Revenge of the Sheikhs

Written By Christian DeHaemer

Updated May 15, 2024

Over the weekend, Russia and OPEC announced that they would cut 1.66 million barrels of oil production a day. The price of WTI jumped $8 on the news, and many pundits have said it is going to $100 a barrel.

Why does this matter?

President Biden has been draining the Strategic Petroleum Reserve (SPR) for the past year and a half. The SPR is now about half-full at 371 million barrels, which is the lowest it's been since 1983. The remaining amount represents an 18-day supply.

The SPR was originally intended as an emergency store of oil as a bulwark against war or an embargo like we saw in the 1970s.

Recently, however, it has been used as a political weapon. The Biden administration decided to drain the SPR to keep inflation low enough and gas prices cheap enough to win the midterm elections — and it worked.

Furthermore, the Biden administration told the Saudis that it would start buying oil to refill the SPR after the election. This would put in a natural floor price around $70 a barrel and would be a big fiscal win as Biden could then say he sold dear and bought cheap.

Alas, the brain trust in the White House decided it would rather screw the pooch. About two weeks ago, it reneged on its deal. The Biden team decided to keep draining the SPR for unknown reasons. Perhaps it wants expensive oil to appease the green side of the party, or perhaps it no longer fears an inflationary crisis.

We don’t know.

We do know that the Biden administration has been hampering oil production for years now. It's blocked pipelines of cheap oil from Canada, stopped leases on government land, and threatened oil executives with higher taxes and even jail.

The outcome of all this is that we will pay more for everything since oil is used in farming, plastics, heating, electricity, transportation, manufacturing, and a whole host of other things.

In addition, this needless alienation of the Saudis means that the era of the petrodollar is over, which could have tremendous implications on interest rates and the national debt.


The petrodollar arose after the end of the gold-backed dollar in the early 1970s. The idea was that the U.S. would buy oil from Saudi Arabia, and, in exchange, the U.S. would provide military protection and weapons. Furthermore, the Saudis would convert their dollars into U.S. Treasuries.

This would keep U.S. borrowing rates low and ensure a market for Saudi oil — a win-win situation.

Then fracking changed everything. The U.S. became a net exporter of oil, and the Saudis turned to China and India as their main market.

Over the past three years, Saudi Arabia has reduced its holdings of U.S. Treasuries by nearly 40%. It is also in talks with Russia, China, Brazil, and South Africa about starting a separate currency system with which to settle international trade. Part of the discussion is that this will be some form of digital dollar or cryptocurrency.

If less of the world buys U.S. Treasuries, it will become more expensive to service our national debt, which, last I checked, is closing in on $32 trillion.

This begs the question: What comes next after the petrodollar falls? I think I know the answer — check out this free presentation to learn all about it.

All the best,

Christian DeHaemer Signature

Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.

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