Tom Luongo Explains

A bit less than a week ago I did a post titled: With Ukraine Lost, What's The Latest Neocon Strategery? The idea behind the post was that, while the Neocons have slowly come to the realization that their war on Russia will not be won in Ukraine, they’re not about to give up on the concept. And so they’re flipping around, looking for some new strategy. But because Russia’s position continues to strengthen, the Neocons are pretty much winging it—flying by the seat of their pants. In discussing this, and to illustrate that the geopolitical landscape continues to shift against the American Empire, I quoted a retweet by Tom Luongo:

Tom Luongo (Head Sneetch) @TFL1728

And there it is... the Breaking of the Saudi Riyal's peg to the USD has begun.

Quote

Gold Telegraph @GoldTelegraph_

Nov 20

BREAKING NEWS CHINA AND SAUDI ARABIA HAVE SIGNED A LOCAL-CURRENCY SWAP AGREEMENT WORTH AROUND $7 BILLION, DEEPENING THEIR TIES AS NATIONS THROUGHOUT THE MIDDLE EAST AIM TO DIVERSIFY MORE OF THEIR NON-OIL TRADE AWAY FROM THE DOLLAR.

Major news. The trend is accelerating.

10:53 AM · Nov 20, 2023

It turns out that this was Tom’s highest trafficked tweet—evah. My reference to that tweet followed upon the news that the Saudis were leading a delegation consisting of Arab and Islamic foreign ministers to China to discuss the Palestine situation. That, of course, was a slap in the face to the US, which fancies itself the indispensable nation—especially in the Middle East. And so I added that the news of KSA/China swap agreement “simply confirms that KSA has no intention of returning to the American orbit.” But I made no pretence of understanding the technicalities behind the swap arrangement, although Tom did offer a bit of an elaboration.

Now Tom has weighed in with a lengthier (but still technical, for the likes of me) article that expands on what this all means:

What Are the Saudis Really Preparing for?

Tom graciously reproduced his comment to my citation of his tweet. He begins his commentary by noting that, yes, this is the Neocons “flying by the seat of their pants,” pure desperation to keep the war on Russia going. In other words, they can’t just drop the war without admitting major geopolitical defeat that could translate into disaster on the home front. BUT, the swap deal between KSA/China is a real event with important implications—it looks like the Saudis preparing to counter some form of intervention by the US against them:

Mark Wauck over at Meaning in History linked to it. Mark didn’t really elaborate my point so I posted a reply in his comment section.

They [the Neocons] most certainly are flying by the seat of their pants, Mark [his conclusion]. What is happening now is pure desperation as they try to figure out how to extend and pretend this war through the election cycle to maintain the possibility of the ages-old enmity versus Russia.

But the KSA flip is real. Swap lines are a precursor to intervention. My tweet was high concept but it goes like this:

1) Announce swap lines
2) Start taking real amounts of yuan for oil
3) This breaks the peg of the Riyal to the USD when oil is relatively strong, not in crisis mode
4) The substitution of the CNY for the USD is existential for the US who then attacks the KSA exchange rate, pulling money out of the country…
5) SANCTIONS ON KSA.
6) Expanded swaps to convert USD encumbered assets with Riyal assets, once USD are verboten in KSA.
7) China provides them, with loans repayable in CNY.

Moves that occurred 10 years ago are instructive of why we are where we are today and where we may be headed.

Tom posits that the move of KSA breaks the peg to the dollar—which is the basis for much of the still functioning monetary system and for US global domination. The Saudis know that as well as or better than anyone in the world. Tom believes that this situation is “existential” for the American Empire. Therefore, the US must either concede a new monetary reality or counterattack against the Saudis—through sanctions (#5).

But there’s more, which I can only sketchily explain.

Tom points to moves that occurred 10 years ago, which will explain why he believes the KSA/China swap arrangement represents the Saudis preparing against US action. Here are two brief paragraphs the present the basic idea of those events of 10 years ago:

The announcement of the swap lines is likely a pre-announcement of an Economic Hitman-style attack on Saudi Arabia by the US.  It’s not really that difficult to foresee.  

For historical context, Russia was hit hard in 2014/15 by the collapse in oil prices. In retaliation for “stealing Crimea” an attack on oil prices was organized by President Obama and the gaggle of usual suspects to trash the oil price.

In other words, Tom sees retaliation against KSA coming, probably in a way that would put downward pressure on the price of oil.

Now, what happened 10 years ago is that China—with it’s huge stash of USD—came to Russia’s rescue, probably by prearrangement, knowing that the US would attack Russia in this way. (Follow the link for details.) The US didn’t dare sanction China for ruining its attack on Russia because we’re too dependent on the Chinese economy.

Now, KSA is in a bit different fiscal situation than Russia. While the cost of producing oil is quite low for the Saudis, they still need a price of about $80 per barrel to cover their domestic budget, which subsidizes a huge welfare state (my understanding). Tom suggests that China is now prepared to come to the rescue of KSA, in a way not dissimilar to its rescue of Russia:

The Saudis need/want a put under the oil price of $80 per barrel.  They need that to maintain their budget (see above).

China offers the Saudis a swap line to ensure breaking the peg goes smoothly. In other words, China will loan the Kingdom dollars to be repaid in yuan, just like they did for Russia and are currently doing today for their Southeast Asian trading partners trying to defend their currencies against the Dollar’s milkshake suction.  

If we look back to history with Russia and Power of Siberia guaranteeing a big flow of yuan and rubles between Russia and China, might we see something that would grease the skids of riyal/yuan flow?

All this maneuvering confirms what I said initially: “KSA has no intention of returning to the American orbit.” MbS is determined to continue on the BRICS road, and China will help him resist the anticipated US pressure to force KSA back into the US orbit. But this looks like another Neocon failure—an act motivated more by “pure desperation” than by carefully thought out strategy:

The Saudis are preparing for an attack on the oil price to punish them for their lack of vision by the Neocons who never learn anything from their past failures.

So this is a situation to keep an eye on as we head into Election 2024.