petro dollars

Fourth Arab-Israel war.
On October 6 1973, the holiest day in Jewish history known as yom kapor, Egypt and Syria launched simultaneous attacks on Israel.
It was the beginning of October war, the 4th and the most destructive of Arab-Israel wars and it was the one that had greatest impact on the world. Egypt’s president Anwar Sadat pressured Saudi King Faisal to retaliate against the United States, because it backed Israel both economically and militarily. Sadat was referring to use the “oil weapon” against USA, because President Nixon had passed an urgent bill from congress to deliver a swift aid of $2.3 billion to Israel. A string of hatred and anger blew in the Muslim world against USA by having a pro-Israeli stance.
Consequently on October 16, 1973 five Arab countries including Iran announced a 70% increase in the posted oil price. It was decided as a result of meetings held in Kuwait by the oil ministers of the Arab world. They pondered some other options as well.
The Iraqi representative was thoroughly in favor of targeting United States. He called upon other delegates to nationalize American business in the Arab world, to impose a total embargo on US an all those states friendly to Israel. The Iraqi minister further added to withdraw Arab funds (petro dollars) from every American bank. Petro dollars refers to those dollars which were received by OPEC countries as a result of oil export.
Other Arab ministers were reluctant to agree to such a radical plan, but they decided on a limited embargo to punish US for backing Israel. They agreed upon hike in prices and cutting the production up to 5% per month until and unless their demands are not fulfilled.  Oil prices touched new peaks of $8/barrel while in 1970 the prices were nearly $1.2/barrel. The abrupt hike in oil prices resulted in a deep recession in US economy, while the oil giant companies known as (seven sisters) were badly affected. US GDP in 1973 came to be half that of 1960. On November 11, Saudi Arabia announced a total embargo on US. It was an amazing tragedy for American economy. Oil in filling stations was hardly available. Congress banned private transportation and they persuaded the citizens to use public transport.

 
 
A member of congress was caught by police, who was driving his own car during mid night to buy some loaves of bread in the nearby market.  The embargo did not last more than a single year, but the consequences it had on American economy were catastrophic.
The embargo elevated Saudi Arabia’s status as a player in world politics and forced Washington to recognize the kingdom’s strategic importance to the American economy.  Consequently it resulted in significant attitude and policy changes in US politics. It convinced Wall Street and Washington that such embargos in future could never be tolerated.
The US think tank was summoned to begin brainstorming on how to prevent such embargos in future. Think tank mainly consisted of Oil giants and EHMs. Economic hit-men (EHM) are highly paid professionals who cheat countries around the globe out of trillions of dollars and funnel it to the United States. They have high credentials and technicality.  Their tools include fraudulent financial reports, rigged elections, payoffs, extortion and murder. EHMs are hired by big companies which play with the global politics.
During the session of the think tank, the EHMs argued that they will try to shackle Saudi Arabia in foreign loans as they did in the Latin America, south East Asia and Iran.  They would convince a country to borrow money from IMF or World Bank and then invest it as per their prescription. They would prescribe such projects that could benefit the country but can never generate enough revenue to pay back the borrowed amounts. Consequently the country would go bankrupt. EHMs were interested in those loans that led a country to financial crisis and finally default.
EHMs could pursue their target easily in bankrupt countries, because that country was beholden to the creditors. In exchange they would buy their UN vote, establish military bases or access to natural resources like oil.
The ones who presided the meeting did not agree with this complex conspiracy, because Saudi Arabia would never be in need of foreign loans, as they had huge inflows of petro dollars.   In the next session they agreed on a three point agenda that is as follows.
1.       To build interdependence of US and Saudi economies.
2.       To decrease dependence upon oil and introduce efficient usage.
3.       To search for oil reserves in undeveloped countries like Indonesia, panama and some other latin American states.
It was a long way to bridge interdependence between two unrelated economies, but it was not among the impossibilities.
America not only intimidated the royal family, but also tried to enhance long term relationship by presenting them an attractive deal. United States promised its commitment to provide total political, if necessary, even military support to the Kingdom of Saudi Arabia, to ensure the prolong existence of Saud family as the sole rulers of the country.
It was such an attractive deal that the Saud family could hardly refuse, Due to lack of military might, high vulnerability in the neighboring countries like Iran, Syria, Iraq and Israel. In exchange, the only requirement of US was to help them in future embargos if confronted.
If the royal family refused so they could no longer remain rulers of the kingdom. National Security Agency (NSA) of America intimidated the seniors of Saud family that they would bear the same consequences as did Muhammad Musadeq in Iran. Musadeq remained president of Iran from 1951-1953. He was overthrown in a coup which was orchestrated by CIA agents. Kermit Roosevelt, who was the grandson of US president Theodore Roosevelt, played a great role in overthrowing Musadeq. The only reason for overthrowing President Musadeq was that he restricted BP (British Petroleum Company) from operating inside Iran, because this company was accused of manipulating oil prices in the country.
The Saud family was also threatened that the consequences will not be different from that of Musadeq’s if they refused the deal.  This intimidation bowed the Saud family to knees. By knowing the weakness of the kingdom, US imposed one other critical condition. In this condition, the kingdom was obliged to invest its petro dollars in the long term securities of US government.
In return, the annual interest earned by these securities would be spent by the US department of treasury, in such projects that enabled Saudi to emerge from the Bedouin society to a modern and industrialized world.
The principal amount invested in those securities went on so huge that the US treasury would require years and years to pay back. Even the annual interest amounted in billions from these securities. US department of treasury would hire American engineering and construction firms like MIAN, Bechtel and Rily, at the expense of Saudi Arabia. These firms would sign two contracts at a time, one for the completion of the project and the other was meant for the maintenance.
This deal of cooperation between US and Saudi Arabia transformed the kingdom practically overnight. Saudia became a country of express ways, computers, air conditioned malls, elegant hotels, fast food restaurants, satellite television channels, up to date hospitals and amusement parks. The kingdom travelled a distance of centuries in years, but at the cost of losing its culture, Wahabi dogmas and at the cost of Palestine.
 
Author: Momin khan, a student of Finance in IIUI