Russiagate, gun control, terrorism - a new deception for every day. But while Western populations are increasingly at each other's throats over political and social ideologies, a radically different moral and political system is developing in the world.
For centuries the West has enjoyed the fruits of global hegemony, and for the past 60 plus years America has enjoyed a dominant place within that system. Thus, the idea of a foreign culture gaining hegemonic power anywhere else is nearly unthinkable; for the elites it is a sacrilege, and for the average person it is simply unnerving.
But for China, the civilization with the longest continuous written history, regional hegemony is natural, and yet China struggles in an international system which leaves no room for national sovereignty - let alone regional hegemony.
China Rising In his book
Democratic Ideals and Reality, Sir Halford Mackinder wrote, "
[T]here is in nature no such thing as equality of opportunity for the nations."
1 As an imperialist of the first order, Mackinder's perspective is clear - some nations are simply better placed than others and, if you want what they've got, you'd better make sure that you can take it from them. He continues,
Unless I wholly misread the facts of geography, I would go further, and say that the grouping of lands and seas, and of fertility and natural pathways, is such as to lend itself to the growth of empires, and in the end of a single world-empire.
This has been the Western attitude for centuries, and it is coming face-to-face with a geopolitical alien - the ancient Chinese and their dominion in Asia.
Over the course of the past century, China has experienced British, French and Japanese invasions, punctuated by rebellion and a Communist civil war. Now, thanks to cautious and independent planning, China can boast of having transformed a once agrarian society into an industrial nation that ranks higher than the EU and the US in terms of GDP. As one analyst
noted back in 2010, "
China was a top dog economically for thousands of years prior to the Ming Dynasty. In some ways, the past few hundred years have been an aberration." Today China is the main manufacturer of many of the world's products, eclipsing the once-dominant US economy.
2 The average Chinese citizen has seen a rise in per capita income from $339 in 1990 to over $4,000 in 2010.
3 Even after the 2008 recession, when forecasters believed that Chinese growth could not withstand a massive economic downturn, its own
financial ingenuityproved otherwise. In other words,
the world's most powerful 'Communist' government has created one of the most successful capitalist societies. In 2012, when Martin Jacques published the second edition of his landmark book
When China Rules the World, he was still able to question whether China would accept the international financial system as it was, under US dominance, or if it would pursue a fundamentally different system.
4 With the memories of the '
Century of Humiliation' brewing in the Chinese collective psyche, the idea that China would pursue a policy quite different than the one pursued against them by Western powers would only have been an educated guess.
American policy-makers were convinced otherwise - that, by binding the US to China through its large trade deficit, China would remain compliant to the system and they would be able to contain China's aspirations for regional hegemony through inciting spats as needed. The South China Sea, arming Pakistan and inflaming incidents along the Chinese-India border, as well as maintaining a military presence on Japan, were all hoped to keep China contained.
However, history has given us the answer. China has been patiently and cautiously overcoming numerous barriers to regional hegemony and, with the implementation of the Asian Infrastructure Investment Bank and the multi-billion dollar Belt and Road initiative, it is clear that a uni-polar system must undergo a fundamental change in order for China to realize her aspirations. And what are those aspirations? They are laid out quite clearly in the
strategic aims set out by Xi Jinping: To have a "moderately well-off society" that is also "strong, democratic, civilized, harmonious, and
modern socialist". While China's plans don't seem to envision it as a new global hegemon, the simple fact that she claims dominion over her own natural territory is enough to shake the foundations of the world order.
Challenge to American Financial Hegemony After the 2008 banking collapse the
internationalization of the yuan became of utmost importance to the Chinese leadership. It was clear to them, as it was to many others, that the dollar as world reserve currency, and the Fed as lender of last resort, was a recipe for disaster on a global scale. Though the Chinese economy survived, it was not without major dislocations. As Eichengreen, Mehl, and Chitu pointed out in their study of hegemony and global currencies,
How Global Currencies Work: Past, Present, and Future,[I]n a world where banks can fund themselves by borrowing not just dollars but also other currencies on the interbank market, their dependence on the Fed would be reduced. They might be able to obtain emergency swap lines from other central banks that were similarly issuers of currencies regarded as sufficiently safe and liquid to be widely traded on the international interbank market. As a result, the Fed would no longer be the only "global lender of last resort."5
As the authors point out, China thus set out on another difficult journey, from protecting her currency from speculation to releasing the currency onto turbulent and dangerous international markets. Never afraid of taking significant risks, the result was a massive assault on the yuan, yet another series of lessons of how the West plays the game.
In Xi Jinping's war on corruption, China further legitimized itself as a source for international capital. And, by breaking into the IMF's basket of reserve currencies, China has made the yuan that much more attractive to foreign nations. And they are beginning to see results.
European central banks have just recently begun to
replace their dollar reserves with yuan, and the currency is making
headway on the international SWIFT payment system. The US dollar still retains its supremacy, since countries are required to purchase their oil with US dollars. However, in June of 2015, Russia overtook Saudi Arabia to become the
leading supplier of oil to China. As part of the deal,
Russia agreed to accept yuan as payment for oil - part of a joint plan to begin phasing out the petro-dollar, something which
many of China's trading partners have
agreed to.
And, as China continues to become a more important business partner with Saudi Arabia - including the creation of a
$20 billion shared investment fund - there is the potential for the latter to begin accepting the yuan as well. With China's assistance in Saudi Arabia's public offering of their primary oil company ARAMCO, there are rumors that Saudi acceptance of the yuan as a reserve currency is looking increasingly like only a matter of time. Carl Weinberg, chief economist at High Frequency Economics,
said:
"I believe that yuan pricing of oil is coming and as soon as the Saudis move to accept it - as the Chinese will compel them to do - then the rest of the oil market will move along with them." Pepe Escobar
reported in December of 2017:
The plan is to set up oil-futures trading in the yuan, which will be fully convertible into gold on the Shanghai and Hong Kong foreign exchange markets. [...]
Still, there are questions on how Beijing will technically set up a rival futures market in crude oil to Brent and WTI, and how China's capital controls will influence it. [...]
Of course, the prelude to D-Day will be when the House of Saud officially announces it accepts the yuan for at least part of its exports to China.
Two months later, and China has now set up that
futures market, which will begin trading in March.
Delayed by turmoil in China's stock markets, China is now poised to break into the world's petro-markets even as they begin to steal a share of the world's foreign reserves.
One would expect this situation to seriously upset the Atlanticists who have for decades been living off the free money that is the petrodollar. This lucrative arrangement has turned the Saudis into the financing arm of the US government, making it possible for the US to live perpetually on the dole while the rest of the world is forced to pump money into Saudi coffers and on into the US Treasury.
The Importance of the Petro-Dollar System In 1973 OPEC initiated an international crisis by cutting oil exports to countries who supported Israel during the Yom-Kippur war. Of course, there were official reasons for the embargo, and then there are the real reasons.
The 'official' reason is the Saudis were outraged at the world's support for Israel. Judging from Saudi Arabia's own track record in human rights and her own shady deals with Israel, this is not a very convincing argument. What followed was an ingenious plan which would propel US to hegemonic status for the remainder of the 20th century.
After the 1973 embargo the US Treasury and the Saudis came to a
critical agreement - the Saudis would accept US weapons and military support in return for linking their petroleum exports to dollars. The petrodollar was born.
After Nixon de-coupled the US dollar from gold, effectively ending the Bretton Woods system, US policy-makers were keen to introduce a new system which maintained US hegemony. As F. William Engdahl wrote in his book,
A Century of War: Anglo-American Oil Politics and the New World Order:In effect, through such secret arrangements as the U.S.-Saudi Joint Agreement with the Treasury and the activities of David Mulford, as well as OPEC's strange dollar-pricing mandate, Washington and the New York banks had exchanged their flawed postwar Bretton Woods gold exchange system for a new, highly unstable petroleum-based dollar exchange system, which, unlike the gold exchange system, they reckoned they could control. Kissinger and the financial establishment of London and New York had in effect replaced the old gold exchange standard of the postwar world with their own 'petrodollar standard.'6
Every nation in the world required the dollar in order to purchase oil, and in order to avoid devaluing the dollar (and their reserves) they were required to re-invest back in the US. The world became the US' lender. As Yuram Weiler
wrote, "
The result [was] a US-dominated global financial system dependent upon maintaining the value [...] of the dollar, allowing the US to enjoy an extravagant consumer-based economy at the expense of the rest of the world." After the US abandoned the gold standard and adopted the petrodollar, any semblance of fiscal responsibility was out the window, and the US empire could go deep into debt to fund an ever-growing trade deficit, spending whatever it wanted, wherever it wanted, while neglecting core economic conditions like infrastructure, manufacturing, etc. The graph below reveals how drastically this petrodollar system impacted the US balance of trade:
After the 1970s, the balance of trade nosedived. Now it becomes apparent how big a threat the yuan plays on the world stage. As soon as countries begin to switch from the dollar to the yuan, they lose a major incentive to bankroll the US. A situation where the US spends $trillions on war while infrastructure crumbles, the UN has to send a special investigator to address the major discrepancies between rich and poor, and the ruling elite make fools of themselves, does not bode well for the US. No wonder then that analysts at a City of London think tank are
warning of a 40 to 50 percent correction in the 2018 stock market due to a lack of demand for dollar-backed securities. Of course they've been warning this for years, but it's only a matter of time before the course correction comes.
The Path to American Energy 'Dominance' Donald Trump's National Security Strategy highlighted the importance of energy dominance,
stating "
For the first time in generations, the United States will be an energy dominant nation." Scott Pruitt and co-authors describe in a
Washington Times op-ed what 'energy dominance' means:
"An energy-dominant America means a self-reliant and secure nation, free from the geopolitical turmoil of other nations that seek to use energy as an economic weapon." However, it wasn't the Trump administration that lifted the 40 year ban on oil exports and got this ball rolling. That decision occurred under the Obama administration, and no doubt came from the 'Deep State' of major oil corporations, foreign policy advisers, financiers, and the Atlanticist elite who are seeking to adapt to a world in which they stand to lose considerable financial, political and military hegemony.
With the potential demise of the petro-dollar constituting an existential threat to America, the US ramps up oil production - and the Atlantic Elite go hog-wild with anticipation of a windfall. Amy Myers Jaffe, a spokesperson for the Council on Foreign Relations,
remarked that, with the rise in US liquefied natural gas (LNG) exports,
"Russia will be the loser. We can already see their leverage on the gas market in Europe and the leverage they are trying to create over China dissipating." Meghan L. O'Sullivan, former deputy national security adviser on Iraq and Afghanistan under George W. Bush, published a book in 2017 devoted to the concept entitled
Windfall: How the New Energy Abundance Upends Global Politics and Strengthens America's Power. In her book she claims that this rise in exports "[W]ill, in fact, be a major determinant of the international order or, rather, how the world works." She continues:
It will alternatively hasten and help arrest the major trends now discernible to any global strategist: the corrosion of the rules and norms that have shaped the liberal international order since World War II, the shift of power and wealth from West to East, the push by Russia and China to establish spheres of influence, the rise of non state actors at the expense of sovereign governments, and the retrenchment of the United States and Europe from the global stage.7
And how exactly do they intend to do this? The US hopes to become the next Saudi Arabia of oil exports, and the reasoning is simple. As Nic Chao
wrote for
The McGill International Review, '
A strong domestic energy sector with a high priority of exporting will allow for a smooth transition away from the petrodollar regime.' While the think tanks may hope for a 'smooth transition' it is nowhere evident that that's what they're going to get - and yet the fight for American Energy Dominance is going full steam.
In 2007 Rex Tillerson gave a
speech to the CFR, in which he outlined the approach the US should take toward the world's energy market. He said that the US should abandon dreams of energy 'isolation' and instead, like the Council's founders, '
choose the course of greater international engagement'. With the yuan gradually displacing the US dollar in energy trade, and Russia increasingly displacing the US from the Middle East, it's no wonder that Condoleeza Rice nominated Rex Tillerson to the Trump administration as the man for the job of overseeing the US' new strategic role in an increasingly Eastern-dominated world.
© Pool/AFP/Thomas Peter
In 2011 the US became the world's
leading producer of natural gas. With the introduction of liquefied natural gas on the international market, and its use in various manufacturing and industrial capacities, the globe saw a new alternative to piped oil for their energy needs. In December of 2015, the US Congress voted to lift the 40-year
ban on oil exports, thus paving the way for US oil to make its way onto the foreign markets. They just needed the facilities to export and markets that would import.
Throughout 2017, new pipelines were
assembled which increased US capacity for international exports. In June 2017 Saudi Arabia and its Middle East allies
cut all ties with Qatar, paving the way for the US to
fill Qatar's shoes as gas exporter to the region. US energy companies dutifully followed suit.
In
2018, the US became a net exporter of natural gas for the first time in sixty years, with experts saying, "
Never before has the global LNG market had such significant flexible LNG volumes as the volumes coming online in the next three years, mostly from the U.S., which will lead to a fundamental shift in how LNG is marketed and traded globally." Pursuing energy contracts in Europe, in 2017 retired Marine Corps Gen. James L. Jones, a former national security adviser to the Obama administration, gave a
speech to the Atlantic Council on how to 'cultivate' the Trump administration's interest in creating a new energy bloc within the European Union. This initiative, named the Three Seas Initiative, planned to unite the twelve EU nations in Central and Eastern Europe, creating an energy bloc
that would drive Russia out of the EU market while bringing US energy in. It was a Washington-backed plan to cut Russia out of Europe's energy market completely, by turning Poland into a gas hub for US exports. Jones claimed that Rex Tillerson had expressed his interest in the project, saying
"He understands it. He understands the strategic interest; he understands the economic interest." He was further quoted as saying that, "
This is a truly transatlantic project that has enormous geopolitical, geostrategic, and geo-economic ramifications." As it stands now, Norway, Russia and OPEC are the big players in Europe's energy market. In 2012 Norway
contributed around 31% of the EU's natural gas imports while Russia contributed around 39%, and OPEC accounted for about 40% of crude oil imports. The idea that Poland would out-compete Russia's cheaper and more efficient delivery methods, via pipeline, is a pipe dream (no pun intended).
But, it still means cutting into Russia's oil sales. By June of 2017
Poland was receiving its first LNG shipments. In August
Lithuaniareceived theirs.
© Sputnik/ Serguey Guneev
However Germany was having none of it and
approved a permit allowing Gazprom to begin construction of the Nord Stream 2 pipeline.
The US and Poland expressed 'extreme concern' over Germany's decision. Poland
demanded the US impose sanctions on the project. Rex Tillerson
stated that,
"Like Poland, the United States opposes the Nord Stream 2 pipeline ... We see it as undermining Europe's overall energy security and stability and it provides Russia yet another tool to politicize energy as a political tool." The German Foreign Ministry spokesman Rainer Breul was calm, cool and collected,
saying,
"I see no reasons for assessing it, I do not consider these statements surprising." Even the Atlantic Council was in agreement. Senior fellow Brenda Shafer
stated that the Establishment needed to pick its battles, acknowledging that Nord Stream II was a lost battle. If ever there were an acknowledgment of the extreme predicament the 'liberal order' was in, that was it.
But Europe wasn't the only target of US energy exports. This year Cheniere, an American company specializing in liquefied natural gas (LNG),
announced its first ever exports to a state-owned Chinese company. This is big news for an industry that boasts 10.3 million jobs and constitutes 8% of the American economy. And it also suits the Chinese economy, which made up 40% of the increase in demand for oil in 2004.
5 Cheniere Energy also
announced major long-term deals with China to import US natural gas into the 2040s, and other major corporations are looking to follow suit.
And, as usual, the West has Russia in their cross hairs. As Reuters
reports, the sales to China are 'modest' but promises 'much more competition' for Russia to come.
How much more competition? US oil exports have recently hit a record high of 2 million barrels a day, and the US is forecasted to become a net energy exporter by 2022 - surpassing both Saudi Arabia and Russia. However, it is
unclear how much longer they can maintain this production rate. Despite all the bombast from the industry and from Atlanticist think tanks, reports suggest it might not be much longer. A 2014 report suggested that much of the EIA estimates are flat-out wrong, and that many wells have only a
fractionof the potential the industry claims they have. The EIA's job, one official claimed, was to 'tell the industry's story' - not the facts.
Regardless, it is apparent that China's shifting hegemony is making waves. So, while Atlanticists like Meghan L. O'Sullivan claim that American energy exports will end
"The shift of power and wealth from West to East, the push by Russia and China to establish spheres of influence" it is clear they are, in reality, signs that the US must adapt to them, or else. Whether or not the US is able to survive a 'course correction' as it loses more and more hegemonic and coercive tools, will likely depend on its ability to learn to 'play well with others'.
Conclusion With the rise of the petro-yuan, the US stands to lose quite a bit of coercive power. As Germany turns her back on US sanctions in order to receive Russian gas, China regains her regional hegemony, and the European Union threatens to come apart at the seems, it seems that the 'liberal international order,' as it's being called, is crumbling, and something very, very different is on the horizon.
The period that we Westerners have embarked upon may be as big a change as history has recorded - Russiagate, 'racism,' 'transphobia,' immigration madness, school shootings, rumors of conspiracy, war, and financial meltdown - hysteria, hysteria, hysteria. It seems, as the poet W.B. Yeats once wrote, that mere anarchy is loosed on the world.
Turning and turning in the widening gyre The falcon cannot hear the falconer; Things fall apart; the centre cannot hold; Mere anarchy is loosed upon the world, The blood-dimmed tide is loosed, and everywhere The ceremony of innocence is drowned; The best lack all conviction, while the worst Are full of passionate intensity. And yet, despite so many criminal intentions, history moves on, and we steel our nerves for every passing day. American Energy 'Dominance' or no, perhaps it's time the West let go of dreams of 'world empire' or even global hegemony, breathe a sigh of relief, and get our own house in order for chaotic times ahead.
References- Halford Mackinder's Democratic Ideals and Reality, p. 1.
- Martin Jacques' When China Rules the World: The End of the Western World and the Birth of a New Global Order: Second Edition, p. 18.
- Ibid., p. 184.
- Ibid., p. 18.
- Eichengreen, Mehl, and Chitu's How Global Currencies Work: Past, Present, and Future, p. 198.
- F. William Engdahl's A Century of War: Anglo-American Oil Politics and the New World Order, p. 154.
- Meghan L. O'Sullivan's Windfall: How the New Energy Abundance Upends Global Politics and Strengthens America's Power, p. 7.