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> The US has effectively zero direct dependence on middle eastern oil due to domestic production and transportation costs For now and whilst those extraction c

> The US has effectively zero direct dependence on middle eastern oil due to domestic production and transportation costs For now and whilst those extraction costs are cheaper domestically. The US needs the Saudis as a backstop and for infill of the types of crude oils the North American continent doesn't have access to or is in limited supply. They're also a handy client state to do the US's dirty work in the Middle East, see Yemen for example. The US also needs the Saudi's and their non-democratic allies to keep buying weapon systems to prop up Lockheed, Boeing et al. You need to look at the bigger picture.

tw1984 4y ago
> You need to look at the bigger picture. The big picture is that the US needs middle east countries to price their oil in USD. Everything else is just a bonus.
- vkou 4y ago
  The world's USD-settled oil trade is a tiny fraction of overall USD-settled trade. The petrodollar is an interesting theory, but it doesn't really hold up to very much scrutiny.
  - somenameforme 4y ago
    Imagine you created a new currency in the US: FidoBucks. Not even a crypto but a regular currency you can print at your whim. Obviously nobody's really going to want your currency and it will have zero value. But now imagine, after some backdoor deals, you make it such that FidoBucks are literally the only currency accepted at gas stations. And not only that both those gas stations agree to spend any extra profits they make buying in FidoBuck denominated treasuries. Now not only are people going to want your currency, but they will literally need it. And since FidoBucks are now directly tied to access of a critical commodity, it will have also have a guaranteed minimum "value" that's tied to the cost of oil. So people can feel pretty comfortable holding and trading Fidobucks. In fact the new stability of your currency means you'd likely see people starting to trade it for far more than oil, to the point that gas becomes just a fraction of its trade. This is essentially what the petrodollar did, but it of course started from a far higher point than zero of course. Once we ended the fixed convertibility of the USD to gold in 1971 [1], demand in the dollar started rapidly declining, and its relative value began decreasing. After the petrodollar this all reversed, hard. It's to assign a specific value to any of these changes, because it's all dynamic - just like in our simplified FidoBucks example so much would depend on the dynamic scarcity of gas, how many FidoBucks you print, the total value of outside trade, and a million other variables. What is safe to say is that it dramatically strengthened the position of the currency, and is a large reason that until extremely recently, if China and Russia were trading - they'd settle that trade in USD. Now they're trying to create the next FidoBuck backed by a combination of land, gold, and other finite resources. [1] - https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/
    - Retric 4y ago
      Total worldwide production of oil is only ~90 million barrels/day and middle eastern production is a fraction of that. That’s not very significant compared to the total value of all USD in circulation. All FidoBucks in circulation might only be worth ~50 Billion in your example and depending on the velocity of money could actually be significantly less. People might start using it for other things, but it’s just as likely to be an odd quark of the oil market. What actually props up the USD is the US taxes being paid in USD. Even transactions like selling burgers for Bitcoins suddenly force someone to not only get dollars to pay their taxes on that sale but set it aside for significant periods. This is the basic mechanism which forces all fiat money to have value, which then causes it to be used for loans and whatnot which further increases value.
      - somenameforme 4y ago
        First, the vast majority of all oil is traded in USD, not just the Mideast. As one example of the impact, take Canada. Their exchange rate against the USD is driven almost entirely by crude oil prices (of which they are a large exporter). The reason for this is that when oil prices are high they end up with a large supply of USD. And so the price of the Canadian dollar increases because, compared to the dollar, it's now in relatively lower supply. You can see how extreme this correlation is here. [1] Beyond that, this is all about international issues. Those gas stations are oil producing countries, and the people buying from them are countries. Being the person who can "print" the world reserve currency gives you immense geopolitical power, and an inability to economically fail regardless of how hard you try. When foreign currencies are no longer so closely tied to the USD, and demand for the USD declines, its international value will likely start to sharply decline, exactly as it did in 1971. But this time I don't really see anything we'll be able to cling onto. [1] - https://www.dailyfx.com/usd-cad/link-between-canadian-dollar-and-oil-prices.html https://www.dailyfx.com/usd-cad/link-between-canadian-dollar...
        Retric 4y ago
        Even if you assuming 100% of all oil is traded in USD that’s still only ~8 billion dollars a day. As to US Canada currency that relationship would be mathematically identical if oil was traded in Canadian dollars rather than USD with the exact same changes to each currency as oil’s value spiked. It’s a result of the balance of trade not the specific commodity being exchanged let alone the currency the transaction was valued in. Oil happens to have high price volatility and significant value, but wood or maple syrup has similar effects though on a smaller individual scale.
seanmcdirmid 4y ago
The USA needs the Saudis to supply Europe and Asia, otherwise demand goes up and pumps up prices in the states. But as we and our allies move to EVs, we really won’t need as much oil anymore, so the end of the dependence is near.
BurningFrog 4y ago
US has no real interests in Yemen. That's a local Saudi/Iranian conflict.

tw1984 4y ago

> You need to look at the bigger picture. The big picture is that the US needs middle east countries to price their oil in USD. Everything else is just a bonus.

vkou 4y ago
The world's USD-settled oil trade is a tiny fraction of overall USD-settled trade. The petrodollar is an interesting theory, but it doesn't really hold up to very much scrutiny.
- somenameforme 4y ago
  Imagine you created a new currency in the US: FidoBucks. Not even a crypto but a regular currency you can print at your whim. Obviously nobody's really going to want your currency and it will have zero value. But now imagine, after some backdoor deals, you make it such that FidoBucks are literally the only currency accepted at gas stations. And not only that both those gas stations agree to spend any extra profits they make buying in FidoBuck denominated treasuries. Now not only are people going to want your currency, but they will literally need it. And since FidoBucks are now directly tied to access of a critical commodity, it will have also have a guaranteed minimum "value" that's tied to the cost of oil. So people can feel pretty comfortable holding and trading Fidobucks. In fact the new stability of your currency means you'd likely see people starting to trade it for far more than oil, to the point that gas becomes just a fraction of its trade. This is essentially what the petrodollar did, but it of course started from a far higher point than zero of course. Once we ended the fixed convertibility of the USD to gold in 1971 [1], demand in the dollar started rapidly declining, and its relative value began decreasing. After the petrodollar this all reversed, hard. It's to assign a specific value to any of these changes, because it's all dynamic - just like in our simplified FidoBucks example so much would depend on the dynamic scarcity of gas, how many FidoBucks you print, the total value of outside trade, and a million other variables. What is safe to say is that it dramatically strengthened the position of the currency, and is a large reason that until extremely recently, if China and Russia were trading - they'd settle that trade in USD. Now they're trying to create the next FidoBuck backed by a combination of land, gold, and other finite resources. [1] - https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/
  - Retric 4y ago
    Total worldwide production of oil is only ~90 million barrels/day and middle eastern production is a fraction of that. That’s not very significant compared to the total value of all USD in circulation. All FidoBucks in circulation might only be worth ~50 Billion in your example and depending on the velocity of money could actually be significantly less. People might start using it for other things, but it’s just as likely to be an odd quark of the oil market. What actually props up the USD is the US taxes being paid in USD. Even transactions like selling burgers for Bitcoins suddenly force someone to not only get dollars to pay their taxes on that sale but set it aside for significant periods. This is the basic mechanism which forces all fiat money to have value, which then causes it to be used for loans and whatnot which further increases value.
    - somenameforme 4y ago
      First, the vast majority of all oil is traded in USD, not just the Mideast. As one example of the impact, take Canada. Their exchange rate against the USD is driven almost entirely by crude oil prices (of which they are a large exporter). The reason for this is that when oil prices are high they end up with a large supply of USD. And so the price of the Canadian dollar increases because, compared to the dollar, it's now in relatively lower supply. You can see how extreme this correlation is here. [1] Beyond that, this is all about international issues. Those gas stations are oil producing countries, and the people buying from them are countries. Being the person who can "print" the world reserve currency gives you immense geopolitical power, and an inability to economically fail regardless of how hard you try. When foreign currencies are no longer so closely tied to the USD, and demand for the USD declines, its international value will likely start to sharply decline, exactly as it did in 1971. But this time I don't really see anything we'll be able to cling onto. [1] - https://www.dailyfx.com/usd-cad/link-between-canadian-dollar-and-oil-prices.html https://www.dailyfx.com/usd-cad/link-between-canadian-dollar...
      - Retric 4y ago
        Even if you assuming 100% of all oil is traded in USD that’s still only ~8 billion dollars a day. As to US Canada currency that relationship would be mathematically identical if oil was traded in Canadian dollars rather than USD with the exact same changes to each currency as oil’s value spiked. It’s a result of the balance of trade not the specific commodity being exchanged let alone the currency the transaction was valued in. Oil happens to have high price volatility and significant value, but wood or maple syrup has similar effects though on a smaller individual scale.

seanmcdirmid 4y ago

The USA needs the Saudis to supply Europe and Asia, otherwise demand goes up and pumps up prices in the states. But as we and our allies move to EVs, we really won’t need as much oil anymore, so the end of the dependence is near.

BurningFrog 4y ago

US has no real interests in Yemen. That's a local Saudi/Iranian conflict.