. The PR troubles of the deal were then inherited by the Trump administration, who quickly realized the value of maintaining the trade relationship and worked hard at continuing to have the kingdom recognized as a pro-US ally and one of our primary supporters in the region against the backdrop of an unstable nuclear Iran. Officials from the Kingdom suggested that the US get its political house in order rather than bring the 1973 deal to light for the full scrutiny of the general public to digest; and the Trump administration saw an opportunity to ask the kingdom to be the fulcrum for a “Peace in the Middle East” deal.

In 2017, the then 32-year-old Mohammed Bin Salmon “MBS”, the emerging leader of the kingdom, was in the process of both fully securing his leadership position and managing a country-wide corruption clean-up campaign. In many discussions with Saudi nationals the prince’s cleanup exercise was seen as a god-sent action that put the country back on track. However, in the U.S. the press chose to cover the event from the point of view of an old-school coup playing out on live television, which served the press well and renewed U.S. / K.S.A. tensions. Despite another round of disturbances in the optics between the countries, the deal survived and continued on.

In 2018, after the “house cleaning exercise” was cooling down the young millennial prince emerged as the clear leader for the kingdom and the Trump administration vowed its support for him and the continued U.S. / Saudi alliances. The idea was to bring things back on track as quickly as possible and start working with the new normal. Unfortunately, it was later determined that someone in the young prince’s afterguard was not in favor of how he was being spoken about after the house-cleaning exercise and independently took matters into their own hands to quiet down the opposition.

On October 2nd, 2018, the unfortunate result was a journalist and son of a powerful family that had been promised a diplomatic position in the pre-housecleaning KSA regime, entered into the KSA Embassy in Turkey and would never exit. As a result of the rogue actions of a staff member, the young prince became embroiled in a freedom of the press / human rights scandal with the apparent assassination of a reporter and outspoken critic of his administration. The PR situation only became worse in the US press as MBS appeared to not fully realize the crimes he was being accused of. The problem was that with each stab from the press, MBS felt as though he was being personally wronged, and with each response from the prince, the U.S. social media public gained a deeper split with the Kingdom. As the Kingdom was gaining new foreign eastward facing ties, this was quickly becoming a bigger problem for the US than it was for the Kingdom.

In late 2019, a very exposed relationship between the Kingdom and the U.S. became a campaign topic for Trump opposition. There was no shortage of Western judgment for the Kingdom, and it became an important point for critics to associate Trump with, but the deal and its steady flow of cash that made the U.S. way of life possible was never up for discussion. This was clearly a challenging time to keep the full nature of how much the U.S. needed the kingdom under control and away from the press and the U.S. public. A win from the Arab region was needed and it was needed fast to cool down growing negative sentiments from the U.S. towards the kingdom if the deal was to remain intact.

In Q1 of 2020 the Abraham Accords campaign went into full force. With a renewed desire from both parties to refresh their relationship and get back on the “right foot” the idea of “Peace in the Middle East” was hatched as a new goal to focus on. The strategy was that such a grand goal could wipe clean the slate between the U.S. public opinion and the Kingdom of Saudi Arabia, and the two countries could find themselves looking at a new deal for new hope in the region. In short, the Abraham Accords aimed to reconcile centuries old tensions between Middle Eastern nations sharing Abrahamic religious ties. This deal had been discussed since the beginning of the Trump campaign, but its timing was needed and looked like it could possibly bring together the Arab world with Israel. For years the Arab world had not acknowledged Israel and Israel had not acknowledged Palestine. The deal was designed to slow tensions between the warring neighbors and to start to bring trade between Israel and all of the Middle East.

On August 13th, 2020, the Abraham Accords were signed and Israel was free to trade technology with the Arab world and “the greatest peace deal” of all time was signed. However, in order for this concession to be made, the KSA prince would have to show weakness on some level with the people of the Arab world because it is widely understood that the Palestinians have long suffered at the hands of the Israelis. As a fierce young leader this was not a concession that would easily be made, so the concession deal that was struck was a deal for access to restricted US defense technologies. The U.S. would have to agree to sell full capability F35’s to the K.S.A. and the U.A.E. militaries, something that had never been allowed.

On January 20th 2021, president Joe Biden took office and the “catch” to the deal was discovered. In this case the catch was that the deal was signed with the Trump administration, not the Biden administration, and after the administration change, no full capability F35’s would be allowed to be delivered to the K.S.A. or U.A.E. military. The Biden administration decided to not honor that part of the deal and then decided not to acknowledge MBS as the current leader of the Kingdom of Saudi Arabia. The administration then decided to double down on declaring MBS personally to be a very unpleasant person and an enemy of human rights, despite the incredible changes taking place for women’s equality within his Kingdom at that very moment. As you may imagine this was not the prince’s G-20 membership welcome that he felt he was due, nor one that made much sense for what was at stake for the U.S. and its economy. Unfortunately, Biden’s political posturing also watered down the goodwill of the accords and prolonged the tensions in the relationship triangle between the Kingdom, Israel and Palestine, but Biden’s tone towards KSA was about to shift.

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