Saudi Arabia is an Obedient Puppet of the US, Not a Rogue

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A reader of On Genocide‘s facebook page shared a link to this article. The premise of the article is that Saudi Arabia supports Islamist terrorists, but the US can’t do anything about it because Saudi Arabia has the US bent over an oil barrel. They are described as being in a “Mexican stand-off”. This is an incredibly naïve analysis. There is no parity between SA and the US. The Saudi régime is an extremely obedient and vulnerable client of the US and if they are supporting terrorists it is with blessings from Washington.

The US has a long established practice of blaming its puppet leaders for doing things or forcing the US to do things that the US wants to do, but has to pretend that it does not want to do. For most of the Korean War the US actively sabotaged peace negotiations, but they blamed Syngman Rhee for it using racially informed notions of Oriental despotism.

In Viet Nam they had to cycle through a number of a lot of leaders looking for people with the right stuff. Though they had initially supported the monarchy, Edward Lansdale famously used PR expertise, including deadly false-flag bombings to install Ngo Dinh Diem. Later, the US government played a crucial role in the overthrow of Ngo Dinh Diem. It remains to be noted, however, that although Diem was supposedly out of favour for a number of reasons, the last straw for the US government is generally held to be when, on September the 19th, it was learned that Diem’s brother, Ngo Dinh Nhu, was negotiating with Hanoi. Both brothers were dead by November the 2nd.1 Diem had also threatened to prevent any increase in the number of US “advisors” in South Vietnam.2

Diem’s replacement, General Duong Van Minh, had strong ties with the Buddhist community and good communication with the French. He began working with the French towards neutralisation. The Pentagon organised his overthrow.3 His replacement, General Nguyen Khanh, soon decided that the only reasonable solution for South Vietnam was a neutral coalition government and set up communications with the National Liberation Front. The US got hold of a letter written by him to a NLF central committee member in which Khanh declared opposition to US intervention. They overthrew him a month later. The replacements were General Nguyen Van Thieu and Air Vice Marshal Nguyen Cao Ky. In Jonathan Neale’s words: “Both were corrupt in the usual bribery and export import ways. But both were also heavily involved in the heroin trade. Finally the American embassy had found someone at the bottom of the barrel who would do as they were told.”4

Once the US had installed these completely dependent underlings the propaganda machine quickly swung into action, blaming them for the profligate corruption, destruction and obstruction of peace that the US itself created. You will be very surprised to read that this propaganda drew on racially informed notions of Oriental despotism.

Similar tropes have been deployed regarding US client dictators throughout the world. The US loves ostentatiously corrupt dictators because they are more dependant and pliable. Such creatures are at odds with the interests of their own people, which is why they are dependant on the US and easy to control. This is old school imperialism.

The British created the Saudi monarchy in just such an act of traditional imperial practice. This tailor-made client regime was then poached by the US in 1945. If you want to understand just how compliant SA is, you just need to calculate how much of its wealth ends up in the pockets of US arms manufacturers and how much is put into the US treasury. This is a payment of tribute which Michael Hudson described as being “super-imperialism”.5

Often the US deliberately casts Saudi Arabia as the villain in its actions. A case in point is the oil embargo with which the nasty Arabs attacked the US, but as even the article linked above admits, this was a crucial step in establishing the hegemony of the US dollar from then until now – nearly half a century of imperial domination. What is more, this was all according to a plan that had already been prepared

The dollar was established as the international reserve currency via the Bretton Woods agreements of 1944, when the US had the bulk of world gold reserves and, as mentioned, half of its manufacturing capacity.6 What followed was an era of global developmentalism referred to as a ‘golden age’ where global economic growth far outstripped population growth. Exports, outside of the Communist bloc, grew an average of 6% per annum from 1948 to 1960, rising to an average of 9% from 1960 to 1973.7 Western countries practised ’embedded liberalism’, wherein trade barriers were reduced under a stable system of exchange, but many non-aligned states practised economic nationalism. While it is obligatory to denounce the shoddy inefficiencies of import substitution industrialisation (ISI)8 and the nepotist corruption of Third World populist corporatism9 of the time, it should nevertheless be observed (but oddly isn’t) that these were part-and-parcel of a developmentalist approach which performed almost immeasurably better than the imposed neoliberalism which followed.

The problem with the US dollar being the reserve currency was that in order to provide liquidity to other states the US had to run a balance of payments deficit leading to indebtedness.10 The US dollar was backed by gold at a rate of $35 per ounce set in 1934.11 The Second Indochina War, however, depleted gold reserves: “In 1958, US dollar liabilities accounted for only 80 per cent of the country’s gold reserves. But by 1967, US gold reserves could cover only 30 per cent of liabilities. …[T]he deficit had spiralled out of control, dollar liabilities massively outweighed US gold reserves, and confidence in the system began to subside.”12 A similar problem had as much as spelled the end of the British empire after World War I, but this was not to be true of the US empire and its financial hegemony:

[J]ust as World Wars I and II had bankrupted Europe, so the Vietnam War threatened to bankrupt the United States.

….

[B]y March 1968, after a six-month run, America’s gold stock fell to the $10 billion floor beyond which the Treasury had let it be known that it would suspend further gold sales. The London Gold Pool was disbanded and informal agreement (i.e., diplomatic arm-twisting) was reached among the world’s central banks to stop converting their dollar inflows into gold.

This broke the link between the dollar and the market price of gold. Two prices for gold emerged, a rising open-market price and the lower “official” price of $35 an ounce at which the world’s central banks continued to value their monetary reserves.

Three years later, in August 1971, President Nixon made the gold embargo official. The key-currency standard based on the dollar’s convertibility into gold was dead. The U.S. Treasury-bill standard – that is, the dollar-debt standard based on dollar inconvertibility – was inaugurated. Instead of being able to use their dollars to buy American gold, foreign governments found themselves able only to purchase U.S. Treasury obligations (and, to a much lesser extent, U.S. corporate stocks and bonds).

As foreign central banks received dollars from their exporters and commercial banks that preferred domestic currency, they had little choice but to lend these dollars to the U.S. Government. Running a dollar surplus in their balance of payments became synonymous with lending this surplus to the U.S. Treasury. The world’s richest nation was enabled to borrow automatically from foreign central banks simply by running a payments deficit. The larger the U.S. payments deficit grew, the more dollars ended up in foreign central banks, which then lent them back to the U.S. Government by investing them in Treasury obligations of varying degrees of liquidity and marketability.13

One of the consequences of repudiating dollar convertibility was that US imperial strength became ever closer linked to US control of oil resources. As Engdahl explains it, after 1971 the US dollar fell precipitately, as might be expected, but while US financial hegemony seemed doomed policy insiders prepared a bold new monetarist design, a ‘paradigm shift’, as some preferred to term it.”14 In May 1973 a meeting of the Bilderberg Group15 was presented a “scenario” by oil economist Walter Levy wherein there would be a 400% rise in oil prices, and planned how to take advantage of such a circumstance by what Henry Kissinger was later to refer to as “recycling the petro-dollar flows”.16

Engdahl continues: “In 1973, the powerful men grouped around Bilderberg decided to launch a colossal assault against industrial growth in the world, in order to tilt the balance of power back to the advantage of Anglo-American financial interests. In order to do this, they determined to use their most prized weapon – control of the world’s oil flows. Bilderberg policy was to trigger a global oil embargo in order to force a dramatic increase in world oil prices. Since 1945, world oil trade had, by international custom, been priced in dollars. American oil companies dominated the postwar market. A sharp sudden increase in the world price of oil, therefore, meant an equally dramatic increase in world demand for U.S. dollars to pay for that necessary oil.”17

Engdahl’s phraseology, for example “Bilderberg policy”, is unfortunate in sometimes giving the impression that this was a plot hatched at the Bilderberg conference. This has caused a predictably enthusiastic response from conspiracy theorists interested in the Bilderberg Group. Engdahl’s source is the official proceedings for the discussion led by Levy and it would be most accurate to characterise it as a means of giving attendees timely information about future events which could be managed to the advantage of Western oligarchic interests. That is, after all, the nature of the plan, to take the otherwise unwelcome force of events driven by the oil producing countries and to turn that force, in Judo fashion, to one’s own advantage while greatly strengthening its impact. Levy had already publicly written on this theme in a 1971 Foreign Affairs article. The article makes interesting reading, with one of the key points being that he treats oil first and foremost as a strategic concern. Also of interest is his glowing praise of oil companies acting as a global cartel. In his rendition of events these companies are guarantors of security, while poor oil producing countries are treated with barely veiled hostility due to their ‘lingering heritage of emotional resentments against former colonial administrations and concessionary circumstances.’18

According to Engdahl, “the Yom Kippur war was not the result of simple miscalculation, a blunder, or an Arab decision to launch a military strike against the state of Israel. The entire constellation of events surrounding outbreak of the October war was secretly orchestrated from Washington and London….” This was achieved by feeding false intelligence to both sides, particularly by withholding evidence of a military buildup from Israel. The architect of the war and the resultant oil embargo, Henry Kissinger, was then able to adopt the pretence of being a peacemaker, through “shuttle diplomacy,” while the blame for the suffering caused by his scheme fell firmly on the Arab world.19 This may seem unlikely, and it some might think that Engdahl is stretching the evidence. Indeed, a journal review of the book he cites as his source mentions no such revelation.20 However, a writer may, intentionally or otherwise, reveal more than they claim, and this particular work was heavily censored (causing some controversy at the time).21 It should also be noted that the US used almost identical tactics in ensuring that war ensued between Iran and Iraq and, similarly, to guarantee their own war against Iraq in 1990. Both of these cases are well documented, but mention should also be made of the equally, if not more, duplicitous deceptions that were deployed to facilitate the major US commitment of troops to Indochina (namely the ‘Tonkin Gulf Incidents’) and the deceptions used to justify the 2003 invasion of Iraq.

Then there is the question of cui bono – who benefits? The US was entering a phase of seemingly perpetual debt rollover (a phenomenon explored below) but it had, and still has, the unique privilege of paying its debt in its own currency.22 To reduce its liabilities all it had to do was induce a global surge in commodity prices, which it could achieve by creating a glut of dollars.23 At the same time, however, US financial and economic hegemony was widely considered to be on its last legs,24 a situation which should have been worsened by increased commodity prices and the damage thus done to the US and global economies. But the US Treasury and the New York and London banks were geared up for the massive increases in oil prices, and when the Nixon administration sent a senior official to the Treasury to explore ways of inducing OPEC to lower prices, he was ‘bluntly turned away’ and recorded, in a memo, that “It was the banking leaders who swept aside this advice and pressed for a ‘recycling’ program to accommodate to higher oil prices. This was the fatal decision…”25

By January 1974 oil prices had increased 400%, just as envisioned in the “scenario” outlined only 8 months earlier to the Bilderberg Group. Suddenly everyone needed US dollar reserves which had a very beneficial effect for New York banks and for London banks who traded the largest pool of “offshore” US dollars.26 Large oil companies made record profits, just as they would in later oil shocks including that created by the 2003 invasion of Iraq, and the previously risky North Sea venture became an instantly guaranteed moneymaker.27 Real economies suffered throughout the developed world and the degradation of US infrastructure accelerated.28 The impact on the “developing” world (as it might accurately have been called up until this point) was far more devastating. In India, for example, the balance of payments switched at from surplus to deficit at a stroke. “As a whole, over 1974 developing countries incurred a total trade deficit of $35 billion according to the IMF, a colossal sum in that day, and, not surprisingly, a deficit precisely 4 times as large as in 1973, or just in proportion to the oil price increase.”29 In the decade until 1974 developing counties saw economic growth of 5% per annum, about 2.5% above that of population growth.30 For the poorest quintile (20%) of countries, in per capita income, the period of 1980 to 200 saw an average 0.5% decline in economic activity, while the next two quintiles had lower economic growth than population growth.31

The poor states of the world plunged into ever more astronomical debt, growing from $60 billion in 1970 to $2 trillion in 1997,32 to $2.5 trillion in 2004.33 That is a 42 fold increase in 34 years. The trap is hideous. Private banks lend for high returns and when states default Western taxpayer money is given directly to these banks34 which is characterised as ‘aid’ to the stricken state, as mentioned. This is just an interventionist form of rollover, which must otherwise be arranged with the private banks, often at increased interest rates,35 because the debt is simply unpayable. In terms of ratio of external debt to exports, the figures are: 340% for sub-Saharan Africa; 202% for Latin America; and 121% for Asia.36 The situation mirrors that of many former belligerents after the First World War, debtors are forced to sell assets and commodities simply to service debt which, regardless, continues to grow. It is perpetually rolled over and ever increasing. The debtor countries are forced into antidevelopmental policies which further entrap them.37

While poor countries labour under this burden, the richest country in the world is also the largest debtor, but circumstances are very different for the US. As Hudson explains: ‘If the United States had followed the creditor-oriented rules to which European governments had adhered after World Wars I and II, it would have sacrificed its world position. Its gold would have flowed out and Americans would have been obliged to sell off their international investments to pay for military activities abroad. This was what U.S. officials had demanded of their allies in World Wars I and II, but the United States was unwilling to abide by such rules itself. Unlike earlier nations in a similar position, it continued to spend abroad, and at home as well, without regard for the balance-of-payments consequences.’38 Creditor nations were forced to buy low-yielding Treasury obligations.39 Oil producing countries, in particular, were forced to return their profits to the US and when Saudi Arabia and Iran considered by US companies they were told that this would be considered and act of war.40 OPEC was told that it could raise oil prices all it wanted, as long as it used the proceeds to buy U.S. Government bonds. That way, Americans could pay for oil in their own currency, not in gold or other “money of the world.” Oil exports to the United States, as well as German and Japanese autos and sales by other countries, were bought with paper dollars that could be created ad infinitum.’41

The US dollar predominance is reinforced by the proclivity of all US client states to spend large amounts of money on arms purchases from the US. As mentioned with regards to Iran, the figures for oil producing countries are very high, as Abbas Bakhtiar reveals: “From 1990 to 2004, Saudi Arabia, with a population of 21.4 million has spent a whopping $ 268.6 billion dollars on arms. …. One would have thought that with this kind of expenditure the Saudis would have felt safe by now. But apparently they don’t, or at least this is the view of U.S. and U.K., two major arms suppliers to these countries. But Saudi Arabia is not alone in this. Take the tiny country of United Arab Emirates. This country with a population of 2.6 million souls has spent $38.6 billion dollars for defence in 1990-2004 period.”42 /

The Saudi regime has obediently funnelled its wealth away from its own people, many of whom are desperately poor. Of course some Saudis are obscenely rich, just as client Maharajas and Nawabs were obscenely rich in the British Raj. The wealth distances them from their own people and makes them better puppets. Not only that, Saudi Arabia was completely essential in developing a global financial and economic hegemony which was used to dominate the entire globe. With help from Saudi Arabia the US was able to destroy the economic sovereignty of the entire Third World and to reverse the gains of independent nationalist post-colonial development which had occurred after WWII.

Now the Saudis are funding and arming Islamist terrorists like ISIS. But so is the US itself. In fact, both the US and the UK have very long histories of promoting Islamic extremism, not the least of which has been the incubation of the brutal Wahhabi régime in Saudi Arabia. Saudi Arabia is a conduit for US destabilisation and genocide in the Middle East.

The real threat, from a US imperialist’s perspective, is that the Saudi royals would probably like to get off this death ride that is tearing apart the entire region. That is way the vilification has been stepped up several notches. The Saudis must know that the US public will back a war against them if any new terrorist attack in the US is linked to them once the US government, pretending to be forced against their own will, releases its report blaming Saudi Arabia for 9/11.

1John Prados, The Hidden History of the Vietnam War, Chicago: Ivan R. Dee, 1995, pp 27-8.

2Jonathan Neale, A People’s History of the Vietnam War. New York: The New Press, 2003, p 63.

3Ibid, p 64; Frederick Logevall, “De Gaulle, Neutralization, and American Involvement in Vietnam, 1963-1964”, The Pacific Historical Review, Vol. 61, No. 1. (Feb., 1992), pp 84-7.

4Neale, A People’s History of the Vietnam War, p 65.

5Michael Hudson, Super Imperialism: The Economic Strategy of American Empire (2nd ed.), London: Pluto Press, 2003

6F. William Engdahl, A Century of War: Anglo-American Oil Politics and the New World Order, Ulm: Dr. Bottiger Verlags-GmbH, 1993, p 102.

7Spyros Economides and Peter Wilson, The Economic Factor in International Relations, London and New York: I. B. Tauris, 2001, p 92.

8ISI is a set of policies adopted by many developing countries in the 1950s, including most Latin American states. ISI failed to lift the Latin American countries out of dependency and it was felt that a more radical change was needed (Spyros Economides and Peter Wilson, The Economic Factor in International Relations, London and New York: I. B. Tauris, 2001, pp 109-10). On the other hand, states which have successfully industrialised have all initially followed an ISI strategy which clearly plays an important role in creating capacities which can only be oriented towards exporting once they are able to compete. For example see Stephan Haggard, Byung-kook Kim, Chung-in Moon, “The Transition to Export-led Growth in South Korea: 1954-1966,” The Journal of Asian Studies, 50:4 (Nov., 1991), pp. 850-873 (the authors do not draw this conclusion themselves, having a different focus, but in my judgement it is implicit).

9For example that in Egypt, the ill-fated United Arab Republic (UAR), Iraq and Syria . As Nazih Ayubi reveals these Arab states are less notable for their cronyism than for their statist authoritarianism with government domination of economic activity and nepotism found in appointments rather than in ownership and profits (Nazih N. Ayubi, “Withered socialism or whether socialism? the radical Arab states as populist-corporatist regimes,” Third World Quarterly, 13:1, 1992, pp 89-105).

10Michael Hudson, Super Imperialism: The Economic Strategy of American Empire (2nd ed.), London: Pluto Press, 2003, p 25.

11F. William Engdahl, A Century of War: Anglo-American Oil Politics and the New World Order, Ulm: Dr. Bottiger Verlags-GmbH, 1993, p 128.

12Spyros Economides and Peter Wilson, The Economic Factor in International Relations, London and New York: I. B. Tauris, 2001, p 78.

13Michael Hudson, Super Imperialism: The Economic Strategy of American Empire (2nd ed.), London: Pluto Press, 2003, pp 26-7.

14F. William Engdahl, A Century of War: Anglo-American Oil Politics and the New World Order, Ulm: Dr. Bottiger Verlags-GmbH, 1993, p 148.

15Present at Saltsjoebaden [where the meeting took place] were Robert O. Anderson of Atlantic Richfield Oil Co.; Lord Greenhill, chairman of British Petroleum; Sir Eric Roll of S.G. Warburg, creator of the Eurobonds; George Ball of Lehman Brothers investment bank the man who some ten years earlier, as Assistant Secretary of State, told his banker friend Siegmund Warburg to develop London’s Eurodollar market; David Rockefeller of Chase Manhattan Bank; Zbigniew Brzezinski; the man soon to be President Carter’s National Security Adviser; Italy’s Gianni Agnelli, and Germany’s Otto Wolff von Amerongen, among others. Henry Kissinger was a regular participant at the Bilderberg gatherings.’ Ibid, p 149.

16Ibid.

17Ibid, pp 149-50.

18Walter J. Levy, “Oil Power,” Foreign Affairs, 49:4, July 1971, pp 652-668.

19Ibid, p 150.

20C. A. Joiner, “MATTI GOLAN. The Secret Conversations of Henry Kissinger: Step-by-Step Diplomacy in the Middle East,” The ANNALS of the American Academy of Political and Social Science.1976, 428, pp 137-138.

21Ibid, p 137.

22Philippe Martin, “The Privilege of American Debt,’ Liberation, 6 February 2006. Retrieved 11 February 2006 from http://www.liberation.fr/page.php?Article=357019.

23Michael Hudson, Super Imperialism: The Economic Strategy of American Empire (2nd ed.), London: Pluto Press, 2003, p 299.

24Spyros Economides and Peter Wilson, The Economic Factor in International Relations, London and New York: I. B. Tauris, 2001, p 79.

25F. William Engdahl, A Century of War: Anglo-American Oil Politics and the New World Order, Ulm: Dr. Bottiger Verlags-GmbH, 1993, p 152.

26Ibid, p 138.

27Ibid, p 151.

28Ibid, p 154.

29Ibid, p 155.

30Henry Kissinger, National Security Strategy Memorandum 200: Implications of Worldwide Population Growth For U.S. Security and Overseas Interests, p 54.

31Ray Kiely, The Clash of Globalisations : Neo-liberalism, the Third Way, and Antiglobalisation, Leiden and Boston: Brill, 2005, pp 147-8

32Carl Sagan, Billions and Billions: Thoughts on Life and Death at the Brink of the Millennium, New York, Ballantine, 1997, p 5.

33John Perkins, Confessions of an Economic Hit Man, San Francisco: Berrett-Koehler, 2004, p xviii.

34Robert M. Dunn and John H. Mutti, International Economics (6th ed.), London and New York: Routledge, 2004, p 481.

35Ibid, p 465.

36Fantu Cheru, “Debt, adjustment and the politics of effective response to HIV/AIDS in Africa,” Third World Quarterly, 23:2, 2002, p 302.

37See above.

38Michael Hudson, Super Imperialism: The Economic Strategy of American Empire (2nd ed.), London: Pluto Press, 2003, p 26.

39Ibid, p 28.

40Ibid, p 8.

41Ibid.

42Abbas Bakhtiar, “When will the House of Saud feel safe?: Saudi Arabia and Military Expenditure,” Information Clearing House, 6 May 2006. Retrieved 14 May 2006 from http://informationclearinghouse.info/article13509.htm.

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