Petrodollar and US hegemony Putin-NATO-Zelenskyy Catastrophe

by Kumar David

This essay surveys two topics which have come into blinding spotlight in recent weeks; the petrodollar, its likely eviction from the cosmos and hence demise of US global hegemony, and second the pluperfect cock-up by Putin and NATO-West, and the humiliation of, not as pokerfaced as Putin, nor as dour as never-smile Xi, perpetual clown Vladimir Zelenskyy (VZ), but more profoundly the misery of the Ukrainian people.

The rise of the almighty petrodollar and the end of its supremacy

The first part of this essay does not discuss the folly of the invasion (I have done that previously many times) but focuses on a collateral issue. The transition from a British Empire on which the sun was loath to set to the American Century commenced before the 1914-18 Great War for the division of the colonial world between European powers and to a degree America. However, WW1 signposts the sunset. Thereafter the upsurge of American hegemony was inexorable. The Great Depression of the 1930s was a setback but the New Deal, and more important WW2 released the full force of capitalism and US Imperialism.

Capitalism displays its greatest surges after war and devastation lay waste to nations and continents and subsequently investment opportunities flourish. American glory was unchecked from the end of WW2 in a 30-year boom – give or take usual cyclical recessions – till an external factor (in economist-speak) screwed the carnival. The blasted Arabs decided they were going to grab and retain a great portion of the profits of oil – extending even to an embargo in October 1973 – and so began what Americans, the West and economists call the second oil-price crisis.

The United States suffered its longest and most severe post-war recession in 1973. Measures to overcome this led to stagflation – simultaneous stagnation and inflation, which mantras in the then prevailing text-books of capitalist economic theory said was impossible: an oxymoron. But that was after the point of intervention of today’s topic. Ever resourceful American power sorted out the post-1973 oil-price crisis (I won’t go through intermediate stages) by establishing the petrodollar in March 1974. The master stroke was that America and Saudi Arabia agreed to price oil only in US dollars in exchange for which the US would guarantee the Saudi State against all comers internationally and secure its stability against internal dissent. The Americans strong-armed European buyers and oil producers the world over to follow this pricing rule. So, when Venezuela sells oil to Timbuktu the contract is priced in dollars, the transaction cleared through banks which deal in US dollars and cleared through agencies or networks based mainly in New York or London. Thus, was born the petrodollar.

Soon it was not only oil; all commodities and trades were dominantly or indirectly included. The dollar and US securities now underpin 80% of global trade, are the stuff of government reserves worldwide, and the essential intermediary in big investments. When Basil grovels in Delhi begging bowl in hand Modi gives him dollars, when the IMF throws Gota a lifeline it is in dollars and Russia is stuck because most of its $650 billion reserves are in Western banks that exist in fealty to America.

The power of US financial hegemony is apparent when Europe kowtows on sanctions against Russia. Whether Russia deserves punishment is tangential; the surprise is that Europe obediently falls in line without a murmer; “independent” Swiss bankers who wash laundry-loads of dirty money are obedient. I do not believe all Europe obeyed out of fear of America or for protection of its nuclear umbrella only. The reason for docility is that Washington can crack the whip of financial dominion and impose secondary sanctions on any who disobey. Antony Blinken, hawkish US Secretary of State, openly threatened China and surprisingly the Lords of the Middle Kingdom who usually bristle did not even say “It’s unhelpful”. Dollar hegemony is the sword in America’s armoury that keeps friend and foe in place.

China saw it years ago and slowly, now clearly far too slowly, started building an alternative global payments system and pushed the digital Yuan. Russia has been brought to its knees by the might of the glorious dollar, not by any other sanction. Sanctions on energy are hurting Europe and Asia badly and will get worse unless the fight ends. Restrictions on nickel, palladium and metals where Russia is the main or one of the biggest suppliers have industries the world over scrambling and a recession is looming; supply chains are snapping. Shortfall of wheat, barley and corn shipments from breadbaskets Russia and Ukraine and discontinuing potash and fertiliser making inputs have frightening consequences. Even the ultra-reactionary Economist shudders and predicts food riots in the Maghreb, Sub-Saharan Africa and South and Central America as grain prices triple by years end unless supplies resume. Recession seems inevitable and social instability a knock-on. Fertile ground to sow Yuan-Rial, Yuan-Ruble and Ruble-Indian Rupee trade and non-dollar petroleum transactions. If petrodollar supremacy erodes it will take US hegemony down with it.

Almighty chaos

The US-NATO-West incited and cheered-on affable VZ as the poster boy of global democracy and brave champion of freedom’ They lauded the Ukrainian people as civilisations standard bearers of liberty. Then what happened? When the enraged bull showed no signs of backing off, when it became an eyeball to eyeball standoff, they hung poor VZ and Ukraine out to dry and found rational arguments why their comfortable lives, orderly cities, bank accounts and warm conjugal embraces should not be disrupted by atom bombs. Love, liberty, freedom and a warm liberal lifestyle hit a wall.

“We will give you refuge and succour (and that’s wonderful; by no means should one sneer) says Europe, but militarily NATO is posturing at a safe distance from the snorting, god-knows-what-he-will-do-next, bull. Desperate, VZ screams WW3 will come if you don’t intervene; but poor lost soul, NATO is deaf. He and his country are expendable real-estate. Frankly I no longer take NATO’s “An attack on one is an attack on all” credo seriously. Do you think if some sliver of remote Baltic coast, thousands of miles from the US-European heartland is overrun by bears, NATO will come roaring, atoms in hand, stealth bombers in the sky? Bollocks, new NATO members please learn this lesson in realpolitik. After the USSR went up in smoke NATO bloated into a flatulent, militarily bulbous globule. It refuses suffer nuclear Armageddon for lumps of excess fat.

The second lesson that hardnosed analysts can take away from these events is that Putin is a world class cock-up champion. True human-rights violations, devastation and civilian deaths in Iraq post-2003 thanks to Moron Bush and Poodle Blair were much worse than Russian war-crimes in Ukraine to date. Civilians slain by the US and UK exceed 10,000, cities were devastated and Iraq reduced to rubble and penury from which who knows when it will recover. When the Americans departed, it left behind a fractured country of Shias and Sunnis at each other’s throats with no prospect of national unification. However, comparatively less carnage apart, in the end what will Putin have to show for his onslaught; not military victory which now seems assured but a criminal assault on civilians.

Less than nothing! And an interminable unwinnable civil war. Moscow has not learnt from Afghanistan (1979-85) nor others indicted in parenthesis from Korea (US and allies), Algeria (France), Vietnam (France and US), IPKF (India), Iraq (US and UK), Libya (US), Yemen (Saudi) and Afghanistan (dear god the US again). Let’s recapitulate lesson two: It’s not easy in modern times to militarily occupy and tame even a small foreign country unless powerful internal partners are in situ and a big portion of the population buys in. Examples of this counter-case are CIA engineered military-gorilla coups in Central and South America where powerful military and business-class interests were on-side, of course Bangladesh and some recent French peace-keeping interventions in the Sahel.

The third matter I must touch on is an extension of part one of this essay but of stand-alone significance. We have reached a turning point in the global financial order. Russia’s Central Bank Reserves have been frozen by the West and it has nowhere to turn but to Yuan facilities and bilateral Yuan denominated trade. Let that sink in, savour its significance! Central Bank holdings of about 10 countries are frozen by the US; international brigandage possible because of dollar domination as reserve, trading and investment vehicle. About 25 countries are sanctioned by the US as political opponents and the West kowtows. Among them Cuba, Syria, Iran, North Korea, Afghanistan, Belarus, Central African Republic, DRC, Ethiopia, Hong Kong, Lebanon, Libya, Mali, Nicaragua, Somalia, Sudan, South Sudan, Venezuela, Zimbabwe, and now Russia. But China is the largest trading partner of more countries than any other! Why on earth should it trade in a third-party money? The not yet finalised China-Saudi oil deal has been in the works for years. Pressure for restructuring the global financial system is inexorable. The dollar is not going away anywhere soon, nor did Rome fall in a day, but transition to a multi-currency world is unstoppable.

For the Yuan to be global China’s capital markets will have to open and banking become transparent. Government control and regulation must diminish and state protection of provincial banking decline. These changes may drive China towards more liberalism and greater use of market mechanisms than all that Jack & Jill Mas, property tycoons and stock markets will ever be able to do. Wonder what Marx would have made of unification of world finances on a rational platform? Written a Volume IV? The Dragon Emperor Quin Shi Huang (Terracotta Army chap) of the Qin Dynasty abolished primitive proto-feudalism in about 230 BC (feudalism proper never took root in China) and created a centralised state with 36 administrative units directly controlled from the Centre by powerful Mandarin officials – a bureaucracy. A fabulous 150-foot-long Song Dynasty (960-1270) mural depicts a bustling market-place, commerce, thriving trade and a fluid political-economy – marvellous! I have seen it.