Being established on a geopolitical infrastructure, the petrodollar has developed dimensions of security, economics and development for the U.S. and the major oil exporters in the Middle East.
The petrodollar has caused much ire from many nations due to the power it gave the US. As a result, the petrodollar will always attract vultures. Interestingly, anyone who challenged the petrodollar did not fair well. Saddam’s Iraq was attacked with strong evidence that the main motive was not Weapons of Mass Destruction. U.S.-backed rebels toppled the late Muammar Gaddafi, who proposed a gold-backed African currency that would be traded for African oil. Putin is under scrutiny for his push towards a Yuan-Ruble oil trading system.
In retrospect, the deposed Ba’athists would have continued to neutralize Iran’s influence on one hand, and Israel’s power on the other. The house of Saud would have considered sharing security responsibilities with Bin Laden’s Al Qaeda during the first Gulf War, and possibly stopping militant Islam from taking the detrimental tu that it did.
Today, govements, markets, and Inteational diplomacy are hinged on its existence. Now, more than ever, this regime is in jeopardy as it comes to a crossroad in today’s politics. The petrodollar depends on the Saudi-US alliance. With the recent shale boom this partnership itself has reached a crossroad.
The Saudis and Americans have to come around and strengthen their alliance to protect the petrodollar in the near future. The Russian and Iranian resurgence on the political arena, rampant terrorism and the oil price plunge are all conces that affect petrodollar stability. However, market share competition between US producers and OPEC could challenge this union. The US itself has many considerations when it prioritizes Saudi security.
Both the Saudis and Americans, however, have every reason to maintain the petrodollar. Disbanding the petrodollar would have cataclysmic effects. The demand for the dollar would drop, an absence of a reliable security partner would create power vacuums in a volatile region, and the US would face a challenge to sustain its position as a world hegemon.
The nature of the petrodollar and the power pyramid in the Middle East has resulted in an over-reliance on the U.S.’s presence for purposes of security. This fact is identical to NATO’s situation in Europe, where over-dependence on the U.S. presence in the region has left the majority of Easte European military forces weak and fearful of Russia.
To balance its geopolitical interests the U.S. needs to continue to align itself with Saudi Arabia. This alliance ought to extend beyond the traditional importer-exporter relationship. Promoting mutual benefits, the U.S. shale industry alongside a strong Saudi dominance should maintain the petrodollar’s strong status by consolidating two major producing regions into a geopolitical alliance. Curbing the Russian rise has become a necessity for these countries. Powered by the petrodollar, sanctions can become harsher. These sanctions will play a huge role in curtailing Russian exporters’ reach – that is reinforced by a weak Ruble.
Empowering the Saudis – as it did previously – would have great geopolitical benefits for the U.S. in the future. This will allow a gradual transfer of security responsibilities in the Middle East. The U.S. needn’t be threatened by the prospect of rising Iranian influence if there are strong regional powers on its side. The current nuclear deal would also help to build trust between the U.S. and Iran. These scenarios will eventually lead to a more balanced Middle East; and thus lessen the challenge to the petrodollar. The U.S. would become more flexible in shifting its focus elsewhere.
The U.S. has to become more vigilant and more proactive to protect the petrodollar. Supporting its geopolitical allies and lifting the export ban would be crucial to boost the American oil trade.
Nabegh is a student at NYU’s MSGA program where he focuses on energy policy.