Why We Need To Maintain Energy Independence

Yesterday Breitbart posted an article about some investment plans by the Communist Chinese.

The article reports:

Reuters reported Wednesday that “major Chinese investors” are in talks to buy a stake in Saudi Aramco, the national oil company of Saudi Arabia.

Saudi Crown Prince Mohammed bin Salman (MBS) mentioned the possibility of selling some Aramco stock in a television interview Tuesday.

…Reuters immediately noted China’s state-owned PetroChina and Sinopec previously expressed interest in buying up to five percent of Aramco in 2017. 

Aramco raised almost $30 billion with its initial public offering in 2019, providing a significant amount of the money needed to finance MBS’ “Saudi Vision 2030” plan to diversify the Saudi economy. 

The IPO ended up selling about 1.7 percent of the company’s stock, much of it to Saudi and Middle Eastern buyers. The record-breaking results were considered something of a disappointment compared to MBS’ original vision of selling 5 percent of the company and raising $100 billion.

The scaled-down IPO was partly a consequence of investors disputing the $2 trillion corporate valuation the Saudis put forward, and partly because Aramco was uncomfortable with some of the transparency requirements demanded by foreign investors. The dogged efforts of Iran’s terrorist proxies in Yemen to blow up Aramco facilities with missiles and drones were not helpful.

On Wednesday, “several sources” confirmed Chinese investors were part of the deal MBS mentioned in his interview, pointing to a sovereign wealth fund called China Investment Corporation (CIC) as a potential buyer.

The Renegade Tribune noted the following on November 7, 2018:

Nixon’s decision in 1971 to withdraw the United States from the gold standard greatly influenced the future direction of humanity. The US dollar rose in importance from the mid-1950s to become the world reserve currency as a result of the need for countries to use the dollar in trade. One of the most consumed commodities in the world is oil, and as is well known, the price is set by OPEC in US dollars, with this organization being strongly influenced by Saudi Arabia.

It is therefore towards Riyadh that we must look in order to understand the workings of the petrodollar. After the dollar was withdrawn from the gold standard, Washington made an arrangement with Riyadh to price oil solely in dollars. In return, the Saudis received protection and were granted a free hand in the region. This decision forced the rest of the world to hold a high amount of US dollars in their currency reserves, requiring the purchase of US treasuries. The relationship between the US dollar and oil breathed new life to this currency, placing it at the centre of the global financial and economic system. This privileged role enjoyed by the dollar allowed the United States to finance its economy through the simple process of printing its fiat currency, relying on its credibility and supported by the petrodollar that required other countries to store reserves of US treasuries in their basket of currencies.

This arrangement continued to sustain itself in spite of numerous wars (the Balkans, Iraq, Afghanistan), financial crises (the Black Monday of 1987, the Dotcom bubble of 2000, and Lehman Brothers’ subprime crisis of 2008), and the bankruptcies of sovereign states (Argentina in 1998). The explanation is to be found in the credibility of the US dollar and the US itself, with its ability to repay buyers of treasury bonds. In other words, as long as the US continues to maintain its dominance of the global financial and economic system, thanks to the dollar, its supremacy as a world superpower is hardly questioned. To maintain this influence on the currency markets and the special-drawing rights (SDR) basket, the pricing of oil in US dollars is crucial. This explains, at least partially, the impossibility of scaling down the relationship between Washington and Riyadh. Nobody should delude themselves into believing that this is the only reason why Saudi-US relations are important. Washington is swimming in the money showered by Saudi lobbies, and it is doubtful that those on the receiving end of such largesse will want to make the party stop.

Think about what the impact of large amounts of Chinese cash into Saudi Arabia might have on the current arrangement of the U.S. dollar as the world reserve currency. China has wanted to undo that arrangement for some time. Also consider the impact of the runaway spending proposals of the Biden administration and the impact they will have (if passed) on the value of the U.S. dollar. We may be headed for a perfect storm. One thing that would help us weather than storm would be energy independence.

Courting Iran

The New York Sun posted an article today about the recent efforts of the Biden administration to improve its record on human rights (after the President’s statements about China, Hong Kong, etc.) by going after Saudi Crown Prince Mohammed bin Salman for the murder of Saudi writer Jamal Khashoggi. First of all it needs to be mentioned that Khashoggi had some fairly close connections to the Muslim Brotherhood (see article here). Secondly, it needs to be mentioned that any criticism of the Saudis and their government would be welcomed by Iran.

The article reports:

In releasing a three-year-old American intelligence report that blames the Crown Prince for the murder of Saudi writer Jamal Khashoggi, and then immediately saying he won’t penalize the Crown Prince, Mr. Biden has opened himself to relentless pressure from democrats on the left of his party to do something more to punish the Saudi Crown Prince.

The President’s petty insistence that he will speak only with King Salman, 85, and not his 35-year-old son, the primary power in the kingdom, can’t hold. So complete has Price Mohammed already taken control of the levers of power that Saudis call him “Mr. Everything.” The ailing King could die during the Biden presidency, making his son king.

Meantime, Mr. Biden has humiliated the Crown Prince, but at a price. The Crown Prince has demonstrated repeatedly in recent years that he believes the best defense is an aggressive offense. As a result, he sometimes acts and then confronts the often unpleasant consequences of his actions — whether the death of Khashoggi or the war in Yemen.

…For one thing, the Biden team is exposing its own hypocrisy. The President says his number one foreign policy goal is to talk to Iranian leaders to secure a new nuclear deal. The blood on the hands of Iranian leaders who imprison and execute critics doesn’t seem to bother the president. At least he hasn’t called them out.

By contrast, Saudi Arabia, is undergoing a “reassessment” of its relations with the United States. Already the president has blocked our arms sales for the war in Yemen. Ironically, he supported the Yemen war when it began during the Obama administration though he now calls it a human rights disaster.

Riyadh would love to get out of the war, which has cost it an estimated $100 billion already. The Houthis and their Iranian backers, though, want to bleed Saudi Arabia with an eye to destabilizing the kingdom. So President Biden’s envoy likely won’t succeed at ending the war.

President Biden is continuing his unbroken streak of being wrong on every foreign policy issue he has weighed in on since he joined Congress.