Beirut: In a Bloomberg piece published last week, writer Andrea Wong delved into the particularly taboo subject of America’s debt to Saudi Arabia that dates back to the 1970s.
The story goes back to the aftermath of the October 1973 Arab-Israeli War that saw the Organisation of Arab Petroleum Exporting Countries — and not Opec as it is mistakenly assumed — impose an oil embargo on the United States and the Netherlands.
At the time Washington proposed to sell US Treasury notes to Saudi Arabia to mitigate the impact of the embargo.
The secret deal was negotiated in mid-1974, therefore about six months after the end of the war, when President Richard M. Nixon visited King Faisal Bin Abdul Aziz.
Wong asserts the arrangement was a sort of “payback for US military aid to the Israelis during the October war and that resulted in a quadrupling of oil prices to around $10 per barrel.
At the time, panic set in, as major oil companies introduced slowdowns that, in turn, led to long gas lines.
Wong mistakenly ties the market crash to the oil embargo, but objective scholars have said the crash came years later and deny the existence of an oil shortage entirely.
In 1974, Washington officially asked Riyadh to invest in US government debt. Saudi Arabia agreed but insisted it be kept secret due to fears that it would be perceived to being “directly or indirectly” supporting US financial aid to Israel.
The secret deal was the brainchild of the talented Secretary of the Treasury, William Simon, a senior Salomon Brothers banker, known for being a straight shooter.
Wong reports that Simon “once compared himself to Genghis Khan — had a temper and an outsize ego that was painfully out of step in Washington,” and that he “publicly lambasted the Shah of Iran, a close regional ally at the time, calling him a ‘nut’”.
To back up her piece, Wong used the Freedom of Information Act to gain access to records of just how much Saudi Arabia holds in US Treasury notes.
The discovery was that Riyadh owned notes worth $117 billion (Dh430 billion), which was nothing in comparison to the over $1 trillion that China owns alone.
The more logical reason for King Faisal’s decision to invest in American debt is simple.
First, to place some of its earnings into safe American holdings and second, to exchange it for US military assistance.
While Wong asserts that the Nixon administration’s goal was to “neutralise crude oil as an economic weapon and find a way to persuade a hostile kingdom to finance America’s widening deficit with its newfound petrodollar wealth”, this is simply not true.
Riyadh was never a hostile power, neither then nor now.
Most recently, Riyadh has threatened to sell as much as $750 billion of its notes if the US congress passes a bill allowing the kingdom to be held liable in US courts for the September 11 terrorist attacks, which Saudi Arabia has repeatedly denied involvement in.
The Bloomberg piece actually proves nothing, except the existence of an interdependent relationship based primarily on economic survival.