The alliance between the United States and Saudi Arabia has been strategically important for both countries. It has also been “financially” important for the United States. Should the special relationship between Washington and Riyadh come to an end, the financial fallout could be catastrophic for the American side. Relations with Israel, with Russia, with half a dozen other countries may be important; but none have quite the same impact as Saudi Arabia. Consider the 22 October Reuters story, “Saudi Arabia warns of shift away from U.S. over Syria, Iran.” King Abdullah is unhappy that the United States has softened toward Iran. The king is unhappy that America has apparently backed down over Syria.
Saudi officials reflect the displeasure of their king. We hear of Saudi princes and diplomats stating their displeasure in meetings with European officials. The Saudi intelligence chief says a shift away from the U.S. is to be expected. This may also portend a shift away from the dollar. In Simon Henderson’s Foreign Policy article, “The U.S.-Saudi Royal Rumble,” we learn of the “seven ways the House of Saud could make things very unpleasant for Washington.” Not only could the Saudis trim back oil production as Henderson points out; they could also engage in “petrodollar warfare” by challenging the dollar as the currency in which oil is priced. Already the position of the dollar as the world’s reserve currency is seriously weakening. A major blow from the Saudis and the flood gates could be opened.
People who have oil, who hold the fate of the U.S. dollar in their hands, have certain expectations. From the Saudi point of view President Barack Obama may have bowed to King Abdullah in 2009, but if such gestures are a prelude to unfulfilled promises, well, they are worse than meaningless. The failure to perform necessary actions must be regarded by the Saudis as “bad faith.” When a senior Saudi prince accuses Obama of “dithering,” the true nature of the past relationship between Washington and Riyadh comes into focus: America is the servant, Saudi Arabia is the master. If the servant no longer serves, it is time to find another.
Why is America a servant of Saudi Arabia?
Think back on America’s financial condition, outlined by Niall Ferguson in his recent book, The Great Degeneration. “The heart of the matter,” writes Ferguson, “is the way public debt allows the current generation of voters to live at the expense of those as yet too young to vote or as yet unborn. In this regard, the statistics commonly cited as government debt are themselves deeply misleading….” It is not merely a question of debt in the form of bonds, but debt in the form of future obligations. There are massive unfunded liabilities, says Ferguson, who cites Laurence Kotikoff’s calculation that “to eliminate the federal government’s fiscal gap would require an immediate 64 percent increase in all federal taxes or an immediate 40 percent cut in all federal expenditures.” Because we are too weak to face the solution which must inevitably be faced, we have exported our inflation. But that export comes at a cost. For as it happens, nothing in this world is free. If you play a certain kind of game, others can play too. The opportunity for extortion is clear.
If Jim Sinclair and a few others believe gold will be $50,000 an ounce, we might ask whether this portends a rise in the price of gold or a decline in the value of the dollar. One thing is perfectly clear, however: America must not fail the House of Saud. If the princes of that kingdom have publicly vented their displeasure, President Obama must take heed; for if these Saudi statements were not warnings we should already be undone. As it happens, we cling to our tether: still alive, still shopping, still conducting business with Federal Reserve Notes. So then it is a case of fair warning, or else our Saudi friends would be arm-in arm-with another power, waving goodbye with that “good riddance” swipe of the arm, as if shooing a fly.
Sometimes people who have others at a disadvantage go too far, it is true. They ask for things that cannot easily be delivered. Have the Saudis gone too far, have they asked too much? The Saudis perhaps reason that if the United States cannot deliver as promised, what good is Washington? What good is an alliance with people who cannot deliver as promised? Therefore, the United States finds itself in an impossible position. Either we intervene in Syria against the wishes of Russia and China, or we lose the good will of King Abdullah. And if we lose the good will of the king, we are bound to lose our financial position in a way that will not be pleasant for the U.S. Treasury or American banks (or the American “consumer”).
Of course, Russia is preparing to defend Syria. Moscow’s most powerful warships have entered the Mediterranean. The Russian military has said they will fight to defend Syria, and their deployments suggest they are serious. To make matters worse, America has upset other Middle East players in recent days: Israel is furious after an administration official leaked word of an Israeli air strike on Thursday; Egypt has sent a special delegation to Russia in search of “economic and military assistance” after distancing itself from the United States; Turkey is also unhappy with U.S. inaction versus Syria.
Given America’s weakened financial state, the list of options has gotten down to an unpleasant choice: either escalate versus Syria and Iran, or lose Saudi Arabia. These consequences lead, in turn, to a deepening of the financial crisis. Whichever path the president takes, he cannot avoid financial and/or military complications. The United States must either serve the interests of a foreign king, or lose its privileged financial position. There does not appear to be a third choice.