Once upon a time — not too long ago — the world’s reserve currency was gold.
It’s the ultimate liquid asset, not withstanding it isn’t actually liquid and the fact the Pope, the Dutch royal family and Swiss banks own most of it.
But oil is. Nowadays, petroleum is the common currency of the global economy, both in its liquid form and in the financial derivatives that trade 24/7. And it’s priced in US dollars, which hasn’t been tied to the gold standard since 1971.
Unlike gold, which never degrades — every single ounce of it that’s ever been mined is in existence to this day — the world consumes about 100 million barrels of oil every day, most of which goes up in a puff of smoke out the tailpipe of your car. It affects everything, from the price of gasoline to the food you eat on your table.
It IS the de facto gold standard, and the US is presently the world’s largest producer of it (Canada is fourth). Your standard of living is directly tied to the amount of oil you consume. Or alternately, produce. Full stop. No amount of green wokeness is going to change it — yet.
That’s why it was more than a little odd few seemed to take notice of Saudi Arabia’s surprise announcement last week that it’s joining the Shanghai Cooperation Organization (SCO), a cabal formed following the breakup of the Soviet Union in 1996 between China, Russia, states of the former USSR and India.
Saudi reportedly signed a memorandum of understanding to join the group as a ‘dialogue partner’ back in 2022 but delayed a formal announcement until it reached rapprochement with Iran — in a deal brokered by China — last month.
The SCO is the world’s largest regional political, economic and defence zone on the planet by geography, covering about two-thirds of the Eurasian continent, 40% of the world’s population generating about a fifth of global GDP.
Talk about biting the hand that feeds.
Why would they do this? Precisely to displace the US dollar as the world’s reserve currency for oil and play into Vladimir Putin and Xi Jing Ping’s desire for a ‘multipolar’ world order that China expects to lead after 2030 after it invades Taiwan. Xi practically gave Putin permission to invade Crimea at the Sochi Olympics in 2014 and reaffirmed his tacit approval for the war in Ukraine on his visit to Moscow last month.
First, a little back story. The US dollar became the world’s reserve currency after the Second World War to facilitate the rebuilding of Europe and Japan. Practically all commodities — not restricted oil and including gold — were facilitated in greenbacks. It also helped that it was also the world’s largest oil producer and held the world’s largest gold reserves in Fort Knox.
That changed, starting around 1968 when Lower 48 oil production began to decline. Saudi had the US in a virtual headlock since the 1970s when it nationalized Aramco and became the world’s undisputed oil champion. That role was further bolstered by the collapse of the Soviet Union — a major oil producer in its own right — in 1992. The US’ oil dependence fuelled everything, from its own national security — think the first Gulf War — to the lifestyles of its high flying sheikhs.
Interestingly enough — and I’ve been to Saudi Arabia — Saudis buy gold wafers from vending machines in shopping malls rather than save money in their own, corrupt banks, and sock it away at home.
As long as the US remained dependent on its oil, Saudi diplomats had the run of DC and American foreign policy. That too, changed starting around 2010 with the advent of hydraulic fracturing that released at least a Saudi Arabia of reserves from tight rock formations in the Lower 48. The US has gone from being the world’s largest importer — that title now goes to China — to becoming an exporter in its own right.
In other words, it’s become Saudi’s biggest competitor.
Toss in a petulant Crown Prince, Mohammed bin Salman or MBS for short, who doesn’t like being scolded for dissolving Washington Post reporters in acid. He’s also apparently bitter his prized Aramco wasn’t eligible for listing on the New York Stock Exchange because it doesn’t meet Securities Exchange Commission rules for public disclosure — of reserves for example. If you’ve ever read Matthew Simmons’ Twilight in the Desert (every oil investor should), nobody really knows how much oil they actually have in the ground.
Not that it matters because, quite frankly, the US doesn’t need them anymore. And without protection from the US Fifth Fleet and USAF they’d essentially be living in tents in the desert. They know it.
All well and good, but what does that mean for Canada? The multipolar world envisioned by the dictators in Russia and China is all but assured. The Saudis know where their bread is buttered, and it isn’t in Washington.
Sooner or later — after current President Joe Biden is gone — the wonks in the US defence establishment are going to wake up to the fact North America is an energy powerhouse, provided Canada is in it. And they’re going to come knocking.
The only real question is if we will be willing or able — given the present Liberal government — to answer the bell? I’m betting no.
(SOURCE)
