Washington got two important reminders this week that it cannot take anything for granted in the current international environment. On Tuesday, Saudi Arabia’s intelligence chief, Prince Bandar bin Sultan, was reported as saying that the kingdom is planning to make a “major shift” in its relations with the United States. Then on Wednesday, India and China announced an agreement designed to defuse border tensions. Underlying these two moves is the reality that in a more chaotic, G-Zero world, all countries are going to hedge their bets.
It is, of course, important not to overreact. Some sources have suggested that Bandar’s comments may have served more as a warning shot or trial balloon rather than a reflection of a final decision taken by King Abdullah, although it is clear that the Saudis have come to view the United States as a far more “unreliable” partner. And the Indo-Chinese agreement comes in the wake of a serious border incident earlier this year that leaves both countries eager to avoid possible clashes in the future. Wednesday’s deal certainly does not provide for any sort of definitive settlement of lingering territorial disputes or an end to both countries’ extensive military deployments along their respective border.
But if this week’s developments presage more major shifts in the future, that certainly would pose a problem for the United States. A close Saudi-U.S. partnership has been one of the linchpins of America’s strategic posture in the Middle East. Moreover, Riyadh continues to denominate its oil sales in U.S. dollars, fueling demand for the U.S. currency and providing an important incentive for preserving its value. And the kingdom has tended to reinvest most of its state treasury profits from energy sales in U.S. securities, most notably Treasury notes. In the past, this recycling of petrodollars has proved to be an important, if unsung, source of strength for the United States, bolstering the U.S. currency and allowing the United States to run deficits “without tears,” as French economist Jacques Rueff termed it.