The Ukraine conflict backfired on the U.S. dollar

April 3, 2022 - 12:1

TEHRAN- The perception among many that the United States is the most powerful country in the world because of its military power cannot be further from the reality on the ground.

Indeed, congress is set to approve a record of more than $773 billion for America’s military budget next year, which is the highest level this century; and perhaps even provide President Joe Biden more than he asked for; as was the case last year.

If there is one issue that both Democrats and Republicans can agree on with enthusiasm, then it’s the military budget which remains a bipartisan congressional matter at the expense of the U.S. taxpayer.

But with all this military spending, it’s difficult to remember the last time America emerged victorious from the many wars it has waged.

The embarrassing so-called withdrawal in August last year from Afghanistan, as men not equipped with military helmets but turbans and not wearing military boots but sandals converged on Kabul will go down in history as a classic case in point.

If that was described by Washington as a withdrawal then we really need to think how fleeing a country would look like.

But this is Washington’s game plan: create tension around the world, most recently in Eastern Europe and lately near China or Iran to justify to the American nation back home the increase of the military budget.

Many pundits and analysts who appear on American mainstream media have some connection to the arms manufacturers and sell the narrative to American taxpayers while arms manufacturers like Lockheed Martin or Boeing stand to make more profit; a portion of which ends up in the pockets of congress members.

But has this tactic - with America the leading advocate for expanding NATO eastwards towards Russia - about to backfire when the unfortunate ensuing Russian-Ukraine conflict erupted?

While American weapons may appear impressive to countries who seek to buy them; Washington really relies on the American dollar as its most powerful weapon of imperialism and the American dollar mostly relies on the sale of global oil or Petrodollars to be more precise.

For many OPEC members and other oil exporters, experts agree that Petrodollars (U.S. dollars) are the main source of revenue with which oil exporters settle sales because the dollar is the most widely used currency, making it easier for them to invest export proceeds.

The massive sanctions imposed by the West on Russia over its military conflict with Ukraine has forced Russian President Vladimir Putin to sign an order prohibiting supply of Russian energy to “unfriendly” countries that have slapped sanctions on Moscow unless they pay in Rubles.

Putin says “If such payments are not made, we will consider this a default on the part of buyers, with all the ensuing consequences. Nobody sells us anything for free, and we are not going to do charity either - that is, existing contracts will be stopped.”

According to a statement by Kremlin, the order came into force on 1 April.

The order stipulates that when buyers from "unfriendly" countries pay for Russian energy, they should transfer forex to the Russian bank Gazprombank, which will then use it to buy rubles. Gazprombank, which has not been sanctioned, will process the transactions.

Moscow moved to switch currencies in energy contracts when Western sanctions restricted Russia’s access to the global financial system. The move is aimed at confronting Western sanctions. About one third of Europe's gas is supplied by Russia for example.

And over a quarter of the European Union’s imported crude oil comes from Russia. In 2021, the EU imported $108 billion worth of energy from Russia, by far its biggest import from the country.

Over the past years, Russia has also created quite a significant achievement with its homegrown payment system, Mir, which Moscow has full control over.

The system is not just effective in Russia but in other counties as well with Iran among the latest to hold discussions over the potential interlinking between Tehran’s finances and Mir with the goal of bypassing the global banking system SWIFT.

Analysts say this would pose a significant risk to the worldwide dominance of the American dollar. The extent of the control over financial institutions and payment systems like SWIFT gives too much power to the U.S.

It is one of the main ways in which Washington exercises its global hegemony, in particular when it uses SWIFT against its adversaries. Such as independent countries like Russia, Iran, Venezuela, and others. The sanctions on a country’s banking sector can have devastating effects especially when a country cannot pay for humanitarian goods during times of humanitarian crises.

Experts say it’s a very important payment system, a big step toward a multi-polar world, and effectively bypasses what rights groups have described as cruel unilateral sanctions if counties can link up to new payment systems without the United States.

The latest sanctions on Russia and the toll is has taken on the global economy has left many heads of state considering alternative plans.

Experts say there is a growing need for countries to trade in their own currencies. The interbank settlement system allows central banks of different countries to trade or settle their debts without the involvement of any other foreign actor. It will allow for economic growth in commerce between two nations without the involvement and interference of any other state.

Mir is a classic example of how to circumvent Western sanctions and American dollars. The American administration has warned of food shortages and many other commodities, in essence saying America will have to suffer and pay for what many experts argue was a conflict in Eastern Europe that America itself engineered.

Russia is after all the largest country in the world and you can’t isolate such a large country from the world economy without expecting to have reverberations on the global economy.

The sanctions regime will play out to the detriment certainly of the European economy which is already suffering from record levels of inflation. But also elsewhere, the blowback is already being seen around the world with record inflation in the United States also.

Dollar dominance appears to be on the decline as other currencies arise. Other counties within Eurasia giving more consideration towards trading in their own currencies to be on the safe side. That will strengthen the sovereignty of those nations and will weaken the global hegemony of the United States.

The Petrodollars itself came about in In 1979 when the United States and Saudi Arabia negotiated the United States-Saudi Arabian Joint Commission on Economic Cooperation. They agreed to use U.S. dollars for oil contracts.

Today reports are emerging that Saudi Arabia has advanced “actively” talks with China to price its oil sales to Beijing in the Chinese currency, the Yuan, a move that would further dent the U.S. dollar’s dominance of the global petroleum market.

It also marks another shift by the world's top crude exporter, unhappy at Washington's lack of support for the war on Yemen, towards Asia.

The days of oil-exporting nations receiving dollars for their exports and not their own currency appear to be closely coming to an end, which is great news for oil-exporting nations because if the value of the dollar falls, it won’t affect their revenue.

And it took an American administration that doesn’t appear to be the smartest tool in the box, to start a conflict with Russia, for the whole world to wake up and smell the coffee.

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