The Phaserl


Taking the petro out of the dollar

by Alasdair Macleod, Gold Money:

Saudi Arabia has been in the news recently for several interconnected reasons. Underlying it all is a spendthrift country that is rapidly becoming insolvent.

While the House of Saud remains strongly resistant to change, a mixture of reality and power-play is likely to dominate domestic politics in the coming years, following the ascendency of King Salman to the Saudi throne. This has important implications for the dollar, given its historic role in the region.

Last year’s collapse in the oil price has forced financial reality upon the House of Saud. The young deputy crown prince, Mohammed bin Salman, possibly inspired by a McKinsey report, aims to diversify the state rapidly from oil dependency into a mixture of industries, healthcare and tourism.

The McKinsey report looks like a wish-list, rather than reality, particularly when it comes to tourism. The religious police are unlikely to take kindly to bikinis on the Red Sea’s beeches, or to foreign women in mini-shorts wandering around Jeddah.

It is hard to imagine Saudi Arabia, culturally stuck in the middle ages, embracing the changes recommended by McKinsey, without fundamentally reforming the House of Saud, or even without a full-scale revolution. Nearly all properties and businesses are personally owned or controlled by members of the extended royal family, not the state, nor by lesser mortals. The principal exception is Aramco, estimated to be worth $2 trillion.

The state is subservient to the House of Saud. It is therefore hard to see how, as McKinsey recommends, the country can “shift from its current government-led economic model to a more market-based approach”. The country is barely government led: a puppet of the Saudis is more like it. But the state’s lack of funds is making it increasingly desperate.

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4 comments to Taking the petro out of the dollar

  • Craig Escaped Detroit

    Like I said previously, the dollar is going to FALL SOoo low, and “America” will become a 3rd world nation, that we will not be calling it the “Petro-Dollar” anymore, we will be calling it “The PESO-Dollar”.

    And we don’t even make Tacos.


    Saudi cannot be understood outside of the 73 Kissinger/Saudi agreement.

    This codified the petrodollar. The deal: Saudi coup becomes legitimized, and their Wahhabi religion by association. Saudi’s get to create OPEC, a monopoly pricing cartel – an entity at odds with America’s supposed free market ideology. Saudi’s get front line military gear, and become an adjunct to America’s military. Saudi’s get guaranteed transshipment of their oil under protection of the fifth fleet, located in Bahrain, courtesy of American taxpayer.

    What does America get? Petrodollars are to be recycled into dollar markets, especially private “credit creating” banks of wall street. The money power cannot be ignored because it is more powerful than the military. The military is only the enforcement arm of contracts, and those contracts are denominated in dollars worldwide.

    The shadows of this system can be seen lately, when the Saudi’s threatened to cash in TBills. They trade their petrodollars on dollar zone economies, and buy debt instruments.

    Note also, that Saudi does not have a large banking sector. It isn’t a stretch to consider that with their influx of petrodollars they could have collected money power to themselves, but they didn’t. Why?

    Saudi’s are the vassals of America. They only have oil to trade and nothing else. They are the junior partner. To appease the military industrial complex in America, Saudi’s are a large purchaser of American weapons.

    Also, how are the Saudi’s going to have a market based economy, when they only make one thing – oil. Also their “markets” are defined by the Kissinger agreement.

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