The master jigsaw puzzle piece connecting US domestic and foreign policy together is the petrodollar. Federal debt production depends upon credibility in the US currency that is anchored by its privileged role in global hydrocarbons commerce. Knock out that privilege, and US dollar holdings become one speculative asset among others. The fiat house of cards begins to tumble (perhaps with shocking rapidity).
In this context, US monetary policy begins to look like a side-line of ‘friendship’ with the Saudis, which is dissolving into quick sand. Pepe Escobar at AToL explores some of the possible consequences. (It’s especially notable that the fracking revolution could accelerate a petrodollar crisis, rather than retarding it.) There’s also a China angle, which is always fun.
Disconcertingly for almost everybody, in different ways, the awkward retraction of US power from the Middle Eastern wasps’ nest tends inevitably to destabilize the global monetary regime. The more the Saudis feel jilted, the less their commitment to the petrodollar pact, but if this was ever a low-maintenance relationship, it certainly isn’t anymore.
Bomb Iran or your currency bombs. — Things might not quite reduce to that yet, but it increasingly looks as if they will.