Empire Diaries Desk
An oil refinery near Persepolis, Iran (Photo: Empire Diaries)
May 1, 2010, New Delhi: Here’s the highly, highly complex story of #OilPolitics, simply told.
Since the late 1990s, a long and silent war on the pricing of #CrudeOil has been raging between two international mafia groups. One is called the West+ mafia. The other is called China+ mafia.
West+ mafia is a flock of western oil governments/lobbies and West Asian orthodox dictatorships. We will simply call this mafia West+. China+ mafia is a flock of some powerful oil-importing nations around the world, led by China. We will call this mafia China+.
The theme of the war between West+ and China+ is very simple.
China+ depends on heavy oil imports to survive and flourish. Slowly but surely growing in stature, it wants to stop buying hugely overpriced West Asian oil. Plus, China+ does not want to buy that oil only in exchange for US dollars, as is the existing (and highly absurd) rule.
Now, it’s rival, West+ wants to carry on selling overpriced oil globally only for US dollars, popularly known as petrodollars*.
(Important explainer: *What is #petrodollar? It is an illegal arrangement between some US-UK led western governments and some oil-rich dictatorships of West Asia. The deal was struck in the early 1970s. As per the deal, brokered between the US government and the Saudi kingdom, West Asian oil nations sell their overpriced oil globally only for US dollars. No other currency is accepted. Why? To ensure the dollar always remains in high demand worldwide, thus becoming the undisputed global reserve currency. Result? The US economy and its pro-dollar allies are perpetually strong economies.
There is another condition of this illegal arrangement. The West Asian dictatorships are made to invest a major chunk of their vast oil income in US-UK-led western banks and their economies, either in cash reserves or by buying treasury bonds.
This arrangement is called ‘petrodollar recycling’. Result? Some powerful western countries are always flush with cash that is essentially earned elsewhere (in West Asia) by someone else (West Asian monarchs), in turn, spurring what we’ve seen phenomenal, staggering development of the ‘first world’.
What did the West Asian dictatorships get in return? Military cover from the powerful US-led western nations. The US #CENTCOM is one of the biggest overseas US military establishments that perpetually monitors the West Asia region, basically protecting the petrodollar dictatorships – and hence, the illegal petrodollar system.
Illegal or legal? In the mainstream school of thought, nobody calls this illegal petrodollar system ‘illegal’ because nothing is called illegal if there is consensus!)
Explainer over; now, back to the war between West+ and China+.
Since the late 1990s, China+ began growing in might, and so it began arm-twisting some West Asian dictatorships to think about dropping the illegal dollars-only arrangement. China+ told these kingdoms: ‘Hey, why don’t you sell oil globally not just for dollars, but also for other currencies, such as euro, yen, gold dinar or just directly for gold? Looking for just dollars is turning us into puppets at the hands of America. Please, we don’t want to buy your oil for dollars anymore.’
So, some countries started to have second thoughts about the petrodollar system. Iraq, Iran, Libya, Syria were at the forefront. They wanted to cut loose, pressured by a cunning and opportunist China+.
Result? West+ was pissed off. The goose that was laying golden eggs for West+ was coming under attack! So, West+ famously started sending in the army to “liberate” these places – to give them “freedom from tyranny and dictatorship” – or slapped sanctions on them or funded civil wars or applied stealthy pressure (through intelligence) to ensure that these West Asian monarchies don’t scrap the petrodollar system under pressure from China+.
Iraq said it wanted to start selling oil globally for euros. So one day, we woke up to #SaddamHussein as a despot who had to be eliminated at all costs.
Libya said it wanted to start a new African currency for oil trade. #MuammarGaddafi called it the ‘gold dinar’. So again, we woke up to Gaddafi as a despot who had to be eliminated at all costs.
The same script for Iran and Syria, and briefly for Qatar, who all wanted to diversify how they were selling their oil: basically move away from the illegal petrodollar system.
So, the oil price war continued to rage and it reached a climax in 2014, the game-changing year. In Saudi Arabia, China+ had by then groomed the young #MBS or Mohammad bin Salman to be the backroom decision-maker who called all the shots (3 years later, in 2017, MBS formally became the clown/crown prince).
So in 2014, the straw broke the camel’s back.
Possibly instigated by China+ (there’s no evidence of it yet), MBS began to over-produce oil to such a massive extent that crude oil prices came crashing down like never before. During a certain phase, the price collapsed from over $100/barrel to almost $20/barrel!
So, China+, getting more influential by the day, ended its rival mafia group’s cheat code to easy wealth creation (read: petrodollar system). For West+, the goose suddenly stopped laying golden eggs.
‘If you won’t let West Asia sell its oil to us in exchange for gold or other currencies, then we will manipulate and get the oil price to come crashing down, and you will forever not be able to make a killing from the #PetrodollarSystem, despite having it in place,’ – that was the stern message from China+ to West+.
While all this was going on, something funny happened. In a historic decision, America decided to set up its very own crude oil shop and unfurled grand plans to become the world’s biggest oil seller. It wanted to dwarf old-school players on the circuit such as Saudi Arabia, Iraq, Kuwait, Iran, Venezuela, and so on.
But it was bad timing, sheer bad timing, West+ realised, as China+ continued to play backdoor games and use its massive clout to ensure America doesn’t become the new rock star of the oil marketplace.
Amid all this, Mr. Coronovarus walks in. (By accident. Not by design. No conspiracy there, sorry) Turns out it is serendipity for China+. And sheer bad luck for West+. Because Mr. #Coronavirus has something in his hand. What is it? The last nail in the coffin of the petrodollar system!
The pandemic brings down crude oil prices even further. China+ is enjoying the moment, even as it shrugs off the pandemic blues. China+ is more focused now on bringing the oil price down further. And further. And further.
West+ is now sitting on a sea of crude oil. But the price of oil is down to negative. NEGATIVE!
Things will somewhat improve in the months to come. Prices will, of course, go up again. But the price of oil will never again go up to the pre-2000s levels. The petrodollar will never be as wildly profitable as it used to be for West+. China+ (and Mr. Coronavirus) are ensuring that.
The coronavirus will be gone one day. The dust will settle. The world will try to limp back to normalcy. But the silent war between the two monsters will continue. The war to kill/revive the illegal petrodollar system.
Will China+ win the war? Will West+ pull off a comeback? Or will the war never end?
(For a detailed account of the origins of the petrodollar and how it plays a role behind wars in West Asia, read Secret Notes From Iran: Diary Of An Undercover Journalist)