Earlier this year, Saudi Arabia “threatened” to sell European debt in retaliation if the G-7 confiscated the $300 billion in Russian assets frozen by the European Union and the United States, according to sources consulted by Bloomberg

It is no secret that countries outside the Western sphere have long been closely watching the use of economic sanctions against Russia, amid concerns that these same tools of economic warfare could be used against them.

It is an economic siege designed to attack the Russian economy on all fronts – destroying its funding capacity and commandeering foreign reserves – that has become the most obvious example of how the US-led global economic system is being used to isolate and punish any country that poses a threat to US hegemony.

This is causing many states to question this hegemony and take steps to create a multilateral financial system to shield their economies. They are also pushing for de-dollarisation to decouple their economies from dependence on the dollar.

The importance of debt

Beyond de-dollarisation, the main reason the dollar is in danger is the large fiscal deficit in the United States. This has led to massive indebtedness, which is sustainable as long as the world continues to have confidence in the ability of the US to pay its obligations.

If this confidence is lost, investors and countries that now buy their debt through Treasury Bonds could look for alternatives to diversify their currency reserves, causing the US economy to collapse. Hence, the alarm generated by the possibility of Saudi Arabia turning its back on the petrodollar.

European Union member states are in an even worse situation because, unlike the United States, they do not have ‘their’ petrodollar and therefore cannot print money without consequences. In other words, the United States has the equivalent of an “opaque credit card” with which, at least as long as oil continues to be sold in dollars, it can maintain indebtedness that would be unsustainable for the European Union.

Saudi Arabia makes a move

Leaving aside the possible illegality of confiscating Russian reserves, using these funds would not only be illegal but could generate a major crisis of confidence in the Western-dominated international banking system, which is not exactly overburdened with credibility. If countries that feel threatened withdraw their reserves, this would be a paradigm shift with global consequences.

In this context, it is not surprising that yesterday’s Bloomberg article revealed that Saudi Arabia’s finance minister told his G7 counterparts (Canada, France, Germany, Italy, Japan, the US, and the US) that the Kingdom would sell some of its European debt in retaliation if the $300 billion in Russian assets frozen by the EU and the US were confiscated. The Saudi stance was seen as a “veiled threat”, say unnamed sources consulted by Bloomberg.

According to Bloomberg, Saudi Arabia’s warning is likely to have galvanised opposition from some EU member states against a more forceful approach, despite US and UK pressure for outright seizure. If anything, the warning seems to have worked, watering down initial calls for stronger measures.

For its part, a representative of Riyadh has denied the facts described by the anonymous sources, telling Bloomberg that it was not its government’s style to make such threats. Even so, explaining that the likely impact of any seizure of assets against Russia was possibly indicated to the G7 countries.

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