Very important article that bespeaks a potential rupture in US-OPEC relations… and a strategic geopolitical shift that may have major monetary implications…

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www.wsj.com/articles/opec-decision-to-cut-oil-output-prompts-u-s-to-weigh-options-11665057275

One premise of the USD serving as the global reserve currency is that we maintain an open capital account—we don’t impose capital controls.

Instead, we eagerly recycle the $ surpluses from OPEC & China into US financial markets, some into our sov. debt, but more into our assets.

Now it seems the US political system views OPEC’s actions as a “declaration of economic and diplomatic war” that merits legislation to (among other things) “seize assets” as a penalty.

In an increasingly multipolar system, OPEC (& India)—as tipping/balancing powers—see their influence magnified.

Moreover, China is also poised for advantage, as Riyadh & Beijing have strengthened their strategic relationship in recent yrs.

After all, China is KSA’s #1 customer.

➡️ Monetary regimes are downstream of the geopolitical balance of power.

The key Q is: how comfortable do exporters feel about continuing to recycle their surpluses into G7 assets?

Critically, it only takes marginal shifts to make a big mark in a world based on marginal flows.

I analyzed one potential scenario, extrapolating forward the consequences of such an escalating global economic and energy war here:

bitcoinmagazine.com/future-geopolitical-order-and-bitcoin

In an increasingly multipolar world order, OPEC (& India) see their relative influence magnified.

Marginal shifts matter in a world driven by marginal flows…

The USD-UST recycling system is partly stable, but given the role of USTs as rehypothecated funding collateral, is vulnerable to tipping-point feedback dynamics…

Marginal selling begets more selling until a LoLR (Fed) steps in with SLR relief, SRF/FIMA, and eventually YCC…

There are (roughly) three main centers of global power:

Credit/Capital (G7, $)

Energy/Commodities (OPEC+)

Production/Labor (China, ~India)

When these were geopolitically aligned, globalization “worked”.

Now, we see what happens when they are fighting w/ each other…

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