The Iran-Saudi Arabia deal that threatens the petrodollar

The Iran-Saudi Arabia deal that threatens the petrodollar

On March 10, 2023, China announced the resumption of diplomatic relations between Iran and Saudi Arabia. A geopolitical earthquake that, according to analyst Andrew Korybko, deals a death blow to the dollar. The thesis: without the deal brokered by Beijing, China would have had to rely on sea routes controlled by the U.S. Navy. Now, trade can flow through the North-South Transport Corridor (NSTC) connecting Russia with the Gulf via Iran, and through the China-Central Asia-West Asia Economic Corridor (CCAWAEC). Two megaprojects that would bypass the American fleet and the straits it controls.

The petrodollar in the crosshairs

The dollar's hegemony rests on control of the seas and on oil being traded in dollars. If Saudi Arabia starts selling its crude in yuan, the petrodollar takes a blow from which it will hardly recover. The Saudi desire to join the BRICS and the Shanghai Cooperation Organisation (SCO) accelerates the scenario. Korybko sees it as inevitable barring "a black swan," such as a U.S.-backed strike against Crown Prince Mohammed bin Salman. Something unlikely after the consolidation of his power in 2017.

Russia has already ditched the dollar to trade with Latin America, Asia and Africa

In parallel, Russia has adopted the yuan for its exchanges with those regions, as announced at a bilateral meeting between Pilingui and Xi Jinping. The news spread through the media: Russia abandons the dollar and adopts the yuan. The move fits with the de-dollarization strategy that is gaining adherents. Lula da Silva, during his visit to Shanghai for Dilma Rousseff's swearing-in as head of the BRICS New Development Bank, said it bluntly: "Why does every country need to do its trade backed by the dollar? Why can't we trade in our own currencies?"

The Chinese fleet surpasses the American one, according to the thread's narrative

The initial post claims that China's fleet already surpasses that of the U.S. A claim that cannot be verified with the figures provided, but which reflects the perception that the military balance is tilting toward the Pacific. The Chinese and Russian strategy seeks to turn the "World Island" — all continents except the Americas and Australia — into an impregnable fortress, interconnected by land routes. The agreements between Iran and Saudi Arabia complete that puzzle and the New Silk Road project.

The U.S. has nothing to offer, according to the dominant analysis

The thread's thesis is that Washington can only respond with propaganda, wars and coups. "LGBT propaganda" — a term used in the debate — would have little traction in Saudi Arabia. The argument is made that the U.S. has lost the cultural appeal that once made it great. The "American dream" would be dead, and it now sells values that clash head-on with the societies it seeks to influence. On the opposite side, some recall that the ancient powers of Eurasia have their own rivalries and that a hegemonic China will also face conflicts.

Control of the straits and the futility of the US Navy

American power is based on control of the straits: it can close them at will and cut off supplies to China or the EU. But the land corridors promoted by Russia and Iran would render that trump card useless. The thread links to analyses that describe the US Navy as futile in that scenario. Eurasia's geoeconomic integration takes a leap with the Iranian-Saudi rapprochement, which unlocks the trade potential of the Gulf Cooperation Council (GCC) with Russia and China. The GCC's wealthy members can take advantage of two sets of megaprojects transiting through Iran.

The warning: without a common enemy, allies fight each other

Not everyone buys the narrative. A skeptical current holds that the U.S. only needs to stand aside and let the signatories of these pacts kill each other. Ottomans, Saudis, Persians, Indians, Chinese and Russians have their own rivalries. A future hegemonic China will see its challengers grow. And the Chinese model of loans secured with infrastructure — as in Sri Lanka — could generate tensions when some country fails to pay or nationalizes assets. The history of alliances against a common enemy always ends the same way: the enemy disappears and the alliance crumbles.

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Is the dollar's dominance over? The answer depends on how long it takes Saudi Arabia to sell oil in yuan. Meanwhile, the world keeps trading in dollars and the American fleet keeps patrolling the straits. The open question is whether Beijing's deal is the beginning of the end or just a headline that time will debunk.