Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

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The Dollar Is Impregnable & The West Will Always Control International Banking (Honest)

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On July 11, 2024

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What is geopolitical risk, you ask, and the Saudis answer:

Saudi Arabia warned it could sell off some European debt holdings in retaliation to a move by the G-7 to seize almost $300bn in frozen Russian assets, according to a report by Bloomberg.

The veiled threat was passed along from Saudi Arabia’s finance ministry earlier this year to some G-7 counterparts, as the group weighed seizing Russian assets designed to support Ukraine.

Saudi Arabia specifically signalled out the euro debt issued by France, according to Bloomberg.

Riyadh has been concerned about western efforts to seize the Kremlin’s assets for months. In April, Politico reported that Saudi Arabia, along with China and Indonesia, was privately lobbying the EU against confiscation.

Notice that Indonesia is also involved. China is less surprising, they know that freezing and even confiscation is in the cards for them when things heat up between the West and china.

China has been reducing its risk:

Edit: (Or perhaps they aren’t?)

No one wants to do business with nations that will simply take away their money. Freezing was bad, but normal. Seizure is not. Since no one seized or freezed America’s overseas assets when it invaded, say, Iraq, and no one ever seizes or freezes West European assets, it might be thought that this isn’t about “law” but about “power.” For that matter, why haven’t Israel’s overseas assets been seized?

The level of geopolitical risk from doing business in the dollar or using the Western banking system is just too high. Freezing, seizure and sanctions, plus the US applying its law extra-territorially simply because a transfer happened to go thru an American bank even though the sender and end party were both outside of America.

This abuse is long-standing, you can read accounts from the fifties, but it really picked up in the 90s. Indeed there’s an entire book, Treasury’s War, about the phenomenon.

And this is what all the economists and similar pundits who go on about how the dollar can’t be replaced don’t understand: that they are right that the costs of replacing the dollar are significant; that it’s hard, and that it’s not really worth it.

Except it is worth it, because if the cost of trade and money transfers goes up slightly under a non-dollar regime, and even a slight increase is massive when multiplied by the number and amount of transactions, it’s still worth it because of the massive reduction in geopolitical risk. And nattering on about how the Yuan can’t be used because the Chinese can’t accept the costs of using the Yuan is stupid: that’s not what the BRICS are trying to do: the idea is to create a central, multinational currency, and to simply use local currencies whenever possible, while avoiding the Western banking system entirely.

Everyone knows that the dollar and the Western banking system are guns, and that everyone who uses the dollar and the Western banking system are under those guns and can be hit at any moment if D.C. or Brussels desires it.

When this was hardly ever done, it was a risk worth taking. When China was the main industrial power who you could buy almost everything you wanted from, and the West was the only option for most technological goods, well, you had no choice.

But now nations see a way out from under the guns, and they’re going to take it, even if it costs them, because the potential cost of not doing so is catastrophic.

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China Leads A Successful Middle East Summit

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On March 16, 2023

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Something which has slipped past most people’s radar is that China recently acted as the intermediary for peace talks between Iran and Saudi Arabia. The two countries have been at each other’s throats for decades, funding and running operations and proxies against each other. Elijah Manjier has a decent summary (part is behind a subscriber wall) from a pro-Iranian point of view.

It’s also interesting that in this conference no English was used!

Now it’s obvious why the US couldn’t be involved: it hates Iran and doesn’t intend to change that any time soon. But that China was reached out to indicates that it has good relationships with Iran and Saudi Arabia and that it’s considered powerful and prestigious enough to be involved a region far from its core.

On the Saudi side this shows the continued movement away from being a US ally. It suggests continued movement towards China, and that the petro-dollar really is under significant threat.

For Iran, it suggests that the days of the US being able to coordinate sanctions over it are likely numbered. If the Sauds break out of the US bloc, one can expect the Gulf States to follow if Iran is also in the Chinese bloc: these are the regional and cultural great powers. As Chinese/Russian payments expand and with petrochemicals priced in Yuan or Rubles, and with the most important Middle Eastern powers friendly to China, the US is reduced to its core allies. These are important countries, no doubt—Europe, Japan, South Korean, Taiwan and so on, but it is a minority of the world and is filled with countries terrified of US sanctions, looking for a way out under the potential hammerlock.

I don’t want to over-state how important this mediation by China was, but it was important and it’s one of those milestone moments. It wasn’t the US or Europe who the Sauds and Iranians went to, and just as importantly, they didn’t feel they needed US approval. Saudi Arabia using China, whom the US has declared an enemy, to move towards peace with a country the US has been hostile to for about 45 years is an earthquake.

Whether the peace will really happen is more dubious, but if movement, even hesitant 2 steps forward, one step backwards movement continues, it will be worthwhile. I am most interested to see if this will mean some sort of peace can be worked out in Yemen, or if it means the Iranians will abandon the Houthis, which would be sad.

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Russian Debt Default + Consequences, Simply Explained

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On March 16, 2022

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I don’t want to spend a lot of time on this, but the fundamentals are worth a quick review.

Russia had hundreds of billions of dollars on reserve at central banks. We have frozen them so they can’t spend them, and we’ve also forbidden banks, in general, to do almost any business with them in dollars.

So they have the money to avoid default, but are not allowed to use it to pay their debts.

This is like if you personally had an account at the bank for $10 million and they said, “We’ve frozen it so you can’t spend it, and we won’t accept money from anywhere else, but we still expect you to pay your mortgage.”

It’s obviously unfair, and everyone outside of the West knows it, as many countries have invaded other countries and none of them were hit this way. This punishment is so harsh because Russia is outside the club and didn’t have the nod or a similar punishment would have been doled out over Iraq, Libya, and Yemen, among many others.

It has made other countries scared for their money. Even countries that have license, like Saudi Arabia — who is currently bombing the hell out of Yemen with a sanction in sight.

Saudi Arabia is considering accepting the Yuan for oil payments.

Of course, the US is pushing back hard — that oil is priced in dollars, and it’s one of the main reasons the dollar is the global reserve currency.

But while the Sauds are in good for now, who is to say they always will be? What if one day the US decides to sanction them? Perhaps they see it as in their interest to diversify their reserves. Perhaps they also see Beijing as FAR less likely to sanction them? If they do, I agree. Just don’t piss China off about Taiwan, and the odds of China ever freezing your Yuan reserves or sanctioning you is essentially zero, not least because in order to grab reserve status from the US, they need to be more trustworthy.

I don’t know if the Sauds will do this yet; the pressure the US must be bringing is immense. But I do believe that when we look back on these massive sanctions, we will see that forcing Russia into default was the end of the dollar’s hegemony. This weapon has been used before, but only on marginal states. To do it to a Great Power is quite different.

The US can’t be trusted with your money. Before, people was perceived the US was the safest place.

For most countries, the dollar hegemony has been terrible; they sold American stuff and got numbers on a computer in return. (China on the other hand, played the game smart. They got the US industrial base in return and, even if the US freezes every dollar they have, they’ll still be ahead.)

Most countries will be better off in a de-dollarized world. But the US won’t, and if Europe stays a US satrapy (which most indications suggest it will) then it will be bad for them. Ironically, back in the early- to mid-2000s, the Europeans had the opportunity to make the Euro an independent reserve currency, but, as usual for Europe in the age of American dominance, they lacked the guts.

None of this will happen immediately. But I believe we’re either at, or within, a year of when we will be able to look back and see this as the tipping point.

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How Important Is the Drone Attack on the Saudi Oil Field?

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On September 16, 2019

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As you’d expect from the title, both more and less than it seems.

The impact on oil prices is not that big a deal, despite the screaming. If they were to, say, wind up at $75/barrel for a few months, well the last time we had prices that high was…less than a year ago. It’s possible this will push us into a long-delayed recession, but if it does, that recession was going to happen anyway.

If Trump acts like an idiot and attacks Iran, of course, this will turn out to be a big deal. Otherwise, it isn’t a big deal, in and of itself.

Nor should anyone be crying for the Saudis. Assume it is true the attack was launched by Yemeni Houthis with some Iranian support. Remember that Saudi Arabia has been bombing and deliberately starving Yemen for years. They’re at war, and if the Houthis have a bit of support from Iran, what of it? Saudi Arabia itself has supported many organizations which have attacked other nations, possibly including Al-Qaeda and 9/11.

If you bomb the shit out of a country, and they manage to get in one hit against you? Boo-hoo.

Nor should the US care, as Saudi Arabia is a terrible ally who has done more harm to American interests than any other “ally” in the world, with the only possible exception of Israel.

This isn’t a US problem–and it shouldn’t be their war, and they should stop helping Saudi Arabia hit Yemen. But I guess the Sauds have always been good to the House of Trump, so perhaps there will be a war, on behalf of Trump hotels.

That aside, as I have written a number of times, drones are, and were always going to be, a weapon of the weak, and it is becoming harder and harder to defend against them. The US military was incredibly stupid to develop them, because ultimately they remove part of the monopoly of force from powerful countries. A world in which air strikes require jets that only a few countries can build, and which are expensive, large, and easy-to-find is a world which is much more favorable to great powers.

Instead, we have the cost of a somewhat-effective air force and assassination force dropping through the floor. Soon, these things will be routinely used by very small governments and non-state actors to kill their enemies; specific, named enemies, just as the US has been doing for a couple decades now.

This is going to get ugly.

It’s not all bad, taken from a longer point of view. Ages where elites can easily be killed tend to concentrate elite minds. In some places, that will lead to even worse police states, but the other way to solve the issue is to make people’s lives pretty good. People with pretty good lives tend to have better things to do than engage in political violence.

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Saudi Arabia’s Laughably Stupid Plan for the End of Oil

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On April 29, 2019

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Image by Yuan2003

I’ve been predicting Saudi Arabia’s crackup for some time. Their society is completely dependent on oil revenues, and their rulers have no idea how to diversify off in time.

Couldn’t happen to a bigger bunch of jerks, though as usual, many innocents and powerless people will get dead, raped, and tortured as Saudi Arabia falls.

This piece by Jeff Spross, hasn’t changed my mind. It’s about how the Sauds are selling assets to get US dollars so they can pay for the changeover.

The expert Spross talks to has ideas on what the Sauds could use that money on:

Kaboub proposes the country use advanced aquaponics to build up its self-sufficiency in food — aquaponics can be done indoors for ten percent of the water used by traditional agriculture — and switch over to renewable energy. “It’s a prime location for wind and solar and geothermal,” he noted. Kaboub’s also a fan of a universal job guarantee, which he thinks can serve as a staging policy to lower unemployment and build up other domestic industries.

What does the royal family, lead by the Crown Prince bin Salman (of the Yemeni war and the chopping a journalist to pieces in the Istanbul embassy) think is a good plan?

For the moment, though, the Saudi government has a different vision. Their plan focuses somewhat on renewables and diversifying manufacturing, but the big initiative is on moving the economy more into high-end luxury tourism.

I am entirely sincere when I say that I never imagined they would be this stupid.

The Saud family’s days ruling Saudi Arabia are numbered. Praise God, because only he could have made them quite this imbecilic.

Lifted from the comments, by StewartM

Tourism?

As someone who knows someone who worked a stint in Saudi Arabia, this is gobsmacking. Let’s just name a few:

1) Want to go on a desert excursion? Oops, be careful, you may meet some religiously conservative armed Bedouins.

2) Hey, how about scuba diving along the coast? Well, don’t have an accident or the bends, because hospital services are limited to deal with it.

3) Public displays of affection are a no-no (we’re talking heterosexual husband and wife; don’t even thing same-gender). Mixing of the genders if they’re unrelated is a no-no too. The moral code is enforced by “volunteer” police zealots who have the power to detain you if they think you are breaking Islamic law.

Homosexuality and other violations of the Saudi Islamic moral code apply even in compounds exclusively for foreigners and are enforced in surprise raids.

4) Alcohol and pornography are banned. Mind you, the Saudis may deem your favorite character on the video game on your phone or laptop “pornographic” and seize your device, so their definition of “pornography” probably doesn’t match yours.

5) See something interesting? Want to take a photo? Don’t. You could be arrested for it, as a spy.

6) Don’t talk about politics, especially if it casts even the slightest detraction against the Saudi government or royal family.

7) Don’t wear any non-Islam religious emblems. Public observances of any other religious in a crime.

8) And let’s not talk about the difficulty in obtaining both an entry visa, and an exit visa, to boot. (I’d presume they’d fix that).

In short, Saudi Arabia would be a land where rich tourists would check into their $5,000-a-night hotel in a gated Western compound, and just stay there, not daring to go out. Oh, even then there might be a raid if immoral conduct is suspected.

Unless Crown Prince bin Salman’s plan involves remaking Saudi Arabia into a secular state, from stem to stern, Saudi Arabia will be a country where almost nobody wants to go visit. This is by design:

“My Kingdom will survive only insofar as it remains a country difficult to access, where the foreigner will have no other aim, with his task fulfilled, but to get out.” — King Abdul Aziz bin Saud, c. 1930

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“A Single Death Is a Tragedy…”; Saudi Edition

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On October 12, 2018

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“A single death is a tragedy; a million deaths is a statistic. — Joseph Stalin”

So, one man, Jamal Khashoggi, gets tortured and killed, but he happens to be a man elites know and like, and suddenly…

Meanwhile, Saudi Arabia is engaged in a genocide in Yemen. Of course, the US has been aiding that genocide…

It’s not that Kashoggi’s death isn’t a crime, but that any number of nameless people can be killed, raped, and tortured, and elites don’t care. It’s only when it’s one of them that they care.

Normal people are nothing–less than nothing–to our elites.

But they take care of their own.

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The Yemeni Holocaust

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On June 4, 2018

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We often ask, what would we do if there was another Holocaust? Surely we would do something? Surely, at least, we would not be complicit?

The question might have been answered in Rwanda, where the UN commander begged the UN for orders to intervene, orders which never came. The general, Romeo Dallaire, has spent the rest of his life curled around his failure to act despite orders.

Meanwhile, we have the blockade of Yemen, which despite claims, continues:

Mark Lowcock, the UN’s emergency relief coordinator, expressed his concern regarding the “recent decline of commercial food imports through the Red Sea ports” — adding that, if conditions do not improve, the number of Yemenis at the brink of starvation would rise from the current figure of 8.4 million to 18.4 million by this December. Given that there are approximately 28 million people in Yemen, a continuation of the Saudi-led blockade would mean that nearly two-thirds of the entire country’s population will soon face starvation.

Not sure how many of those who face starvation will starve to death, rather than simply sit on the edge of death, but millions of lives are at risk, this is deliberate, it is happening in slow motion, and the rest of the world is doing nothing.

Well, if they aren’t helping the mass murder, like America (and America was helping under Obama, so no, this isn’t a partisan issue.)

America could stop Saudi Arabia cold if it wanted to; and it certainly could at least not participate.

But, of course, we all know that in the run up to World War II no one cared what was happening to the Jews: we refused to let in Jewish refugee ships, after all. If all Hitler had done was the Holocaust, no one would have gone to war with him over that.

Not that the US needs to go to war; the simple credible threat of sanctions would bring Saudi Arabia to its knees. Nor does the US, post shale oil, need Saudi Arabia’s oil, but the Saudis, in any case, are no longer in a position to not sell. Their own society would implode in months.

Europe could do this too: SWIFT is located in Europe and subject to European law. Apparently Iran’s non-existent nuclear weapons program, which Netanyahu has stated was 5 years from a nuclear bomb since the early nineties, was worth Europeans forcing SWIFT to cut them off (SWIFT objected), but not millions of Yemeni deaths.

Since Europe = Germany (no, don’t pretend, if Germany wants it, it happens), that means the Germans, having done the Holocaust are now sitting aside when they could stop millions of deaths, and doing nothing.

Lovely.

Well, I guess we’ll just watch.

And no, Saudi Arabia’s Crown Prince is not a good guy even if he has decided to let Saudi women drive.

The only bright lining on all this is that Saudi Arabia will be in civil war itself by 2030, I suspect.

Couldn’t happen to a nicer country.

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China and Saudi Arabia Show Anti-Corruption Is Often About Seizing Power

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On March 26, 2018

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Recently, the Chinese Communist Party proposed removing the normal ten year limit on how long someone can stay President. Xi Jingping looks likely to be President for life.

Xi is notable for a massive anti-corruption drive, which put a lot of senior party members in jail and terrified many others.

Anti-corruption is good, of course, but in nations where, well, essentially everyone is corrupt, one must watch who is hit for corruption charges and who isn’t. Somehow Xi’s enemies seemed to get hit disproportionately.

Meanwhile, Xi put himself as the leader of every committee of any significance, and lo and behold, he is the indispensable leader now.

And in Saudi Arabia, we have Crown Prince Mohammed bin Salman. Salman is the designated heir, and has been replacing everyone who isn’t loyal to him. Last year, bin Salman took over a Four Seasons hotel, “invited” a number of his relatives and other important people to stay there, then by at least one account (which I find credible) tortured some of them.

Even very powerful Saudi princes, like Alwaleed, the most personally rich of the princes, were not entirely immune.

His release came hours after he told Reuters in an interview at Riyadh’s opulent Ritz-Carlton hotel that he expected to be cleared of any wrongdoing and be freed within days.

A senior Saudi official said Prince Alwaleed was freed after he reached a financial settlement with the attorney general.

“The attorney general has approved this morning the settlement that was reached with Prince Alwaleed bin Talal, and the prince returned home at 1100 a.m. (0800 GMT),” the official told Reuters, without giving details of the terms.

The decision to free him, and the release of several other well-known tycoons on Friday, suggested the main part of the corruption probe was winding down after it sent shockwaves through Saudi Arabia’s business and political establishment.

Alwaleed was careful to make his bow:

Prince Alwaleed, who is in his early 60s, described his confinement as a “misunderstanding” and said he supported reform efforts by Crown Prince Mohammed bin Salman. (my emphasis)

Mohammed has taken some actions that Westerners approve of, like somewhat improving rights for women, but he is also busily committing genocide in Yemen, screwed up by trying to blockade Qatar (which did not bring Qatar to its knees), kidnapped the President of Lebanon, and is proceeding with a vast privatization of money-earning Kingdom assets, which will earn Saudi Arabia money (but which will be insufficient to offset the loss of earning power).

But it appears as though the Crown Prince is more of a dictator than any ruler in ages (even if he isn’t officially king yet). He has the power, internally, to do things that were simply not possible when some consensus was expected among the royal family.

All of this should be reminiscent of what Putin did when he gained power: He broke a number of oligarchs, sent them to jail or into exile, and took most of their fortunes. But he made deals with others, so long as they were loyal. As a result, his “anti-corruption” efforts weren’t about eliminating corruption at all, they were about loyalty to Putin and the state. Russia continues to be a corrupt mafia state (mafia states have rules, they are just mafia rules). This corruption has hurt its economy, though Putin’s policies are still better than those that came before.

In India, what Modi has been doing bears some resemblance to this pattern as well: Consolidating control disguised as anti-corruption.

Anti-corruption is rather different from seizing power by using corruption charges to break one’s enemies or bring them to heel as new, terrified, allies while warning everyone else not to get out of line.

Real anti-corruption goes deep, hits almost everyone, and generally comes with increases in the wages of bureaucrats at the lower and middle levels, as much corruption is a result of inadequate compensation leading to bribes replacing the actual salary.

Much of this critique, minus the strong man bit, could be applied to the US, I might add, but perhaps another day. In the meantime, appreciate the good those seizing power do, when it exists, but recognize their motives and the dark side, as displayed in Yemen, or when Putin very likely set up the second Chechen war.

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