The US needs Saudi Arabia

The US needs Saudi Arabia

If Arabia accepts Euros (like Saddam), or gold (like Muammar) for oil, the US would go bankrupt.

How does that work?

If another country needs to purchase oil they can only do so with US dollars (petrodollars).

That means that they have to produce something for the supermarket shelves or arms industry in the US in order to obtain US currency. This is often done below cost due to competition from other countries who also need US dollars for oil purchases and international trade.

Now, should there be no need for US currency for oil purchases the demand for dollars will disappear meaning:

  • Anyone with USD will be scrambling to purchase anything that can be bought with USDs leading to massive inflation in the US
  • Items on store shelves that were previously paid for with “paper” will now be unobtainable, or at least at a fair price
  • The US will be denied their usual way of paying for imports and will thus suffer from a balance of payment deficit leading to further declines in the dollar exchange rate
  • Prices of imported items will increase as a result of the declining exchange rate
  • Assets in the US will become available to foreigners at bargain prices

How much longer can the Bretton Woods USD hegemony survive?

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