Kissinger business strategy: Dollar for Security

Strategists often acclaim Henry Kissinger as a dark horse in the field of business strategy. His style was entirely different from the ones that prevailed in the State Department: ‘no latent threat but suave arm twisting that keeps opponents at ease’. The best demo is “Dollar for Security” he negotiated with Saudis in 1974.

Let me give you the background of the Dollar crisis first. When President Richard Nixon removed Dollar convertibility to gold in 1971, holders of US Dollar as currency and in debt instruments were thrown into trauma. Dollar was sliding down in the exchange market. The rush to sell Dollar dominated US securities was further destabilising.

Then comes the Arab Israel War of 1973 consequent to which the OPEC imposed an oil embargo against the USA terming her as collaborator for Israel. American oil consumption is proverbial so is her imports of oil from the Middle – East. In the halls of power in USA there was an urgent deed to lessen or at best eliminate this double whammy.

Two suggestions were put forward. One is to invade Saudi Arabia and bring all the oil wells under US control. If that to succeed Soviet Union must countenance this approach and US establishment was doubtful of that happening. The second option is to talk to the Saudis and agree on a peaceful settlement of the oil & dollar crisis similar to the proverbial ‘one stone kills two birds’ theory.

The overriding issue at that time was US has just embarked upon a programme of economic development inshore where job creation, keeping inflation low and stabilizing exchange rate are the three most important pivots. To do that US Dollar must be backed by two interconnected tactics. Raising revenue by issuing Dollar dominated debt securities and more than that compelling the globe to transact its business in US Dollars, mainly.

So Henry Kissinger cunningly crafted a military economic agreement with Saudi Araba which was signed in June 8, 1974 in Washington where he along with Prince Fahd Ibn Abdul Aziz were signatories. This agreement commonly called as “oil for security” was a classic one in the annals of business strategy as it gave little away to Saudis while the Americans got everything they wanted to safeguard their interest. Here is the package of the goodies USA got:

a) OPEC dropped the oil embargo against USA

b) Saudis were incentivised to increase their oil output

c) Saudis will sell their oil exclusively in US Dollars bringing on a new animal known as ‘petrodollar’

d) Demand for US Dollar skyrocketed

e) Once again the US Dollar secured unshakable confidence as the world’s stable exchange & reserve currency

f) More than anything else, America as a geoeconomics giant was reinforced.  

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist