The End Of The Petrodollar?

Not Quite Yet, But U.S. Dollar Dominance Is Getting Hit With A Ton Of BRICS…

The going theory right now, at least if you have been paying attention, is that the BRICS alliance is making good on its declaration to challenge the current world order. Beginning with said declaration on February 4th, 2022, BRICS Leader Vladimir Putin of Russia, alongside partner Xi Jinping of China, declared their intent to end “Western hegemony” in the world. This would be accomplished through various means, including the decline of U.S. geopolitical dominance, a challenge to the international “rules-based” order, and an end to the U.S. dollar as the world reserve currency. And now we have this Move by the newest BRICS member, Saudi Arabia, to not renew the 50 year old Petrodollar agreement that U.S. dollar dominance rests upon.

That release by China and Russia was a very bold and clear statement that you may not have read because of how much the Western mainstream media tried to bury it, no doubt with a bit of a push from the government. Still, you can find a complete PDF right here, to read at your leisure, or if you would rather have a summary, this one is pretty concise.

Interestingly, just three weeks after issuing that statement, Russia invaded Ukraine and began a process that would greatly destabilize the force behind international order, as well as crippling the Western European economy and hampering global economics as well. It was a direct attack on Ukraine, to be sure, but the real target was the rest of the world. For more on that and the events that followed, you can read the breakdown here.

Today we are concerned with the rest of that theory, and the attack on the U.S. Dollar, which would be necessary in a fight against a superpower-sized military that cannot be openly defeated. The idea, of course, is to cripple your enemy first with other acts, before the actual fighting begins.

But the thing is, it doesn’t have to be some theoretical idea. We can simply take a look at history to see the rise and fall of empires that previously held the world reserve currency status to understand better why I believe we are seeing the beginning of the collapse of the petrodollar system.

The Standard Cycle Of World Dominance

There is actually a system of trends and events that have happened often enough in history to have now become something of a set pattern for the decline and collapse of empires. Let me summarize that pattern for you.

The first stage is the Rise of an empire, a period of building and expansion. The country on the rise would have low levels of indebtedness for starters. There would also be only small gaps in wealth, values, and political ideology between people, which means the people would be collectively working together to produce prosperity more effectively. This country would also enjoy good education and infrastructure, as well as strong and capable leadership. Such a nation would become a very powerful and influential world leader, thus creating and managing a peaceful world order. But, such a system guided by a dominant world power, eventually and inevitably leads to…

The next stage, the Peak, is where our empire has now reached the apex of its prosperity and begins to take it all for granted. At the same time, you have the other powers of the world, some of them pretty high up on that geopolitical food chain themselves, that are now chaffing at the bit in their collective mouths. The direction they are being led may indeed be a peaceful and productive one, but it will never lead to them being at the top of the power structure. Human nature and history being what it is, we all know what happens then.

But, back to our peaking empire. It now enjoys a period of excesses, always taking the form of a high level of indebtedness, and overextended commitments across the world. There will now be large gaps in wealth,  social values, and political ideology between people, and a great deal of division and strife because of it. Due to the massive debt and the spending needed to maintain power in the world, we see declining education and infrastructure at home. Both things and people begin to fall apart as the maintenance of both the cultural norms and the physical infrastructure degrades. Conflicts will arise between different classes of people within the empire, and political division will become extreme as the confused people try to figure out why things are not as fantastic as they were just a short time before. Externally, struggles between other countries emerge as the newly overextended empire is challenged by rivals coming together to drag down the top dog, and what follows is…

The final stage: Collapse. At the beginning of such a collapse, there will be a period of fighting and restructuring among other nations, as old rivalries and tensions reignite. Our declining empire will be seen as no longer having the teeth it once did, and being unable to really police the world anymore. The ambitious, and the bitter, leaders of those smaller nations will feel that the time to strike along old lines of conflict is at hand, and the flames of those little fires will be fanned by the rivals for the position of empire. Pretty quickly, that leads to proxy wars, economic challenges to dominance, and eventually a great conflict between the forces of our empire-in-power and our challengers to the throne. Alliances, often temporary in nature, and disguised in purpose (such as BRICS), come together to join forces against the perceived tyranny and hegemony of the empire, and just as hyenas will encircle and weaken their lion foe before moving in for the kill, so too will those new allies begin to strike at the empire, weaken it and sowing further discord and conflict across the globe to hamper its defense, setting the stage for a final battle that ends with…

A new international order led by the new global superpower(s).

This process has happened over and over throughout history, which is why it is so easy to define as a cycle. As an example, we can take a look back at the last empire to enjoy hegemonic power and dominance of the world reserve currency. Folks, I give you, The Rise And Fall Of The British Empire. Summarized, of course.

Make The World England

Probably the greatest first step in the rise of the modern British Empire was the replacement of the monarchy with the Commonwealth of England. This helped to create a society where intellectual thoughts and debates flourished, progress could be made open to all ventures, and the rule of law became a little more set in stone. As a result, there were higher investments in education and the spread of information and ideas through printed works. Naturally, this caused literacy rates to rise, and everyone became just a little bit more informed and capable intellectually.

The later creation of the government-backed Bank of England allowed the state to raise significantly more revenue than its international rivals overseas. This also helped to standardize and increase the liquidity of the UK government debt, improving its ability to borrow the ever-increasing sums of money that a fledgling empire needs.

Here in our first stage of rising empire, the newly well-educated British population, a social trend for creative industry, and the availability of capital to economically support new developments gave Britain a massive competitive edge over the other nations also seeking to be the dominant empires of the time. But as they say, there can be only one…

Empire really only comes about through conquest, something world history has proven again and again to be the rule, not the exception. For the new United Kingdom, it was military strength that allowed it to conquer colonies and other European powers. Thus in securing its control over global trade routes, the profitability of the empire more than paid for its military spending because it supported and defended international economic activity, with the UK reaping the most benefit. Very quickly, London became the financial center of the entire global economy, and the pound sterling was cemented as the world’s reserve currency. Values and costs for everything across the world were measured in pounds, and that is when the empire was truly settled in.

Having reached the apex of both economic and military power, and effectively having “taken over the world” as is the goal of all who play the game, Britain had reached the second stage, the peak of empire. Even having at the time less than 3% of the world’s total population, the British Empire produced over 20% of the world’s income, controlled over 20% of the world’s land, and directly ruled over about a quarter of the global population. It was truly the powerhouse of the world. Britain’s share of global trade rose with the Industrial Revolution and helped continue the spread of the empire.

But, what goes up must eventually come down, and empires are no exception.

Collapse comes for all empires, and it follows our pattern as laid out above. The end of the British Empire would be no different. In the closing decades of the 19th century, the British Empire faced the specters of declining economic competitiveness, rising inequality among the people, tension and conflict spreading in the world it had to manage, and, most significantly, the rise of new rivals who were helping to push those stresses along. Those rivals were primarily Germany and the United States.

Britain couldn’t keep up with those rising rival powers during the Second Industrial Revolution, and those rivals in turn did everything they could to hasten the decline. The British failure to reorganize industrially and economically led to steep declines in output per worker relative to the other industrial powers champing at the bit. By the start of the 1900s, German GDP had finally surpassed that of Britain, and that was the signal to the rest of the pack that weakness was in the blood of the prey.

The British gains from the start of the Industrial Revolution had been distributed unevenly, and by the late 1800s, the top 1% of the population owned almost all of the wealth. Is this starting to sound familiar? Maybe a little too close to home? It should. That is where we are now, in the United States.

While the British Empire faced challenges to its dominance and influence abroad with France in Africa, Russia in the Middle East and Asia, and the United States in the Americas, its most significant enemy was Germany. And Germany, along with the others, worked behind the scenes of industry and economics for quite some time, to pave the way for making its own move.

And then it did so.

What begins economically and politically, always ends militarily. And the powers that want to rise to new heights of dominance themselves will work behind the scenes to make sure it goes that way. Both the First and Second World Wars, coming so closely together that one could almost be seen as a continuation of the other, produced a tremendous shift of wealth and power in the British Empire. The leaders were left with huge debts, a vast empire that was too expensive to maintain, and a population with big wealth gaps that spurred the division of everyone by big political disparities. 

With overextension and overborrowing from its allies, the Bank of England was forced to devalue its currency and permanently reverse the pound’s ability to be converted into gold. The nail in the coffin was the signing of the Sterling Agreement in 1968, leaving countries that continued to hold high shares of their reserves in pounds now holding de facto dollars, as the deal guaranteed most of the pound’s value in dollars. And that move ended the reign of the British pound, and the control of the British nation over the rest of the world.

Among those rivals to the throne, the United States came out on top in the struggle of those world wars, and with the conversion of pounds to dollars they began their turn at playing Empire…

The Trend And The Pattern: Rise Of The Petrodollar

That is the trend, in a simplified nutshell. That is how an empire rises, and how it is eventually brought down by the next rising power behind it. That is the pattern that human nature and the drive for power have set upon the world. And it continues today.

For our current Empire, Pax Americana, it started with the Bretton Woods monetary system, the creation of the IMF, the World Bank, and the establishment of the United Nations. New York was established as the new global financial center, and the United States cemented itself as the new global superpower. The Soviet Union was, at the time, a pretty healthy rival to that power, but they were not the ones that held the new global reserve currency status. That was the US Dollar, and that made all the difference in the world.

With that new dollar dominance, banks increased their operations and lending in foreign markets. Global lending began booming out of control, and the stock market peaked in 1966. However, those who prospered most overreached in their greed by operating fast and loose economically, while competition from other powers, especially from Germany and Japan, increased. After a while, American lending and America’s economic health began to deteriorate as its trade surpluses disappeared. What could they do about that?

Well, in response they chose to adopt what became known as a “guns and butter” economic policy. The term guns and butter describes the government’s increased allocation to defense spending versus social programs. Basically, they turn to spending more on military programs for national security, or guns, and much less on social programs such as education and social programs, the butter. There came a substantial trade-off between defense and social spending, especially with the US space program and the Vietnam War, which proved detrimental to the state’s finances. The space race and the semi-proxy nature of the Vietnam War are great examples of how other nations use economics and conflict to put stress upon the leading power, in an effort to destabilize it. Even then, that was the goal of China and the Soviet Union. However, being not only unallied but actually competing with each other themselves, they were unable to succeed at that time.

But it still hurt the United States quite a bit, and began working on the Empire from within. After 1971, when the US Dollar was delinked to gold, the world moved to an unanchored fiat monetary system, and the dollar fell in value against gold and other currencies. Richard Nixon’s decision to end the dollar’s gold backing led to economic turmoil, known now as “stagflation.” 

With the U.S. facing devalued currency, high unemployment, and soaring living costs, a solution was sought. In 1973, Secretary of State Henry Kissinger secured a deal with Saudi Arabia to exclusively sell oil globally in dollars, boosting demand for the weakening currency. This strategic move allowed the U.S. to sustain massive trade deficits, and huge military spending increases, as countries exchanged dollars for oil. OPEC countries further fueled the U.S. economy by reinvesting their dollar profits into American bonds, enabling the U.S. to finance its government and run trade deficits without severe financial consequences.

From that moment on, the economic dominance of the United States has been tied to the petrodollar system. The U.S. dollar’s strength as a reserve currency is not only a reflection of the robust U.S. economy but also stems from the dollar’s liquidity, partly due to countries maintaining dollar reserves for oil transactions. It pretty much means, if you are going to do business, you are going to do it in dollars. And that gives the government that controls those dollars incredible power.

So much power, in fact, that this new American Empire seemed like it might actually be the last one, too big to fail, as it were, and too strong to fight. What would the rivals do now..?

Throughout the long-term debt cycle in the US, the Fed would lower interest rates and make money and credit more available to help the economy pick up whenever needed, like during an election year. Such action increased stock and bond prices and thus people had more wealth. That was how it was done until 2008. Whenever there was a problem, interest rates were cut, and debts were increased faster than income, creating an unsustainable bubble. That changed when the bubble burst in 2008, and we had our most recent major financial crisis. This led the Fed to move to a monetary policy of printing money and buying financial assets. In turn, that enabled investment and corporate borrowers to purchase stock and assets, increasing prices and creating an ever-growing larger wealth and income gap. 

Solidly in our cycle of decline now, and with the rival nations of China and Russia watching closely for any cracks to appear. The 2008 crisis showed what some of the weaknesses of the system could be, and with the strength of the American Empire being so closely tied to the strength of the dollar in global economics, the opening was clear. If only there was a significant enough shock to start the ball rolling…

By 2009, Russia and China had formed an economic alliance with India and Brazil, and then South Africa joining a short time later. BRICS was formed, as a direct counter to the economic power of the West in the US and its European allies. And after being formed, BRICS did… nothing. It just waited. No real significant action came of it, and it wasn’t intended to until the time was right.

2016 saw the election of Donald Trump into the office of President of the United States. In response to some of the economic pressures of the time, he cut corporate taxes and ran big budget deficits that the Fed accommodated. While this debt growth financed relatively strong market-economy growth and created some improvements for lower-income earners, it was also accompanied by a catastrophic further widening of the wealth and social values gap among people. The rich grew richer and the poor grew in number. During his tenure, the political division among people and politicians spread wide, with increasingly hard-right Republicans on one side, and extreme-left Democrats on the other. The very concept of middle-ground was wiped out in a very short time, and the nation began struggling with views that were simply too extreme one way or the other to be workable for any kind of future.

The ground was fertile for collapse, and then came the shock that the rival powers of the world had been waiting for…

A Black Swan Rises

In March 2020, the coronavirus pandemic hit the American economy like a ton of bricks, and incomes, employment, and economic activity plunged as the country went into lockdown. In response, and in an effort to keep things afloat, the US government took on a lot of debt to give people and companies a lot of money, and the Fed printed a lot of money and bought a lot of debt. It was a move that, in the moment saved further damage, but in the long run may have been a harbinger of doom.

This was the “shock” that rivals such as Russia and China needed. Something that both hurt the American Empire financially and socially, but that also set things teetering for the global economy as well. America, by force of either economics or arms, had secured a great many allies in the world, and in order to be challenged, those allies had to be taken down a notch as well. The pandemic did a great job at starting the process, and all that was needed was a little push…

The time to openly begin working against the dominant power in the world was at hand. The leaders of Russia and China, and of BRICS, Vladimir Putin and Xi Jinping came together and made an announcement to the world. In their joint statement made February 4th, 2022, they clearly and openly declared their intent to challenge the ruling world order under American dominance.

Within just three weeks of making that statement, Russia invaded Ukraine, starting the biggest military action in Europe since World War Two. As a result, the Western European allies of the US were thrown into economic chaos, and the world began to follow. Hitting on multiple fronts, both in global food production and strategic resources, this war upended everything that was barely stable in the world.

In effect, the goal was simply to upset the chessboard in a game they could not win, and force the players to begin again. The West tried to respond with the most severe economic sanctions ever leveled against another nation, but Russia was not alone. China, acting as healer to the Russia’s tank, helped make up the support needed to offset the effects of those sanctions. India, another player in that bloc, also helped by continuing to purchase Russian oil and gas despite international sanctions.

The world was watching. The world that for so long had been told that the days of war for conquest were over, was now seeing someone put that declaration to the test. The UN was being shown to be relatively toothless in the face of action by other powers, with both Russia and China having veto power over any resolution the UN could think to try.

A Wall Of BRICS

Suddenly, there was a flurry of interest in nations wanting to join BRICS. Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates have confirmed they would be joining the BRICS bloc after being invited last year. Thirty-four countries have submitted an expression of interest in joining the bloc of major emerging economies. They can clearly see which way the wind is blowing.

Some of the keys to the recent admissions are Saudi Arabia, Iran, and the UAE. All OPEC, all major oil producers, all major players that trade in “petrodollars,” or US dollars, as per the agreement between the US and Saudi Arabia made back in 1973.

Well, that agreement expired just yesterday, as of this writing, June 9th, 2024. The Crown Prince of Saudi Arabia has stated that his country will not be renewing that agreement, and is instead going to side with its new friends in BRICS. For the first time, the Saudi’s, and thus OPEC, will be trading oil in other currencies.

In addition, another stress being put upon the US power, and the global economic power structure,  was the action by Iran, just after joining BRICS, to send their proxies in Hamas to stir up the Middle East with war. Hamas acted against Israel with a major attack on October 7th, 2023, and that resulted in exactly what they had hoped it would. The Israeli PM, Benjamin Netanyahu, has himself been eager to try and exterminate the Palestinians, and so he didn’t need much pushing. In fact, Iran got so caught up in their BRICS-backed mission to stir up shit in the Middle East that they themselves launched the biggest-ever open missile attack on Israel.

This would result in a good lesson in patience and not pushing too hard, or too fast. That lesson came when the president of Iran’s helicopter just happened to crash “accidentally” a short time later, killing everyone onboard. Things are starting to get a little more spicy and a little less believably covert. Presidential helicopters are probably some of the most maintained, advanced, and professionally piloted aircraft on the planet. They don’t just crash without cause.

But, that is another story, and merely a side note to our main concern here, which is this new attack on the petrodollar and US dollar dominance as world reserve currency. Because that dominance ends with the death of the petrodollar, and the American Empire dies with that…

The Gold Remains

Fiat currencies can come and go with nations, but gold remains. It is timeless, and that is why it is traditionally the safest store of value.

Another move by the BRICS alliance in its quest to unseat the US dollar has been to swell its own reserves of gold. Russia and China have actually overtaken the US in gold reserves, and you didn’t know that because they did it pretty quietly. All the way back in 2007, conveniently just before the 2008 financial crisis in America, China overtook South Africa as the world’s largest gold producer and has remained so. Over the last decade, they have produced 15% of all the gold mined worldwide.

China’s gold imports now are at their highest levels since 2018, increasing 64% year-on-year last year alone. According to Swiss customs, the gold imported from Switzerland alone reached 524 tonnes (~$33 bn) in 2022. We also know that over 6,700 tonnes have entered the country since 2000 via Hong Kong alone. Adding this to the cumulative gold production since 2000, we reach a figure of over 13,500 tonnes of gold actively being held. But held as a hedge against what?

Against an engineered collapse of the global economy, that’s what.

The only conclusion that makes sense for why China is being so discrete is because they are trying to not let the West that they are catching up and moving away from the dollar, while also trying not to rock gold markets, as an increase in gold prices would not be advantageous for them. 

At the same time, Russia has been stockpiling gold since the Western sanctions it faced for invading Crimea in 2014. Russia’s gold reserves went from 8.4% to 10.6%. In 2022 before it invaded Ukraine, this figure stood at around 20%. Also keep in mind that Russia is the third largest gold producer in the world, with an output of 330 tons annually, making up another 9% of the total gold mined globally. Russia, China, South Africa… founding members of BRICS, and in control of more gold than, the United States, by far. Forget weaponized plutonium, weaponized gold is about to be the new hot commodity in this war.

And BRICS recently unveiled its plans to release a new gold-backed digital reserve currency to rival the dollar. Imagine that. Coincidence? I think not.

Excluding the military and geopolitical influence the US still possesses as the reigning superpower, it can obviously be seen that one of the main reasons the US dollar is still the reserve currency is the petrodollar agreement, which forces buyers to purchase oil using dollars. But recent Saudi-US relations have been quite uncertain, and that is all part of the BRICS plan. The American President Joe Biden has spoken of ‘re-evaluating relations with Riyadh’ and that there would be ‘consequences for their actions’ after OPECS’s decision in 2022 to cut oil production by roughly 2% of global consumption, despite pressure from the US. That pressure has always been sufficient in the past to keep the Saudi’s in line, but now we can see that, behind the scenes, BRICS had been making them a better offer all along. To go even further, and with the appearance of a bit of desperation, the US recently stated that they would try to stop selling weapons to Saudi Arabia, which violates the US side of the petrodollar agreement.

Oops. Seems there would indeed be consequences to those actions, just not the ones envisioned by American leadership. The agreement made by President Nixon with Saudi Arabia back in 1973 was to sell oil exclusively in US dollars for 50 years, and it expired yesterday, June 9th, 2024. The Crown Prince of Saudi Arabia, Mohammed bin Salman, did recently state they were NOT willing to renew the agreement.

Ergo… the agreement is over for the petrodollar, and you can pay with whatever currency you want when buying oil. The decision not to renew this pact stems from Saudi Arabia’s recent invitation to BRICS and its move towards de-dollarization and the challenge to Western global dominance. This shift includes considerations to accept other currencies, such as the Chinese yuan, for oil sales, as reported earlier by the Wall Street Journal on March 15, 2022.

More Money, More Problems

The US dollar has been used as a weapon to enforce compliance from other nations for a long time. While we here in America can damn well invade any country we want at will (talkin’ bout you, Iraq), if anyone else does it, they are going to face sanctions. And those sanctions will prevent them from using the world reserve currency freely, and handicap their economies. For regular people, this is usually called extortion, but the US calls it “maintaining world peace.” Whether certain parts of the world want that peace or not.

But as part of their pre-war challenge to the United States, BRICS is working on the formation of a new currency in the global markets to challenge the US dollar’s supremacy. The alliance aims to uproot the US dollar from the world’s reserve and replace it with a new BRICS-backed, gold-based currency. The battle to dominate the financial sector kick-started after the White House pressed sanctions on Russia and other countries. Smaller nations around the world fear their economies will be affected by sanctions if they too decide to step out of line and pursue their own interests and goals of conquest, and now they also want to end dependency on the US dollar. A handful of countries in Asia, Africa, and Latin America are considering cutting ties completely with the US dollar.

But, for BRICS to set a new reserve currency, they need to motivate other nations to use their currency. With Saudi Arabia and Iran restoring diplomatic relations, mediated by BRICS-Daddy China, and both recently (conveniently) joining BRICS, this is a massive win for the alliance; combined, Saudi Arabia and Iran produce over 15% of the world’s oil. And The United Arab emirates joined as well? Seems like BRICS doesn’t just want to control the currency, but the world’s oil supply as well. Wiith China now surpassing the US as the world’s largest oil importer, they have become the most valuable trade ally for the OPEC nations, a position once help by the US. With Saudi Aramco recently acquiring 10% of a Chinese oil refiner, the two nations are starting to build a very strong relationship.

Furthermore, we have recently seen the BRICS countries’ efforts to gain other independence from the dollar. Vladimir Putin recently stated, “We are in favor of using the Chinese yuan for settlements between Russia and the countries of Asia, Africa, and Latin America.” Brazil and China have also reached a deal to trade in their currencies. This might be all the leverage the Chinese and Russian-led alliance needed to convince Saudi Arabia to replace the petrodollar agreement with some sort of new petrobrics agreement that has yet to be announced.

These are indeed powerful nations by themselves, but the problem before ahs always been their own struggles against each other, struggles the US gleefully helped maintain to solidify its own power. Challenges to the dollar from any one of them simply wouldn’t be significant enough. But a BRICS-issued currency would be different. It’d be like a new union of up-and-coming discontents who, on the scale of GDP, now collectively outweigh not only the reigning hegemon, the United States, but the entire G-7 weight class put together. They are truly the big dogs in the pen.

The Final Countdown

All of this set us the collapse of the current American empire, just like every other empire in history. We are meeting all the other marks right on time, from wealth inequality and social unrest to political division and economic shakiness.

And that brings us to the inevitable result. Because the empire won’t just fade away. Oh no, decades of dominance by America and the US dollar have built the world’s most expansive and powerful military machine, the greatest one ever seen in history… and it will be used in defense of its throne.

So, too, have the other challenging powers been developing and building up their militaries for exactly this purpose. The game is not played for the stalemate of peace after all. The name of the game is world domination, and as soon as one round ends, another begins, and that is the cycle of our world. I have written in detail about this before, and included all the little predictions which are slowly coming true, one after another. That article is unfortunately aging quite well, and this is just another confirmation of what we already know is happening.

The difference this time is that nuclear weapons are part of the equation on all sides. And that means that no one can win, and also that no one can lose alone. And that is why this new World War will indeed be the war to end all wars as one of its predecessors was once thought to be.

There won’t be enough of us left to fight another one.