[sig-reduction]

I've always wanted to understand the geopolitics of oil and gas. Despite much interested reading, I can never quite figure out what's going on.

One of the more interesting quote's I've encountered along the way, "The foreign tax rates of U.S. oil multinationals fell significantly after the first Gulf War, during which the United States intervened to protect Kuwait, a major oil producer. Although it is not possible to know for sure what caused this decline, a possible interpretation of the fall in taxes collected by oil-producing countries is that they reflect a return on military protection granted by the United States to oil-producing States."

Figure 2 on page 20 has the discontinuity.

https://gabriel-zucman.eu/files/WrightZucman2018.pdf

[DSingularity]

I think that is an important point but tangential IMO. The question here is geopolitics of the dollar. Notice, when the us had deep music-gonna-stop level problems in its economy it prints a shit-ton of dollars. Which other country in the world can do this? Nobody. And it will stay this way until someone has a navy as powerful as the US.

[simonh]

I think this is backwards. The USSR had a navy toe-to-toe competitive with the US, but never had a fraction of the economic weight. The economic power of the US isn't a product of it's navy, rather it's economic power is just another weapon it uses alongside military force.

Let's look at how the petrodollar came about. The first step with the run on gold in 1971 which broke the Breton Woods system. The value of the dollar went through the floor. Having a big navy didn't make any difference. This hurt oil exporters because now their dollar earning weren't worth as much, but they didn't abandon dollars. There was no credible alternative, and there was no military dimension to that fact.

Then in 1973 US support for Israel lead to the OPEC oil embargo. Oil prices quadrupled. You could say it was American military aid that caused this, well maybe but no actual projection of force by the US was involved. Military aid to Israel was no different in character from Soviet aid to Arab regimes. The reasons the embargo mattered and had an effect were economic reasons, not military ones.

When the United States-Saudi Arabian Joint Commission on Economic Cooperation was established in 1979 the US hadn't invaded any Middle Eastern nation, hadn't blockaded any Middle Eastern ports, hadn't established any bases in the Middle East. The total of their interference was support for Israel, a small state a long way from any of the actual oil.

All three of those milestones were entirely economic in character. Military power projection played no part in them. The US has and uses economic power anyway, regardless of how effective it's navy or army is. It was a military midget, but economic powerhouse in 1941 when Japan attacked Pearl Harbour. It parlayed that economic power into military might, not the other way around. By the end of the war the US was launching 2 aircraft carriers per month due to sheer economic muscle.

US military intervention in the Middle East long post-dates the establishment of the petro-dollar. Those claiming the petro-dollar is a result of military power have it exactly the wrong way around.

[DSingularity]

Haven’t established any bases in the Middle East? Are you kidding? Building bases in the Middle East was first order of business after world war 2.

https://en.m.wikipedia.org/wiki/Prince_Sultan_Air_Base

[simonh]

I was very clearly referring to the situation in 1979 when the petrodollar system was formalised, which itself was long after dollars became the standard currency for trading oil.

That base was exclusively a Saudi air force base until the first Gulf War, which occurred long after the dollar became the standard currency for trading oil.

[lotsofpulp]

> And it will stay this way until someone has a navy as powerful as the US.

Armed force superiority is a requisite for maintaining order, which is a valuable good in and of itself, but the country also needs to produce goods themselves (such as research, medicines, technology, media) which is greatly enabled by a large population that has a higher than average level of trust between each other.

I would even assume the latter is far more difficult to create than the armed forces, and only arises from a perfect storm situation. And it feels like it’s in a downward trajectory, but hopefully that is not true or will reverse.

[DSingularity]

It’s all intertwined. When you can print billions and use it to fund research while other countries can’t — well this will also reenforce your lead.

[imtringued]

>Notice, when the us had deep music-gonna-stop level problems in its economy it prints a shit-ton of dollars. Which other country in the world can do this? Nobody. And it will stay this way until someone has a navy as powerful as the US.

The Eurozone can do so as well. Actually, it must do so to prevent the collapse of the euro. It's the same with the USD, foreign nations keep "stealing" USD and take them out of the US and therefore the US must replace the lost USD just to stay still.

Also, the fact that no money is being printed is one of the biggest problems. Yes, you can increase the money supply without printing. For every USD you create, you also create an obligation to return it which is called debt. When the newly created USD are allocated to otherwise idle resources you may unlock value equivalent or higher than the debt you took on. The excess value you have created in the process is called economic growth. It turns out, fiat creation is highly deflationary and deflationary forces from other sources are extremely high as well. However, debt is inaccessible to the vast majority of the population. I personally still get 4% interest rates on private loans. The borrowed money never ends up in the real economy indicated by low inflation rates.

We are basically experiencing the great depression again but to a milder degree, therefore we should do our best to prevent it from becoming a problem in the first place. The fact that the US hit inflation goals because of a pandemic is pathetic. What if they were not blessed with a natural disaster that spurred politicians to act (it wasn't enough to get trump to act)?

Hitting inflation goals and moderate interest rates quickly is absolutely necessary to keep the economy stable. With every year of low interest and low inflation the imbalance keeps growing but the correction will happen in a flash, therefore we must ensure that any imbalance is as small as possible before we run into the crash.

It's like extinguishing wild fires as soon as they happen while the fire is still under control. At some point you can no longer contain the fire but the consequences have become unbearable.

It's better to crash small today, than crash big tomorrow. Unfortunately, today is many years too late.

[woodpanel]

* it prints a shit-ton of dollars. Which other country in the world can do this?*

Currently, there isn't a country that isn't doing this.

But I agree, when the music is gonna stop globally the US can print the longest.

[himlion]

There is a significant difference, those countries print their own currency, but only the USA can print US dollars.

[refurb]

I mean Canada has expanded its money supplier to a larger degree than the US as a percentage of its GDP.

+50% since 2016, +20% since pandemic started.

https://tradingeconomics.com/canada/money-supply-m2

[seibelj]

And their housing price increases are even more absurd than the US. The middle class is trying to hold on to anything they can to protect their savings from inflation and there are very few options remaining for the average person.

[ChuckNorris89]

Same in Western Europe. Housing is almost unaffordable now after the ECB money printer sprint and free loans from he local banks.

[lifty]

At least Japan and the EU have higher debt to GDP ratio's, but the currencies of those places definitely enjoy a high level of trust in the world.

[elcritch]

The US’es navy is arguably much more of a result of our economy than the other way around. Of course there are synchronistic effects. The petro-dollar is what let’s the Fed print money with abandon beyond what other nations could. The petro-dollar is protected by American naval power. So it’s a feedback cycle.

In a fashion, the US printing dollars lowers the value of a dollar which effectively taxes the rest of the world by lowering the value of their dollar denominated assets. Particularly oil. Still it’s an odd system as the US is ultimately on the hook for that debt, to US federal debt holders who are still majority Americans.

It’ll be interesting to see how post-oil world economy will handle it. Possibly more serious large scale wars between regional powers.

[imtringued]

>In a fashion, the US printing dollars lowers the value of a dollar which effectively taxes the rest of the world by lowering the value of their dollar denominated assets.

Those foreign nations take USD out of circulation and buy US treasuries. They are expressing a desire that the US invests the USD they spend on the bonds. When you buy US treasures you do so because you think the US government can spend your money better than you can spend it yourself. If the US decides to not borrow your money it is basically saying you should put your money elsewhere but these foreign nations refuse to do so.

Because the US government doesn't spend the money inside the US the obvious result is unemployment. There is no way to increase the investment rate to account for the increased savings rate. Instead, the domestic savings rate of US citizens must go down to compensate for the increased foreign savings rate. How does it go down? Someone who is unemployed or underemployed must consume more than they earn. Income inequality becomes mandatory to just keep the economy alive. It's increasingly unsustainable for everyone including foreign owners of treasuries.

Of course the US has a nice president right now that wants to let the damn savers save by increasing the investment rate through infrastructure spending. It's a win-win for everyone. The underemployed get jobs, the savers get a nice investment that will not suddenly collapse one day.

[fnord77]

the US pays 0 or close to 0 interest on that debt.

[elcritch]

The first link on Google says the 2021 interest payments will be $378 billion on $27 trillion in debt. That’s about a 1.4% rate. Not a bad rate, but still it’s interest.

1: https://www.thebalance.com/interest-on-the-national-debt-411...

[patrickk]

https://www.bloomberg.com/news/features/2016-05-30/the-untol...

This article explains the link between Saudi Arabia and the US. It explains a lot about the relationship that exists despite so much chaos and turmoil. As they say, money talks and bullshit walks.

[ultrastable]

You should check out Carbon Democracy by Timothy Mitchell if you haven't yet