The Chinese brokered deal that restored diplomatic ties between Iran and Saudi Arabia1 in March 2023 represents another case study illustrating the weakening of US global hegemony. From the emergence of China as a global economic powerhouse that is scheduled to overtake the US economy in a few years2 to the Russian military’s influence in strategic areas like Syria3 and Libya4, along with its global food and energy supply chains5, the US fight has shifted. Instead of securing its interests through direct presence in areas of strategic importance such as West Asia, the US must now confront these emerging superpowers6.
Simultaneously, the region of West Asia itself is losing strategic importance to the US after its two decade long “war on terror” failed to crush the resistance axis, spearheaded by Iran. The resistance axis has all but thwarted American imperialist “New Middle East” project7 plans, one after the other. Since the fall of the Soviet Union, Iran has been the main concern of the US8, as it continues to stand as an obstacle to US interests and is within a strategic region.
However, with the backfiring of the US economic sanctions on Iran, the US sees no choice but to seek a formula of co-existence with Iran for what could not be achieved through war and economic terrorism. An example of this is the delay of the nuclear agreement between the two nations due to Iran’s position and its terms of negotiation.
Furthermore, the recent Saudi-Iran deal could not have happened without the US, for Saudi Arabia’s existence is predicated on US military and security support11, and it is not possible to exit from the American trajectory, nor can Saudi Arabia withstand US sanctions. Moreover, the developments in this month, such as King Salman’s invitation for President Raeisi to visit Riyadh,12 have also confirmed this. It is only a matter of time, then, that the US recognizes the balance of powers in the region, with this deal serving as a preliminary introduction to a larger deal between the US and Iran pertaining to the nuclear negotiations.
Meanwhile, Saudi Arabia itself is looking to create a new middle balance in light of global developments, whereby the American fist is only getting smaller due to the increasing number of entities operating outside the American fold. The formation of new alliances on the international scene is marking the shift towards a multipolar world that is happening before us.13
The Head of the Russian Ministry of Natural Resources Alexander Kozlov stated recently in February that Saudi Arabia was eager to join BRICS and the Shanghai Corporation Council (SCO)14 as part of an effort to expand ties with countries in the region. SCO is a regional security alliance dominated by China and Russia that Iran joined officially last year as a permanent member. BRICS is an alliance accounting for more than 40% of global population and around a quarter of global GDP15 that Iran has also applied to join. Moreover, Russia’s foreign Minister, Lavrov, claimed earlier this year that “more than a dozen”14 countries had shown interest in joining the BRICS alliance.
Around the same time, Lavrov revealed that the BRICS alliance seeks to create a common currency, which is at the top of its agenda during the BRICS summit this August16. In reference to the current world financial system dominated by the dollar, Lavrov claimed that
“Serious, self-respecting countries are well aware of what is at stake, see the incompetence of the ‘masters’ of the current international monetary and financial system, and want to create their own mechanisms to ensure sustainable development, which will be protected from outside dictates.”16
The recent agreement signed on January 29, 2023 connecting Russia’s financial messaging system (SPFS) to Iran’s financial messaging service (SEPAM) is “restoring the financial channel between Iran and the world,”17stated the new governor of Iran’s central bank, Mohammadreza Farzin.
Fifty-two Iranian banks are currently using SEPAM, which is now connected with 106 banks using SPFS, Russia’s equivalent to the Belgium-based SWIFT, which is controlled by America.18 This is a closer step to global de-dollarization.
Such a move will only encourage multilateral deals between the Global South and strengthen immunity to Western sanctions imposed on such nations. Chinese CBIBPS (Cross-Border Inter-Bank Payments System) has also been seeking to connect to Russian banking messaging systems against a backdrop of US threats to directly expel Chinese banks from SWIFT if they interconnect19. While the US may be able to threaten China, it does not seem feasible for a $30 trillion20 indebted US to expel all BRICS countries from SWIFT.
Moreover, economists are predicting a potential recession in the US in 202321 due to the need for further interest rates to tame inflation back to the Federal Open Market Committee’s (FOMC) 2% target, with the average real GDP growth close to zero in 2022.22 Konrad Alt, co-founder of Klaros Group, estimated that rate increases have “effectively wiped out approximately 28% of all the capital in the banking industry as of the end of 2022.”23
Silicon Valley Bank (SVB) collapsed on February 10, 2023, marking the second largest failure of a financial institution in US history. It was triggered by the US Federal Reserve’s swift increase in interest rates over the past two years in order to clamp down on inflation. Increasing interest rates makes it more expensive for companies to borrow, reducing the Bank’s lending rate and drying up the market for initial public offerings of new start-up companies, leading bank clients to pull out their money as profitability declines.24
The rise in inflation behind these heightened interest rates is in no small part due to the shakeup in the world’s energy supply chain in the wake of Russia’s war on Ukraine and the subsequent Western sanctions on Russia. These have massively curbed Europe’s ability to import Russian oil and gas. An economy cannot run without being powered by energy and the increasing uncertainty and volatility of supply and costs have caused a massive spike in not just energy costs but other goods and services. For example, the cost of food is affected due to the higher cost of transporting and refining food items.
The reality is that Western economies are entering into recessionary times while the creation of alternative payment systems to the US dollar, supported by commodities-backed currency through alliances such as BRICS, have productive days ahead.
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