Fighting Middle Eastern Wars with Pegs and Drones

I’m reading Currency Wars right now, which may be one of the reasons I suspect that the decision to launch signature strikes in Yemen was not requested by CIA and JSOC but instead dictated by Saudi Arabia. But I’ve also recently read the WikiLeaks cables that show how nervous recent discussions of the Saudi peg of the riyal to the dollar have been.

For example, one of the most recent cables released, describing a mid-February 2010 meeting between Deputy Treasury Secretary Neal Wolin and Saudi Monetary Agency Governor Muhammad Al Jasser and Minister of Finance Ibrahim Al Assaf, records Jasser invoking Chinese calls for an alternative to the dollar.

(C) Jasser reaffirmed Saudi Arabia’s support for the riyal-dollar peg, noting that the peg is in Saudi Arabia’s “cold-blooded self interest,” though he noted it sometimes felt like “we are alone.” Referencing past calls by China and others in the G-20 for an alternative to the U.S. dollar as the world’s reserve currency, Jasser said some have asked him why he does not give up on the U.S. dollar. He turned to a response he gave to a European newspaper that asked why Saudi Arabia hadn’t switched its peg to the Euro, “When oil is denominated in Euros, we’ll research it.”

In the same meeting, Jasser reminded Wolin that Saudi Arabia had far more ability to “undermine and safeguard” the world economy than its GDP might suggest.

Jasser stated that, as an oil economy, Saudi Arabia has the ability to both undermine and safeguard the world’s economy. He noted that Saudi Arabia was able and willing to support reform efforts at the IMF and World Bank, but that the ability to harm or help the global economy is a better measure of a nation’s relative economic importance than GDP.

The Saudi peg to the dollar came up again in a cable reporting a June 2009 meeting between our Chargé d’Affaires to Saudi Arabia Richard Erdman and what he calls a “key contact,” Saudi British Bank chief economist Dr. John Sfakianakis who also serves as an advisor to Saudi’s Commerce Ministry. The cable’s description of Sfakianakis as being “adamant” that the Saudis would retain the dollar peg suggests Erdman pushed him on the issue, and perhaps didn’t believe him.

(C/NF) Sfakianakis was adamant that the Saudis are supporting the dollar, both through the public comments of central bank governor Mohammed Al-Jasser and the private efforts of Finance Minister Ibrahim Al-Assaf. Apparently last summer, then-central bank governor Hamid Al-Sayari told the Emirati central bank governor to “stop talking about” de-pegging from the dollar because it was counterproductive and was harming the Gulf economies. Nevertheless, if the dollar weakens too much and, as a result, the Kingdom imports double-digit (or greater) inflation, the SAG’s hands will be tied politically and they will have no choice but to float their currency. Sfakianakis pointedly added that all the Kingdom’s anti-inflationary measures failed last summer, with prices eventually stabilizing due to extraneous factors. (Note: During 2008, despite inflation in the Kingdom reaching 11 percent, the SAG remained firmly committed to the dollar peg, both in policy actions and in public comments. Since then, the central bank governor and other officials have been unequivocal in their support for the dollar peg. End note.)

And in a mid-July 2009 meeting between Turbo-Tax Timmeh Geithner and Saudi Finance Minister Ibrahim al Assaf, Geithner was heavily pitching the dollar (and falsely promising that we’d maintain a commitment to a strong dollar).

(S) Assaf said “we still believe that the dollar will be the dominant reserve currency and trading currency for a long time to come.” Our policy, he continued, is to support this and maintain the riyal-dollar peg. The Secretary said the U.S. appreciated Saudi Arabia’s continued support. He noted that, despite some political talk of moving away from the dollar, China has in fact increased its dollar holdings and had confirmed that shifting from the dollar was not its policy. Assaf said the Kingdom encouraged foreign investment on both sides — U.S. investment in Saudi Arabia and vice versa. We needed to work on this in Saudi Arabia, he said, establishing principles and legal framework, and were organizing a conference toward this end. Geithner said we share a commitment to open investment.

(S) On the dollar, the Secretary indicated it was benefitting from the flight to quality and emphasized the U.S. commitment to a strong dollar.

None of these conversations are surprising. The Saudi decision to sustain the dollar peg is regularly covered in the financial press. And it is a big source of stability for us, both in terms of letting us buy oil affordably and maintaining the hegemony of the dollar. It’s a big deal that should come up in such high level conversations.

But the role of the dollar in the global economy–with Saudi oil backing it–comes with implicit guarantees that the US will ensure the security of those sustaining this relationship. The Saudis have not only been pushing us to limit Iran’s bid for hegemony in the region, but also to tamp down the threat the Arab Spring posed to dictators like themselves. While the Saudis were able to buy off their own subjects, Ali Abdullah Saleh was not so lucky and–as the WSJ story on Obama’s signature strike decision describes it–Arab Spring protests against Saleh “created a security vacuum” (as Jeremy Scahill described it, Saleh dedicated the counterterrorism resources we had given him to his own defense) the drones are now set to fill.

Advocates of expanding the scope of U.S. drone strikes in Yemen say the latest U.S. intelligence shows that AQAP has grown stronger since one of its prominent leaders, American-born Muslim cleric Anwar al-Awlaki, was killed in a U.S. strike in September.

The Islamists capitalized on last year’s civil unrest, which helped force out longtime Yemeni President Ali Abdullah Saleh and also created a security vacuum, U.S. intelligence agencies believe. Islamists allied with AQAP operate freely in all or parts of three southern provinces, creating the potential for a regional haven, the officials said. “AQAP’s antigovernment insurgency and its terrorist plotting against the West are two sides of the same coin,” said a U.S. official.

The rationale behind these drones–both the purported threats to US interests and the plan to use drone strikes to give time to the Yemeni military to reassert control over the country–all seem directed at Saudi Arabia’s safety as much as, if not more than, our own.

U.S. counterterrorism officials said they are currently tracking several direct threats to the U.S. connected to AQAP. The officials wouldn’t provide further details because that information is classified.


The expansion reflects a U.S. assessment that it will take time for Yemen’s military to reassert authority across the country. Administration officials say they are encouraged by the commitment of Yemen’s post-Saleh government to fight AQAP, but it will take time to better train, equip and reorganize the Yemeni military.

We may have no direct interest in the Yemeni civil war(s). But the Saudis do.

We are, frankly, captive to our need for Saudi help in shoring up our fragile economy. That changes the entire notion of national interest when it comes to Saudi Arabia’s immediate neighbors. Which, I suspect, is why Obama just green-lighted the use of drones in what could easily expand beyond counterterrorism uses.

Marcy has been blogging full time since 2007. She’s known for her live-blogging of the Scooter Libby trial, her discovery of the number of times Khalid Sheikh Mohammed was waterboarded, and generally for her weedy analysis of document dumps.

Marcy Wheeler is an independent journalist writing about national security and civil liberties. She writes as emptywheel at her eponymous blog, publishes at outlets including the Guardian, Salon, and the Progressive, and appears frequently on television and radio. She is the author of Anatomy of Deceit, a primer on the CIA leak investigation, and liveblogged the Scooter Libby trial.

Marcy has a PhD from the University of Michigan, where she researched the “feuilleton,” a short conversational newspaper form that has proven important in times of heightened censorship. Before and after her time in academics, Marcy provided documentation consulting for corporations in the auto, tech, and energy industries. She lives with her spouse and dog in Grand Rapids, MI.

16 replies
  1. matt carmody says:

    Did you notice in Rickards’ description of war games scenarios that Red is the designation for the bad guys and Blue designates the good guys. Kind of describes the political map of this country.

  2. jo6pac says:

    same reason we attacked Libya that crazy person was going start a bank just for Africa and they weren’t going to use any of those greenbacks from Amerika. The part I love the most is all of Libya money in western banks disappeared. The house of saud and others will just float Amerika until after Nov 2 then it’s anyone guess but uncle milton friedmans austerity program is finally coming home. How sad for us on Main Street.

  3. orionATL says:

    “… The Saudi decision to sustain the dollar peg is regularly covered in the financial press. And it is a big source of stability for us, both in terms of letting us buy oil affordably and maintaining the hegemony of the dollar…”

    yes it is a big source of short-term stability. i don’t ever again want to sit in a gas line as some of us did in the ’70’s. nor do i want to pay $15/gal for gas.

    but oil and saudi oil-based power are only the near future.

    the longer we and the saudi royals continue to prop each other up, the longer we, the u.s., go without the incentives to make the adjustments needed for a post-oil united states.

    the saudi’s are trading riyal-dollar twining for a u.s. guarantee of the continued safety and security of the saudi royals.

    that security could end in a relative flash of civil uprising with little the u.s. could do but intervene militarily.

    hovering outside this geopolitical discussion, is the specter of global warming which might render the saudi-u.s. mutual aid society irrelevant within as little as a decade.

    “external” events like volcanoes, earthquakes, droughts, and large migrations have changed human history many, many times. though we imagine otherwise, we are no less vulnerable due to the complexity of our society and the size of our population than were the anasazi, the babylonians, or the maya.

  4. JohnT says:


    Didn’t I tell you all about him when he was a sophomore? I could see it then

    PS Hopefully the Vikes don’t screw up and they take Kalil. They made a really good trade with the Browns though

  5. ondelette says:

    OT – Charles Taylor was convicted by the Special Court of Sierra Leone on all 11 counts. It is the first conviction of a head of state by an international court since the Nuremberg IMT.

    Below is the Summary of the Charges from the SC-SL:

    The Accused is charged with 11 Counts under the Indictment. Five of these counts charge the Accused with crimes against humanity punishable under Article 2 of the Statute, in particular: murder (Count 2), rape (Count 4), sexual slavery (Count 5), other inhumane acts (Count 8) and enslavement (Count 10). Five additional counts charge the Accused with violations of Article 3 Common to the Geneva Conventions and of Additional Protocol II, punishable under Article 3 of the Statute, in particular: acts of terrorism (Count 1), violence to life, health and physical or mental well-being of persons, in particular murder (Count 3); outrages upon personal dignity (Count 6); violence to life, health and physical or mental well-being of persons, in particular cruel treatment (Count 7); and pillage (Count 11). The remaining count charges the Accused with conscripting or enlisting children under the age of 15 years into armed forces or groups, or using them to participate actively in hostilities (Count 9), a serious violation of international humanitarian law punishable under Article 4 of the Statute.

  6. CTuttle says:

    Aloha, EW…! I’ve been screaming about screwing the Petro-Pooch for some time now…! The SCO and the BRICs are getting their financial duckies all in a row, and, We in the West, are gonna be eating some righteous crow soon…! Especially with the House of Saud’s hollow promises of ramping up production, from their much-depleted Oil Fields…! *gah*

  7. matt carmody says:

    @Kris: These are colors deliberately used to designate good and bad in US-conducted war games. That they turn up corresponding to GOP and Democrats in US elections has a sort of ironic synchronicity.
    Right now I’m not concerned with what colors countries around the world use.

  8. Bob Schacht says:

    “While the Saudis were able to buy off their own subjects, Ali Abdullah Saleh was not so lucky and–as the WSJ story on Obama’s signature strike decision describes it–Arab Spring protests against Saleh “created a security vacuum” (as Jeremy Scahill described it, Saleh dedicated the counterterrorism resources we had given him to his own defense) the drones are now set to fill.”

    Um, I think this is a sentence that went on past its useful end.
    But here you have the eternal problem for diplomats: The leader of a country you have relied on gets very unpopular and gets Arab-Springed. And lo and behold, among the Arab Springers are some AQAP folks. So we once again support the Powers that Be against the powers that wanna be, and once again we find ourselves in alliance with undemocratic leaders. This pattern has a long history with many examples.

    Bob in AZ

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