The Peter Zeihan Podcast Series - Is Saudi Arabia Ditching the US Dollar? || Peter Zeihan

Episode Date: May 25, 2023

As the world's largest oil exporter, Saudi Arabia has learned a few tricks to curry favor from different countries. Their most recent endeavor is accepting the Chinese Yuan as payment for a few hundred million barrels of oil... Full Newsletter: https://mailchi.mp/zeihan/is-saudi-arabia-ditching-the-us-dollar

All right, so the country that matters here, the only country that, in my opinion, is doing anything meaningful when it comes to moving from the dollar to something else is Saudi Arabia. Now, Saudi is the world's largest oil exporter, and they have started to accept payment from a number of Chinese government entities in Yuan. And we're talking here about, you know, a few hundred million dollars a cargo, so it's hardly an insignificant issue. There's no sign that they're changing their reserves, and I wouldn't expect that to happen, because there's a specific. rationale here. Now, the Saudis military on paper is great. They've got a lot of top-notch equipment, but they have demonstrated over and over and over in recent decades that the Saudi military is incapable of operating its own equipment at scale, much less in any sort of coordinated manner. I mean, they can fly their planes and bomb things, and that's about it. They have always,

since their independence, relied on an external security guarantor in order to keep them alive. At first, that was the Brits, and for the last several decades, especially under globalization, it has been the Americans. Now, the Saudis think a little bit differently. They basically have modeled themselves off of a medieval fiefdom, and so they think that bribes work really well in order to get what you want. This is one of the reasons why they got along so well with former American President Donald Trump. They saw the world through basically the same lens when it came to operating procedures. So what they've done with the United States is they've bought a number of refineries on the U.S. Gulf Coast and shipped crude from Saudi Arabia to the U.S. Gulf Coast,

and if there's a time when the Americans look like they might be facing high energy prices or some pressure in the market, they sail additional cargoes and just let them park off coast until they're called for. Now, it's not like the United States thinks this is a bad thing, but the United States gets the vast, vast, vast majority of its oil always has from the Western Hemisphere, with traditionally Canada and Mexico being our largest suppliers. Now, if you're Of course, with the Shell Revolution in the last 15 years, the United States is a net exporter. So the Saudi angle here is very, very small from an American point of view. But for the Saudis, this was never about the economics.

It was about curing favor with the guy who's supposed to defend you. Well, in the last few years, the United States has moved more and more of its forces out of the Persian Gulf, and we no longer even have a carrier group that's there on a regular basis. So the Saudis are a little scared. They are concerned that without the Americans guaranteeing their security, that they're screwed. And, you know, that's a reasonable position. So they've been looking about for a replacement, and they're discovering that there isn't a really good, clean one. The French and the Brits could theoretically project power into the Persian Gulf, but definitely not as reliably as the United States.

Turkey certainly could, but they would have to conquer Iraq first. And, you know, the Saudis have a lot of opinions on a lot of things going on in Iraq, but they'd really rather not have a regional superpower right on their border. India is probably in the long run the most likely outcome, but they're not Muslim. So the Indian's tendency to metal in political events in places where they have military forces, especially in Afghanistan, has really soured the Saudis. Japan's a possibility, but Japan has other options as well. Most notably, it has gotten in bed with the United States and can access the energy of the Western Hemisphere.

That just leaves China. Now, the Saudis aren't all that hot on China. The Chinese Navy really can't project power, and the Chinese have no experience. experience projecting power in military terms beyond their own neighborhood, much less going the 5,000 miles that would take to the get to the Persian Gulf. There's also low confidence in Saudi Arabia that if a fight broke out, that the Chinese would sign with the Saudis against their primary regional rival, Iran. But if there's one thing the Saudis have, it's money to spare.

So they have gone into China and bought up a few refineries, entered a joint ventures with Chinese state energy firms, and are shipping crewed to China like they use. to ship it to the United States. Now, from the Saudi point of view, this might actually work better in terms of currying favor than it ever did with the Americans because the Chinese actually need the crude. They import three quarters of their toll,

of which roughly three quarters comes from Africa and the Persian Gulf. And so they're paying for that in Yuan in order specifically in their mindset to bribe the Chinese to come to their aid when the rubber hits the road. This is not. not an economic decision.

This is a political decision being made, not because they don't like the dollar, but because they think the dollar doesn't give them the military guarantees that they thought it once did. So this is Saudi making a decision because of military strategy as shaped by their own culture, not because they think the U.S. dollar is going anywhere. But still, this is the only example I'm seeing out there

of a meaningful shift away from the dollar, and it's only for trade with one country for one commodity. All right, that's it for me. I'm going to take a shower. I'm like dripping sweat. You guys take care.