I. War<\/strong><\/h2>\n\n\n\nIn response to Russia\u2019s invasion of Ukraine in 2022, the United Kingdom, followed by the United States and other Group of Seven nations, placed thousands of sanctions on Russian individuals, corporations, and vessels.[1]<\/a> Soon thereafter, the European Union and ten other countries\u2014including Iceland, Australia, New Zealand, South Korea, Taiwan and Singapore[2]<\/a>\u2014joined the American-led campaign.[3]<\/a> By 2024, the number of Russian-related sanctions imposed by the G7 and allies would reach close to twenty four thousand. US sanctions on Russia were double those imposed by Canada, the country with the next largest Russo sanctions program.[4]<\/a> This front of the war was mostly waged out of sight, through legal interventions in the international payments system; its more visible elements were the superyachts of Russian oligarchs that had been impounded across major offshore financial centers, including London\u2019s Canary Wharf.[5]<\/a><\/p>\n\n\n\nThe financial warfare launched against Russia since 2022 has been novel in scale and scope. Notably, however, the US Department of the Treasury did not impose a countrywide sanctions program on Russia like it has on Iran, Cuba, or North Korea. While ten very large Russian banks were sanctioned and removed from SWIFT, the international financial messaging network, more than three hundred Russian banks were not.[6]<\/a> This is because of Russia\u2019s importance to the global energy system: before the war in Ukraine, Russia supplied almost half (forty six percent) of Europe\u2019s natural gas.[7]<\/a><\/p>\n\n\n\nWhile careful not to shut Russian oil and gas out of global markets, the western axis did try to reduce the petro-rents flowing to Moscow. In the summer of 2022, the EU agreed to join the US and UK in embargoing sea-borne Russian crude oil\u2014a decision that went into effect in February 2023. In September 2022, the US-UK-EU triad imposed a price cap on Russian oil exports amounting to $60 per barrel. US Treasury Secretary Janet Yellen initially sold the price ceiling as foreign policy with domestic benefits. Dampening the price of Russian oil would help fight inflation at home.[8]<\/a> Yellen later reframed the policy in a more altruistic light: as a means for enabling the flow of cheaper Russian oil to low and middle-income economies.[9]<\/a> Putin\u2019s administration retaliated against the price cap by cutting natural gas deliveries to Europe, among other measures. After the explosive attacks on the Nord Stream 1 pipeline under the Baltic Sea\u2014allegedly by Ukrainian saboteurs\u2014in the fall of 2022, Russia\u2019s gas flow to Europe plummeted.<\/p>\n\n\n\nDespite the sanctions exemptions granted to Russian energy exports, commodity markets reacted violently to the shock of war. The steepest US energy price shock since the 1970s ultimately resulted in the most rapid-fire round of interest-rate hikes by the Federal Reserve since those associated with the 1980s Volcker Shock. The dollar is the <\/em>systemically significant price in the global financial system.[10]<\/a> Its upward march, reaching a twenty-year peak, destabilized balance sheets across the world.[11]<\/a> Reversing a decades-long trend, as of 2021, commodity prices (most of which are denominated in dollars) are now positively correlated with the currency.[12]<\/a> Enhanced by the shale boom, American hydrocarbons currently generate more than a fifth of the world\u2019s supply, making the US oil and gas sector, the world\u2019s largest.[13]<\/a> In a peculiar convergence\u2014what I call the \u2018hydrocarbon dollar\u2019\u2014the hegemonic world currency has taken on characteristics associated with the currencies of large commodity exporters such as Australia or Canada, even though the share of commodities in the US export basket is far less.[14]<\/a><\/p>\n\n\n\nFor the United States, higher commodity prices in 2022 led to positive terms of trade effects (the ratio of export prices to import prices), slightly uplifting the US trade deficit otherwise weighed down by large deficits on merchandise exports.[15]<\/a> While dollar appreciation hurt US manufacturing[16]<\/a> and contributed to an unprecedented US current account deficit of more than a trillion dollars, the US oil and gas industry was the biggest beneficiary of the commodity-dollar price surge.[17]<\/a><\/p>\n\n\n\nAs a volatile mix of inflation, interest-rate hikes, and dollar appreciation reverberated across the global economy, many developing countries who rely on commodity imports and dollar loans found themselves unable to cope with their external bills. From 2022 \u2013 2023, higher interest rates and a stronger dollar drew forty one percent of global financial inflows to the US.[18]<\/a> While US banks earned a cool trillion dollars from the Fed\u2019s interest rate hikes,[19]<\/a> low and middle-income countries (LMICs) spent a record $1.4 trillion servicing debts owed to foreign creditors.[20]<\/a> Rich countries like Germany and the UK could afford to cushion households against the pain by offering energy subsidies. LMICS, however, found themselves priced out of international credit markets.[21]<\/a> Seeking International Monetary Fund loans, they had little choice but to follow IMF diktat and cut fuel subsidies.[22]<\/a> Cutting subsidies, after all, is the quickest way for a borrowing government to signal its commitment to reducing government budget deficits\u2014certainly much easier than reforming tax systems.[23]<\/a> Inasmuch as fiscal consolidation is a perennial conditionality on governments seeking IMF assistance, LMICs were stuck between Scylla and Charybdis.<\/p>\n\n\n\nAs it played out, the triple (commodity-dollar-interest-rate) price-shock on top of the pandemic-related budgetary pressures led ninety-seven LIMCs to seek and secure IMF loans between 2022 and 2024. This number of borrowers is unprecedented in the history of the funding agency.[24]<\/a> For many countries, Fund support came at a steep cost. Apart from policy conditionalities, more than eighty percent of IMF lending is non-concessionary. In many instances, IMF loans come with considerable fees and surcharges attached. Despite being under fire from Russian forces, even Ukraine\u2019s $15.6 billion loan from the Fund was subjected to these extra charges.[25]<\/a> (Ukraine had however secured a temporary pause in its international debt payments by August 2022.) It was only in late 2024, following campaigns against the IMF\u2019s surcharge policy, that the Fund moved to reduce its interest-rate related charges, surcharges, and other fees. [26]<\/a> As its largest debtors, countries such as Argentina and Ukraine\u2014whose surcharges will be cut by about forty percent\u2014as well as Egypt and Ecuador will benefit the most from this policy pivot.<\/p>\n\n\n\nThe international community\u2019s interventions went even further regarding Ukraine. In the Paris offices of Ukraine\u2019s legal advisors, Rothschild & Co., with the Fund\u2019s staff on call providing around-the-clock technical assistance, Ukraine secured a 37% percent principal haircut on about $20.5 billion worth of its international bonds held by, among others, large asset managers such as BlackRock and Amundi.[27]<\/a> It was one of the fastest and largest sovereign debt restructurings in recent memory\u2014smaller only than the haircuts provided to Greece and Argentina.[28]<\/a> Having some of its debt wiped off the books enables Ukraine to continue receiving more IMF financing. However generous, IMF support paled in comparison to Washington\u2019s financial assistance to Ukraine, which amounted to $35 billion between 2022 and 2023. Like IMF loans, which came with conditionalities, US assistance came with strings attached: some unknown share of the dollars received by Ukraine would be recycled back to US agencies and firms. These included American behemoths BlackRock and JP Morgan Chase who were contracted by the Ukrainian government to design its postwar reconstruction financial facility, the Ukraine Development Fund. [29]<\/a> Hidden away from the front pages, American asset managers, bank-holding companies, and private wealth management advisors now determine the shape of Ukraine\u2019s finances.<\/p>\n\n\n\nFacing its own set of dilemmas, Egypt, like Ukraine, secured emergency financing from varied sources. In Egypt\u2019s case, the dollars arrived after the country\u2019s financial situation\u2014already in dire straits since the pandemic\u2014took a swift turn for the worst after October 7, 2023. Bordering the Gaza Strip, Egypt\u2019s economy would be exposed to Israel\u2019s campaign in several ways, including disruptions in commercial shipping. [30]<\/a> As Israel Defense Forces were carpet-bombing parts of Gaza, Houthi militants from Yemen (expressing solidarity with Palestinians) launched attacks on commercial vessels in the Red Sea. From 2015 to 2022, Yemen itself had endured more than twenty-five thousand air raids by a Saudi-UAE led coalition. Other members of the bombing campaign in Yemen included Egypt, Jordan and Qatar, with the US and UK providing logistical and technical assistance.[31]<\/a><\/p>\n\n\n\nWhile the Houthi fighters were focused on inflicting economic damage on Israel by, for e.g., disrupting cargo shipments to the country, among the vessels they targeted were LNG tankers from Qatar enroute to Europe via the Suez Canal.[32]<\/a> Consequently, as ships were rerouted away from Suez, the resulting seventy percent decline in commercial shipping traffic receipts led to a precipitous fall in Egypt\u2019s foreign-exchange earnings.[33]<\/a> Having taken on major debts to manage the price shock of 2022, the drying up of Suez cashflow left Egypt spending half of its public revenues on debt servicing.[34]<\/a><\/p>\n\n\n\nAmidst this febrile state-of-affairs, Egyptian authorities played a familiar card. Positioning itself as a key mediator between Israel and Hamas\u2014and having already earned its stripes as Abu Dhabi\u2019s ally during the Arab Spring\u2014Cairo made the sell that it was too important a strategic partner to allow it to fail. Leveraging Egypt’s importance to regional security, Cairo got the dollars flowing. First to arrive were billions in investment from ADQ, one of Abu Dhabi\u2019s sovereign wealth funds. The terms and conditions of the arrangement handed ADQ the rights to develop Ras El-Hekma, a massive beachfront overlooking the Mediterranean.[35]<\/a> In exchange for taking a less-than-majority ownership stake in the project, the Egyptian government received an immediate cash infusion of $24 billion. (The total size of the investment is around $35 billion).<\/p>\n\n\n\nIt was this deal that enabled Egypt to secure a fresh credit line from the IMF. This was because the ADQ investment allowed the country to satisfy the Fund\u2019s stipulations around \u201cexternal financing assurances\u201d: Per the IMF\u2019s \u2018debt sustainability\u2019 requirements, borrowing governments need to demonstrate they can access other external creditors in order to secure an IMF loan. The cash infusion of $24 billion from Abu Dhabi led the IMF to quickly settle on an augmented loan agreement with Egypt in March 2024, amounting to $8 billion.[36]<\/a> Shortly thereafter, the European Union president Ursula von der Leyen came calling with a grants and loan package worth \u20ac7.4 billion ($8.1 billion).[37]<\/a> Von der Leyen would return to Cairo a month later for an investment conference where European companies pledged deals with Egyptian partners amounting to \u20ac40 billion.[38]<\/a> The UK followed suit with its own smaller package. <\/p>\n\n\n\nDevelopment in the Suez Canal Economic Zone was back on the agenda, as was energy. (Refined petroleum and petroleum gas are Egypt\u2019s largest exports.[39]<\/a>) Also on the agenda: more funding for Egyptian security intended for controlling emigration flows to Europe. Counting the ~$10 billion that the Saudi state had agreed to park in the Egyptian central bank in 2022 to stabilize its balance of payments accounts, the international bailout approximated $57 billion.[40]<\/a> As major credit ratings agencies uplifted their forecasts for Egypt, investors lobbied for the country\u2019s reinclusion in JPMorgan\u2019s index for emerging market sovereign debt\u2014which, in turn, would enable Egypt to attract investment from passive funds, which are often large, long-term holders of sovereign debt. (Egypt had been kicked out the index twice before.)<\/p>\n\n\n\nThis time, too, emergency relief came with a price. First, there were interest rate hikes. As demanded by the IMF, the Central Bank of Egypt raised interest-rates, already 21%, by an astounding 600 basis points in late February 2024. The Egyptian central bank allowed the currency to depreciate, despite President Abdel Fattah El Sisi\u2019s previous pledges\u2014for \u2018national security reasons\u2019\u2014on exchange rate preservation.[41]<\/a> On March 6th<\/sup>, the Egyptian pound crashed by 62% before clawing some gains back and closing 38% weaker against the dollar.[42]<\/a> To demonstrate fiscal responsibility, Egyptian policymakers also agreed to reduce planned infrastructure spending.<\/p>\n\n\n\nEgypt and Ukraine\u2019s examples speak to the enduring relevance of \u201cextreme conditionalities.\u201d A dynamic associated with the late nineteenth to early twentieth century and explicated by economic historian Didac Queralt, \u201cextreme conditionalities\u201d refers to the manner in which emerging market sovereigns in danger of defaulting on their foreign loans pawn state assets for new external indebtedness.[43]<\/a> A stronger form of this very thesis was made more than a century ago by the political economist, Rosa Luxemburg. In her magnum opus, The Accumulation of Capital, <\/em>Luxemburg wrote that the external borrowing involved in the construction of the Suez canal would entrap Egypt in servitude to its European creditors. Suez \u201cformed the nucleus,\u201d wrote Luxemburg, \u201cfor Egypt\u2019s immense national debt which was to bring about her military occupation by Britain.\u201d [44]<\/a> She pointedly noted that Egypt\u2019s state of insolvency did not prevent European financiers from dishing out more loan contracts. Not unlike present circumstances, back then, Egypt\u2019s indebtedness to its foreign creditors furthered European capital\u2019s entrenchment into Egyptian finances. Over time, this meant that Egyptian land would become collateral for public debt owed to foreign creditors or would simply be taken over by British authorities as the costs of occupation, paid as baksheesh<\/em> (tribute).[45]<\/a> Luxemburg commented that the nine percent nominal interest rate on Egyptian borrowing in 1874 was \u2018exorbitant.\u2019 Today, the benchmark interest rate in Egypt is more than twenty-seven percentage points.<\/p>\n\n\n\nII. Hegemonic Transition<\/strong><\/h2>\n\n\n\nIndeed, conditionalities attached to foreign assistance have long been a form of economic coercion employed by powerful states. The United States\u2019 post World War II financial assistance to Europe colloquially known as the Marshall Plan was one in which US economic interests were thoroughly entwined with national security concerns. A consolidated communist bloc in Europe threatened US access to European markets.[46]<\/a> Rebuilding overseas markets in Europe would prove useful in absorbing excess output (\u2018overcapacity\u2019) in the US economy, where unequal income distribution\u2014much like in China today\u2014hindered domestic consumption.[47]<\/a> More than just financing postwar reconstruction, the European Recovery Program was configured around Europe paying for US goods and services.[48]<\/a> Ultimately, seventy percent of Marshall plan aid was used to purchase US goods: for instance, capital equipment to build Europe\u2019s first commercial geothermal plant in Tuscany.[49]<\/a><\/p>\n\n\n\nOver a quarter of ERP aid\u2014$13.3 billion at the time, equivalent to roughly $200 billion today\u2014was allocated to the UK.[50]<\/a> Marshall Plan dollars arrived in Europe only a few years after December 1945, when the US finally agreed to give the UK a desperately needed $3.75 billion loan. In addition to fresh capital injections, the December 1945 Anglo-American Financial Agreement involved the settlement of Britain\u2019s Lend-Lease war debts (for which the US provided an additional $650 million). In Britain, the fact that US assistance was arriving in the form of an interest-bearing loans was regarded with some chagrin. While America had supplied the aid, including to the Soviets, that ensured the Allied victory\u2014as the UK foreign secretary stated, the war was won on \u201ca wave of [American-supplied] oil\u201d\u2014the US had been a late party to the theatre of operations, entering the fight only in December 1941.[51]<\/a> Feeling that they had carried the Allied effort, UK parliamentarians were aggrieved that US policymakers treated the UK\u2019s war debt on such transactional terms, as if it was equivalent to an interest-bearing commercial loan. (The British view was, of course, a distorted one: Allied forces would not have won the war were it not for the Soviets pushing back the Germans in the east.)<\/p>\n\n\n\nThere were debates in Parliament about whether or not to accept the 1945 US loan at all, given its less than generous terms and conditions. That the loan contract urged Britain to dismantle its preferential trading regime (known as the Sterling Area) and reduce its external indebtedness was cause for even greater agita. Britain\u2019s debts to the Sterling Area were about twelve billion (nominal) dollars in July 1944, far greater than what Britain owed the United States.[52]<\/a> The American loan contract of 1945 clearly stipulated that the dollars borrowed could not be used by Britain to settle any other external obligations.[53]<\/a> As had become clear at the Bretton Woods summit in 1944, both the UK and the US would rather that the issue of Sterling balances be swept aside. And as would become the pattern with US overseas financial assistance, the 1945 loan, too, specified that the financing provided by the US should facilitate Britain\u2019s purchase of American goods and services.<\/p>\n\n\n\nContentious as the negotiation process was, the American loan did not end up shoring up Britain\u2019s finances. To the astonishment of policymakers on both sides of the Atlantic, the loan was used up after just two years. That the dollars were drawn down so quickly had to do with another of the loan\u2019s terms: namely, that the sterling be made fully convertible.[54]<\/a> This conditionality provoked the hemorrhaging of UK foreign reserves, with investors dumping pound sterling as soon as exchange controls on UK trade transactions were lifted in July 1947.[55]<\/a> To prevent the pound from sliding further, Britain went back on exchange controls in August 1947, but only after securing permission from its creditors in Washington.[56]<\/a><\/p>\n\n\n\nThe two world wars had ravaged British balance sheets. A net international lender before WWI, Britain would emerge from WWII as the largest of sovereign borrowers.[57]<\/a> In a world where money was ultimately backed by gold, Britain\u2019s indebtedness had dimmed the pound\u2019s prospects. Britain\u2019s century-long experiment with the gold-standard had, of course, ended in the interwar years. In 1919, sustained financial pressures led the UK Treasury to officially suspend sterling\u2019s convertibility into gold. Attempts at reestablishing sterling-gold parity at the pre-war peg proved deflationary and ultimately gave way on the heels of the Wall Street crash of 1929. And yet, even though New York had overpowered London as the dominant global financial center by the 1920s\u2014and the US manufacturing capacity was far greater than that of British by the dawn of the post-war era\u2014it would still be some time before the dollar displaced sterling as the premium foreign reserve and trade vehicle currency. [58]<\/a> Even in 1957, sterling still financed almost half of world trade.[59]<\/a><\/p>\n\n\n\nSafeguarding sterling from dollar encroachment required geopolitical maneuvering. London\u2019s financial administrators were no stranger to monetary machinations, having honed them in the colonies. Early in the 20th century, colonial authorities transferred India\u2019s Gold Standard reserves to London where they became a monetary buffer at the Bank of England. (Gradually converted into sterling debt securities, India\u2019s gold was transformed into a cheap source of liquidity for the City of London.[60]<\/a>) With the end of sterling-gold convertibility in 1919, countries that were part of the informal sterling zone\u2014who tended to deposit their foreign-currency reserves in London\u2014switched from pegging to gold to pegging against sterling.[61]<\/a> By the 1930s, the loosely knitted sterling bloc had shrunk to just the Commonwealth countries (except for Canada) and a handful of others including Egypt, Palestine, Sudan, and Transjordan. [62]<\/a> The second world war de facto <\/em>led to experimenting with exchange controls in the sterling bloc. The Sterling Area was carved out into a legally defined unit in 1940.<\/p>\n\n\n\nThe 1932 tariffs on manufactured imports, whereby Australia, Canada and other dominions negotiated for privileged access to the UK market in exchange for a reduction in their own tariffs, no doubt, proved instructive in designing Sterling Area policies. Weaponizing trade relations is an increasingly familiar feature of the contemporary world economy. Applying coercive pressure on trade partners is, of course, central to President Trump\u2019s ambitions in his second-term in office. Trump has declared that he will negotiate reductions in tariffs with US trade partners if they set up production (inward foreign direct investment) in the United States. But even under the Biden administration, while US Treasury Secretary Yellen promoted \u2018friendshoring\u2019 \u2014as in, increasing trade ties with geopolitical allies\u2014US National Security Advisor Jake Sullivan strongarmed \u201csmall yard, high fence\u201d trade tactics: prohibiting, for e.g., US imports of advanced semi-conductor chips from China. Along with export controls, the Biden administration increased US sanctions on Chinese entities\u2014only escalating Trump\u2019s economic aggression towards China during his first term.<\/p>\n\n\n\n
With regard to Sterling Area policies, financial controls complemented coercive trade practices. Reinforcing the core of the Sterling Area demanded a reservoir of hard-currency reserves. Accordingly, Sterling Area members collectively pooled their foreign exchange revenues (including sterling earned from exporting to Britain) at the Bank of England.[63]<\/a> UK authorities enacted strict controls on members\u2019 access to their own foreign reserves.[64]<\/a> While sterling transfers within the sterling zone were permitted, monetary flows between sterling and non-sterling areas were tightly regulated. If countries left the Sterling Area, they would lose access to a preferential trading zone (which would mean facing a greater tariff burden) as well as ease of financing from London\u2019s deep and liquid capital markets.[65]<\/a><\/p>\n\n\n\nThe gold and dollar deposits of Sterling Area members as well as the money owed to them by Britain (on its imports from the Sterling Area) were held in London. In rather obscure fashion, they came to be recorded in Britain\u2019s financial accounts as \u2018sterling balances.\u2019 [66]<\/a> By 1945, aggregate sterling balances were seven times larger than the UK\u2019s gold and dollar reserves.[67]<\/a> The eminent British economist Lord John Maynard Keynes reported to the House of Lords in 1945 that two thirds of Britain\u2019s sterling balances were owed to India, Egypt, Palestine, and Ireland.[68]<\/a><\/p>\n\n\n\nThe American position that Britain disband the Sterling Area predated the 1945 Anglo-American loan agreement. At the Bretton Woods meetings in July 1944, the Americans reiterated their disgruntlement with Britain\u2019s trade protectionism. The Sterling Area stood against the ethos of the postwar multilateralism the United States sought to establish through negotiations at Bretton Woods\u2014a new trade and monetary order underpinned by the dollar.[69]<\/a> While the Bretton Woods conference cultivated an aura of multilateralism, deliberations regarding the future of the world economic order were mostly limited to those between the American and British delegates\u2014led by the senior US Treasury official Harry Dexter White and, on the UK side, John Maynard Keynes.[70]<\/a><\/p>\n\n\n\nThe parlous state of UK finances, in particular its massive external liabilities (sterling balances), conditioned Keynes\u2019 ability to negotiate with White. In 1941, Keynes argued that sterling balances should either be funded\u2014presumably with American assistance\u2014or frozen, as they had been during the war. [71]<\/a> Mindful of this, White intended to enlist British support for a new dollar-based world monetary regime by delivering a partial write-off of Britain\u2019s outstanding debt to the Sterling Area. The greatest portion of Britain\u2019s frozen or \u2018blocked\u2019 \u2018sterling balances\u2019\u2014more than a third of approximately twelve billion (nominal) dollars in July 1944\u2014were owed to India. [72]<\/a> Second only to India, Egypt\u2019s frozen balances amounted to a billion dollars.<\/p>\n\n\n\nAt Bretton Woods, demands by India\u2019s delegates that some of India\u2019s blocked sterling balances be converted into dollars for food imports were brushed aside.[73]<\/a> The Bengal famine\u2014the result of demand compression enforced to help finance Allied war spending\u2014led to drastic declines in Indian food-consumption.[74]<\/a> 1.5 million deaths had been recorded in 1943-1944 alone.[75]<\/a> Amidst Anglo-American wrangling over the contours of a new international monetary arrangement, Keynes rejected India and Egypt\u2019s proposals for a trilateral resolution (involving the US) of their approximately five billion dollars in blocked sterling balances. He insisted on a bilateral resolution between the UK and each of its creditors. [76]<\/a> Keynes was well aware that fiscal incapacity would make for further pound sterling devaluation, thereby reducing the size of Britain\u2019s outstanding sterling balances.[77]<\/a><\/p>\n\n\n\nOn August 14, 1947, a London settlement determined the sterling balances of the freshly partitioned Indian Subcontinent. The money was returned to India and Pakistan in piecemeal installments. England\u2019s creditors, its former colonial possessions, were not made whole. London had the upper hand in related contestations concerning Lend-Lease aid to India (for which, Keynes had argued, India should pay Britain), interest accumulated on sterling balances, and the capitalization of pensions owed to colonial officers.[78]<\/a> Exchange-rate movements inflicted further damage: Lacking a protective currency devaluation clause, the Subcontinent\u2019s sterling balances would be further eroded when the sharp devaluation of the pound in 1949.<\/p>\n\n\n\nIII. Empire\u2019s Ends<\/strong><\/h2>\n\n\n\nLess than a decade after its rushed withdrawal from India, Britain\u2019s adventurism in the Middle East would be thwarted by the Suez Crisis. The 1956 crisis would quickly embroil \u2018virtually every element of world politics.\u2019[79]<\/a> Postwar reconstruction and rearmament had made for a fast-growing oil market and a dollar shortage in Europe.[80]<\/a> In 1947, Britain insisted that Cairo repudiate at least some of the sterling balances that London owed it. (In Parliament, in March 1951, Winston Churchill revealed that as Prime Minister he, too, had supported repudiating Egypt\u2019s financial claims.[81]<\/a>) When Cairo pressed for the expedited return of its frozen sterling balances, London presented it with an ultimatum: either leave the Sterling Area with some of its sterling balances or have its sterling balances fully blocked.[82]<\/a> Having essentially forced Egypt\u2019s withdrawal from the Sterling Area in July 1947\u2014all the while constructing a narrative that Egypt left of its own volition\u2014the Bank of England reduced the amount of Egypt\u2019s sterling balances that it had promised to release.[83]<\/a> As was the case with India\u2019s sterling balances that remained in London, Egypt\u2019s, too, would diminish with the 1949 devaluation.<\/p>\n\n\n\nOil was the largest commodity in mid twentieth century global trade. Two thirds of oil destined to Europe flowed through the Suez;[84]<\/a> an entire three fourths of UK oil imports were from the Middle East.[85]<\/a> British troops had long been stationed in the Suez Canal Zone where the Anglo-French Suez Canal Company extracted tolls and fees from ships using the strait. Crude oil reserves (outside the United States and Eastern Europe) were more or less split between American and British firms.[86]<\/a> In 1949, the British government projected that half of the Sterling Area dollar deficit came from oil imports. A quarter of this was from Sterling Area expenditures on American-owned oil, for example, that produced by Arabian American Oil Company i.e., Aramco.[87]<\/a> In 1950, the UK ordered Sterling Area members to reduce their purchases of much more expensive \u2018dollar oil\u2019 and purchase \u2018sterling oil\u2019 instead. In effect, this mandated that Area members purchase oil from the majority-British controlled Anglo-Iranian Oil Company (a firm that would later be rebranded as British Petroleum, i.e. BP).[88]<\/a><\/p>\n\n\n\nSterling Area dollar reserves provided a financial shield for Britain\u2019s external balance sheets. The dollars could be deployed (sold) to defend (buy) the pound in the event of future sterling devaluations. Furthermore, a projected expansion in British controlled Iranian oil would require absorption by friendly markets. Despite having left the Sterling Area, Egypt, too, continued purchasing sterling oil: its policymakers recognized that continuing trade relations with Britain would enhance its chances of receiving its remaining Sterling balances.[89]<\/a><\/p>\n\n\n\nTo say that the years leading up to the Suez crisis were eventful is an understatement. Israel\u2019s statehood and the ensuing displacement of Palestine\u2019s population (al Nakba<\/em>) in 1948 had led to regional tumult. In protest, the Saudis refused the passage of Israeli ships across the Suez. In 1949, after Israel tried to establish a port at the Gulf of Aqaba to secure sea access to Asian markets, Egypt imposed a blockade (with Saudi cooperation) on Israeli ships across the Gulf. This prevented the delivery of oil from a British-owned refinery in Haifa, forcing the plant to operate at a fourth of its full lower capacity.[90]<\/a><\/p>\n\n\n\nThe Egyptian blockade signaled the capability of Arab states to thwart western and Israeli oil interests.[91]<\/a> Its successes encouraged bolder actions in the domain of energy. In 1951, Iran\u2019s Prime Minister, Mohammad Mosaddegh, nationalized the assets of the Anglo-Iranian Oil Company. In retaliation, the British government imposed an embargo on Iranian oil exports.[92]<\/a> By 1953, a covert operation supported by the US and UK intelligence agencies had ousted Mossadegh from office, setting the stage for his eventual replacement by the Shah. The US thereafter established a forty-plus percent stake in the western consortium controlling Iranian oil.[93]<\/a><\/p>\n\n\n\nIn 1954, Egypt\u2019s President Gamal Abdel Nasser signed the Anglo-Egyptian Agreement, securing the withdrawal of British troops from the Suez Canal Zone. The next year, Nasser proposed that Washington sell Cairo $27 million worth of weapons. The US demanded a cash payment knowing full well that the cash-strapped nation would be unable to honor the transaction.[94]<\/a> Nasser\u2019s previous position of neutrality vis a vis Israel had changed; US President General Dwight D. Eisenhower keenly felt that Nasser was playing both the Americans and the Soviets. (As recently as 2022, Egyptian armament purchases from Russia exceeded those from the United States.[95]<\/a>) The Eisenhower administration was concerned about the balance of power in the region. Then, in July 1956, the US and UK backtracked on their joint agreement with the World Bank to provide Egypt $70 million in hard currency grants to facilitate the first stages of the construction of the Aswan High Dam\u2014like Suez, a decade-long billion dollar plus project, the largest of its kind in the world.[96]<\/a><\/p>\n\n\n\nBy then, Nasser\u2019s massive ($83-$200 million) arms deal with the Soviets in Czechoslovakia as well as the Soviet offer to help finance the new Aswan dam had come to light.[97]<\/a> According to the World Bank, the Egyptian-Czechoslovak arms agreement would make it very difficult for Egypt (whose foreign exchange reserves were in question) to pay back Aswan-related debt.[98]<\/a> In a fiery exchange in Washington that July, the US Secretary of State, John Foster Dulles reneged US assistance to Egypt. Less than a week after the Anglo-American betrayal and with the Soviets still hemming and hawing (Soviet assistance for Aswan would materialize, but only later), Nassar opted to nationalize the Suez Canal Company. He declared that the fees raised in Suez would help finance the mega hydro-electrification and irrigation project.[99]<\/a><\/p>\n\n\n\nWhile Nasser\u2019s takeover had not stopped the flow of traffic through the Canal, on the pretext of guaranteeing safe passage for ships crossing the Suez, British and French troops occupied the canal after sending out Israeli forces to occupy the Sinai. [100]<\/a> Kinetic warfare\u2014most prominently, the Royal Air Force\u2019s bombing of Port Said at the northern end of the Canal\u2014was accompanied by financial strikes: Egypt\u2019s sterling balances were, once again, blocked.[101]<\/a> The latter action gave pause to other sovereigns, such as Kuwait, about the safety of holding reserves in London. To protect the former Anglo-French owners, the Suez Canal Company\u2019s overseas cash balances were frozen by the United States and Switzerland, and despite filing writs of attachment, the Egyptian government couldn\u2019t access them.<\/p>\n\n\n\nBritain\u2019s incursion into the Suez had been a bid to safeguard its own financial and energy security. Set in this context, the operation\u2019s failure is rather spectacular. In the aftermath of the invasion, speculation in world currency markets drove repeated sell-offs of sterling assets. UK foreign reserves fell below the Bank of England\u2019s preferred buffer. Aware of Britain\u2019s financial squeeze, Eisenhower refused to support Britain\u2019s request for money from the IMF or the US EX-IM bank[102]<\/a>: As he stipulated, the US would not help Britain pay for oil imports unless there was a ceasefire. The threat of financial reprisal and market chaos led the UK to capitulate by withdrawing its troops from the Suez. Ironically, it was an act of financial weaponization by its closest ally that halted Britain\u2019s expansionist ambitions. (Securing Israel\u2019s withdrawal from Sinai took longer. It was only after Eisenhower applied consistent pressure in the face of pro-Israel Congressional resistance\u2014including by threatening to suspend US investment in Israeli sovereign debt\u2014and after he signaled that the US would support UN proposals to sanction Israel that the latter withdrew from the Sinai Peninsula and Gaza Strip.[103]<\/a>).<\/p>\n\n\n\nIt was the US, then, that helped end Britain\u2019s long occupation of Egypt. Motivating Washington was Eisenhower\u2019s fear that the oil-exporting countries in the Middle East would turn against the West if it continued to meddle in the Suez. In the face of Soviet encroachment, western access to Middle Eastern energy resources was at stake. As had been the pattern with US foreign policy, the United States\u2019 own interests motivated its defense of Egypt\u2019s sovereignty.<\/p>\n\n\n\n
The Suez debacle set the stage for the full-spectrum dominance of the US dollar\u2014and for the reworking of the Anglo-American financial relationship.[104]<\/a> The sterling crisis had prompted the Bank of England to restrict UK banks from lending internationally in pounds. Dollar lending, however, was exempt from this stricture.[105]<\/a> Ironically, it was this contingency (among others) that paved the way for London becoming the center of the offshore dollar system.<\/p>\n\n\n\nWith the United States\u2019 assent, Britain became the IMF\u2019s largest borrower for the next couple of decades.[106]<\/a> Echoing the IMF\u2019s move to lend to war-torn Ukraine despite the country\u2019s inability to meet the Fund\u2019s pre-lending requirement that borrowers exhibit sustainable levels of debt, IMF loans to Britain also meant relaxing Article VI which prohibited the IMF from lending to countries facing a \u2018large or sustained\u2019 capital outflow.\u2019[107]<\/a> It was only decades later, during the Thatcher era, thanks to North Sea oil revenues, that Britain\u2019s balance of payments were no longer a pressing concern. Post Suez, Egypt, too, would go on to experience balance of payments crises. Then too, because of Egypt\u2019s geopolitical importance as an Arab power, it was deemed too \u2018strategic to fail.\u2019[108]<\/a> In the decades to follow, Egypt would become a top IMF borrower, second only to Argentina.[109]<\/a><\/p>\n\n\n\nIV. Extreme Conditionality<\/strong><\/h2>\n\n\n\nThe war in Ukraine has had many unintended consequences. It has certainly boosted US hydrocarbon and defense exports. The price shock of 2022 made crude oil the world\u2019s most expensive traded product (worth $1.45 trillion). While Saudi Aramco was the largest oil exporter and China the biggest importer, US oil and gas profits (earned from domestic and foreign sales) were unmatched\u2014amounting to more than three hundred billion dollars in 2022.[110]<\/a><\/p>\n\n\n\nThe export boom in United States\u2019 liquified natural gas (LNG) is directly attributable to the Russo-Ukraine war. On the one hand, war-induced reductions in Russian energy flows to Europe prompted most of western Europe, including Germany, to secure supplies from Qatar, Abu Dhabi and the United States. Having previously shunned US LNG for its heavy carbon footprint, in 2023 close to half of Europe\u2019s LNG imports were from the US. The surge in European demand made the US the world\u2019s top LNG exporter.[111]<\/a> War-induced price effects proved hugely beneficial for American firms, too. While prices for LNG increased three-fold in the US between December 2021 and September 2022, they increased eight-fold in Europe.[112]<\/a> By virtue of most US LNG contracts having \u2018destination flexibility\u2019\u2014a legal provision which allows traders to deliver product to any non-sanctioned destination\u2014American firms could take full advantage of the price increases in Europe.[113]<\/a><\/p>\n\n\n\nIn effect the LNG bonanza was a coup for hydrocarbon dollar. Despite the ambitions of the Biden administration when it came to climate policy, materially, the LNG boom buttressed the US fossil fuel industry. The consequences for the planet were clear as the United States recorded their highest greenhouse gas emissions levels ever.[114]<\/a> With Trump\u2019s second term in office, the Biden administration\u2019s \u2018friendshoring\u2019 policy has been replaced by a more brutish law of the jungle: Trump has threatened Europe with tariffs unless it scales up its US hydrocarbon purchases.[115]<\/a> He has also reversed Biden\u2019s pause on new LNG export licenses from countries without free trade agreements and begun approving new LNG export licenses.[116]<\/a><\/p>\n\n\n\nDemand for natural gas represents a quarter of total global energy demand. About a quarter of global demand comes from within the US.[117]<\/a> Europe\u2019s demand for natural gas has consistently declined since the 2022 price shock and is expected to fall by twenty five percent by 2030.[118]<\/a> While nearly seventy percent of Russian LNG went to Europe in 2024\u2014a record high\u2014Russian supply comprised just seventeen percent of Europe\u2019s LNG imports.[119]<\/a> Russian piped gas continues to flow to Europe, but at a much more diminished scale. The future of sanctions continues to drive uncertainty.[120]<\/a><\/p>\n\n\n\nIn terms of supply, projections hold that LNG gas production will increase by five percent in 2025, with American production responsible for the majority of the expansion.[121]<\/a> (Three quarters of the global liquefaction capacity approved between 2022 and 2023 was in the US.) The bulk of future demand for US LNG does not lie in Europe but in Asia. China is today the world\u2019s largest LNG importer, and Indian demand is growing rapidly, too. Asia is expected to drive about forty five percent of LNG demand in 2025.[122]<\/a> Rising Asian LNG demand has coalesced with rising American supply, begging interesting questions of the Trump White House. As early as 2021-2022, US LNG contracts with China already exceeded contracts with Europe.[123]<\/a> A transactional presidency would press for new deals pushing US LNG exports to China for the latter\u2019s continued investment in US Treasuries. In the fevered dreams of hydrocarbon traders and those seeking continued US Treasury dominance, this could be what d\u00e9tente looks like. But when transactionalism shades into bullying, the outcomes can become chaotic. One need look no further than the ongoing trade war for evidence. Already, China has retaliated against Trump\u2019s ten percent tariffs on all US imports from China by imposing fifteen percent tariffs on US LNG imports.[124]<\/a> China has not imported any US LNG for more than a month. Presently, US LNG buyers in China holding long-term contracts are diverting their LNG shipments to Europe.[125]<\/a> China\u2019s penchant for holding US Treasuries has also diminished.<\/p>\n\n\n\nIn his call for American \u201cenergy dominance\u201d, it is clear that Trump understands reducing inflation while hiking tariffs (which are inflationary) will hinge on reducing energy prices. Consequently, on day one in office, Trump signed off on a declaration of national energy emergency to \u2018unleash American energy\u2019.[126]<\/a> Sustainable development requires decarbonization, but tariffs and trade battles herald inflation, which may, at some point, require the Fed to raise interest rates. Given that the bulk of green projects are debt-financed, (i.e. dependent on interest rates) spending on clean infrastructure in the Global South is bound to decline over the next four years.<\/p>\n\n\n\nPresident Trump\u2019s inaugural address promised to end wars. In fact, Trump\u2019s return to the White House was instrumental in Biden\u2019s ability to secure a ceasefire agreement between Israel and Hamas. Gazans have begun to return to a moonscape rubble or, as Trump has put it, a \u2018massive demolition site\u2019, with more tonnage of bombs dropped than on any other modern urban landscape. Financing the rebuilding and prerequisite removal of the rubble\u2014fifty million tons of twisted concrete and steel, chemical spills, ground water leached with metals, such as lead from solar panels, as well as human remains\u2014remains in question.[127]<\/a> Seeking to reduce government spending, Trump\u2019s first moves in office included slashing the US foreign assistance program known as USAID.<\/p>\n\n\n\nIn his February meeting with Netanyahu, Trump announced that that the US will take over the Gaza strip; he asserted that, given its \u2018phenomenal location\u2019 overlooking the Mediterranean, \u201csome fantastic things could be done with Gaza.\u201d In response to Trump\u2019s Riviera plan for Gaza, which involves the forced removal of Palestinians from their land, the Arab League has proposed an alternate $53 billion reconstruction plan\u2014using World Bank estimates\u2014in which Palestinians remain on their land. This alternative, the outcome of a League summit in Cairo, has been supported by the major European powers.[128]<\/a><\/p>\n\n\n\nEgypt\u2019s proposal, coined the Gaza Recovery, Reconstruction, and Development plan (henceforth Gaza Recovery<\/em>), was prepared under El Sisi\u2019s directive. In many spaces, it has been called technocratic. It is, in fact, fantastical. Drawing on past \u2018experiments\u2019 in catastrophe in Hiroshima, Berlin, and Beirut, Gaza Recovery<\/em> calls for an \u2018integrated economic and social renaissance\u2019 made possible through \u2018international and regional investment funds\u2019. As can be seen with Egypt\u2019s own experience with international funding, these credit contracts tend to carry expectations of \u2018extreme conditionalities.\u2019 Even more troubling is the fact that this alternative plan for Gaza is one which hasn\u2019t been written by Palestinians themselves. It is, instead, an Egyptian effort, written in a context in which the heavily indebted nation can scarcely afford to displease its creditors in Washington and elsewhere.<\/p>\n\n\n\nEach map of the new Gaza strip, built along a green tree-lined spine, prominently demarcates designated crossings into Israel and Sinai. The security cordon separating Gaza from the rest of Israel will continue. (The Egyptian president has revealed that Cairo has been training Palestinians to serve as security forces during the transitional international governance of Gaza overseen by UN peacekeepers.) While Gaza Recovery <\/em>promises an architectural Mecca in the future with domed minarets for rooftops and fifteen shopping malls, in the interim, shipping containers will be repurposed as 200,000 housing units for 1.6 million. This, despite the fact that the numbers of displaced Palestinians is around 2 million. Development-related proposals are equally off the mark. The population in Gaza has very high literacy rate\u201498%, far greater than Egypt\u2019s 71%. The Gaza plan nevertheless skews heavily towards generating employment opportunities in agriculture and fishing.[129]<\/a> Neglecting Israel\u2019s control of entry, the plan projects 60,000 jobs for the tourism sector, just ten thousand less than estimated jobs for industry (and twenty thousand less than that expected in fishing).[130]<\/a> While seeking to honor the victims of the war on Gaza, the proposal also seeks to turn part of Gaza\u2019s rubble into a land reclaimation project by the coast\u2014with a Belgian company allegedly prepared to take the lead.[131]<\/a><\/p>\n\n\n\n
\n\n\n\nAt the end of February, Trump attempted to extort a favorable deal from Ukraine\u2014demanding that the US take half of the share of all of Ukraine\u2019s mineral resources as compensation for some measure of US protection short of a security guarantee. The plan was temporarily thwarted with farcical scenes at the White House where Trump and Vice President Vance publicly rebuked Ukraine\u2019s President Zelenskyy. Ukraine remains over the barrel, though, and hemmed in by extreme conditionalities. An agreement along the lines of Washington\u2019s designs seems inevitable. Recent negotiations between Trump and Putin have led to a temporary limited ceasefire. Both Kremlin and Kiev have declared that they will pause targeting each others energy infrastructure. (It turns out that Ukraine\u2019s strikes on Russian oil and gas infrastructure have hurt Russian state revenues.[132]<\/a>)<\/p>\n\n\n\nWhat awaits Gaza is as yet unknown. What is for certain, though, is that Gaza\u2019s Mediterranean coastline\u2014for which Egypt\u2019s blueprint has a Corniche road in mind, and quite possibly its offshore gas marine reserves, which contain a modest 32 BCM of natural gas[133]<\/a>\u2014will come into play, at least symbolically, in this new era of \u2018extreme conditionality.\u2019[134]<\/a> <\/p>\n\n\n\nOn March 15, Trump authorized US Central Command to bomb targets in Yemen\u2019s capital Sana\u2019a. For their part, the Houthis had paused attacks on the Red Sea, respecting the Gaza ceasefire. Nevertheless, the US opted to engage with the intent of strengthening its regional dominance\u2014already, late last year, over forty thousand US troops were stationed in the Middle Eastern arena.[135]<\/a> The same day, Centcom\u2019s Twitter feed showed images of a missile launch from a US Navy vessel as well as mushroom clouds following the bombardment of the targeted location. Given the context, it is worth noting, that on an institutional basis, the US Department of Defense is the planet\u2019s single-largest emitter of hydrocarbons.[136]<\/a><\/p>\n\n\n\nTwo days later, in flagrant violation of the January 19 ceasefire between Israel and Hamas, Israel Defense Forces launched the largest airstrikes witnessed in the Gaza strip in more than two months. Israeli commentators noted that this copycat action, coming days after the US strikes on Yemen, was a desperate attempt by Netanhayu to prevent his governing coalition from collapsing as he faces domestic backlash.[137]<\/a> That single night of aerial bombardment killed more than four hundred in Gaza.[138]<\/a> Local reports, meanwhile, indicate that security forces contracted by Qatar, the United States, and Egypt\u2014countries that had promised to guarantee the ceasefire\u2014had withdrawn from Gaza\u2019s Netzarim corridor.[139]<\/a> <\/p>\n\n\n\n
\n\n\n\n![\"\"](\"http:\/\/noria-research.com\/mena\/wp-content\/uploads\/2024\/09\/Rosa-Luxemburg-Stiftung_Logo.svg-1920x1356.png\")
<\/figure>\n\n\n\nThis publication has been supported by the Rosa-Luxemburg-Stiftung. The positions expressed herein do not necessarily reflect the views of Rosa-Luxemburg-Stiftung<\/em>.<\/p>\n\n\n\n
\n\n\n\n[1]<\/a> Chad Bown, \u201cRussia’s war on Ukraine: A sanctions timeline,\u201d Peterson Institute for International Economics<\/em>, December 21, 2023, https:\/\/www.piie.com\/blogs\/realtime-economics\/2022\/russias-war-ukraine-sanctions-timeline.<\/p>\n\n\n\nSee: Kimberly Donovan and Maia Nikoladze, \u201cRussia Sanctions Database,\u201d Atlantic Council<\/em>,2023, https:\/\/www.atlanticcouncil.org\/blogs\/econographics\/russia-sanctions-database.<\/p>\n\n\n\n[2]<\/a> Other countries included Norway, Switzerland, Lichtenstein and Singapore. Ukraine also imposed sanctions. See: Donovan and Nikoladze.<\/p>\n\n\n\n[3]<\/a> Philip Gordon, \u201cEurope Has No Choice but to Seize Frozen Russian Assets,\u201d Financial Times<\/em>, March 5, 2025. https:\/\/www.ft.com\/content\/f012f511-1bde-4e99-90fe-f81a393ed6ad.<\/p>\n\n\n\n[4]<\/a> \u201cConsolidated Russia Sanctions Data Dashboard.\u201d Castellum.AI. Accessed March 20, 2025. https:\/\/www.castellum.ai\/russia-sanctions-dashboard.<\/p>\n\n\n\n[5]<\/a> Miles Johnson, \u201cWhat happened to Russia\u2019s seized superyachts?,\u201d Financial Times, <\/em>July 20, 24, https:\/\/www.ft.com\/content\/db20e533-7cf6-4cb9-bfd6-a6b6c8b36985.<\/p>\n\n\n\n[6]<\/a> Donovan and Nikoladze.<\/p>\n\n\n\n[7]<\/a> Guy Chazan, “The Competing Theories of the Nord Stream Explosions.” Financial Times<\/em>, September 6, 2024. https:\/\/www.ft.com\/content\/120d3b78-68b4-4b42-9e65-c55e8fd77fd0.<\/a><\/p>\n\n\n\nMax Seddon and David Sheppard, \u201cRussia Indefinitely Suspends Nord Stream Gas Pipeline to Europe,\u201d Financial Times<\/em>, September 2, 2022. https:\/\/www.ft.com\/content\/5867c175-df16-4c8b-9b7a-a868a19d0138.<\/p>\n\n\n\n[8]<\/a> Su-Lin Tan, \u201cYellen Says Price Cap on Russian Oil Is ‘One of Our Most Powerful Tools’ to Address Inflation,\u201d CNBC,<\/em> July 14, 2022, https:\/\/www.cnbc.com\/2022\/07\/14\/yellen-says-price-cap-on-russian-oil-can-help-address-inflation.html.<\/p>\n\n\n\n[9]<\/a> Andrea Shalal, \u201cYellen Says Russian Oil Price Cap Could Save African Countries $6 BLN Annually,\u201d Reuters, <\/em>January 20, 2023, https:\/\/www.reuters.com\/world\/yellen-says-russian-oil-price-cap-could-save-african-countries-6-bln-annually-2023-01-20\/#:~:text=Yellen%20said%20ending%20the%20war,African%20countries%20%246%20billion%20annually.<\/p>\n\n\n\n[10]<\/a> For the notion of systemically significant prices, see: Robert C. Hockett and Saule T. Omarova, \u201cSystemically Significant Prices,\u201c Journal of Financial Regulation<\/em> 2, no. 1 (2016): 1-20, https:\/\/doi.org\/10.1093\/jfr\/fjw007.; Isabella M. Weber et al., \u201cInflation in times of overlapping emergencies: Systemically significant prices from an input\u2013output perspective,\u201d Industrial and Corporate Change <\/em>33, no. 2 (2024): 297\u2013341. https:\/\/doi.org\/10.1093\/icc\/dtad080.<\/p>\n\n\n\n[11]<\/a> \u201cReal Broad Effective Exchange Rate for United States [RBUSBIS],\u201d Federal Reserve Bank of St. Louis<\/em>, February 20, 2025, https:\/\/fred.stlouisfed.org\/series\/RBUSBIS<\/a>.<\/p>\n\n\n\n[12]<\/a> Boris Hofmann, Deniz Igan and Daniel Rees, \u201cThe changing nexus between commodity prices and the dollar: causes and implications,\u201d Bank for International Settlements<\/em>, April 13, 2023, https:\/\/www.bis.org\/publ\/bisbull74.pdf.; See also Daniel M. Rees, \u201cCommodity prices and the US Dollar,\u201d BIS Working Papers No 1083. Basel: Bank for International Settlements<\/em>, March 11, 2023. https:\/\/ideas.repec.org\/p\/bis\/biswps\/1083.html.<\/p>\n\n\n\n[13]<\/a> Mona Ali, “Militarized Adaptation,” Phenomenal World<\/em>, January 25, 2023,
https:\/\/www.phenomenalworld.org\/analysis\/militarized-adaptation\/.<\/a><\/p>\n\n\n\n[14]<\/a> Hofmann, Igan, and Rees<\/p>\n\n\n\n[15]<\/a> Hofmann, Igan, and Rees.<\/p>\n\n\n\n[16]<\/a>Ana Swanson, \u201cAmerica’s Trade Deficit Surged in 2022, Nearing $1 Trillion,\u201d The New York Times<\/em>, February 7, 2023, https:\/\/www.nytimes.com\/2023\/02\/07\/business\/economy\/us-trade-deficit.html?searchResultPosition=1.<\/p>\n\n\n\n[17]<\/a> Gregor Semieniuk et al., \u201cDistributional implications and share ownership of record oil and gas profits,\u201d (University of Massachusetts at Amherst: 2024), doi: 10.7275\/55083.<\/p>\n\n\n\n[18]<\/a> Cian Allen and Rudolfs Bems, \u201cEmerging Markets Show Resilience Despite Global Monetary Tightening,\u201d IMF Blog<\/em>, July 12, 2024, “https:\/\/www.imf.org\/en\/Blogs\/Articles\/2024\/07\/12\/emerging-markets-show-resilience-despite-global-monetary-tightening?utm_medium=email&utm_source=govdelivery”https:\/\/www.imf.org\/en\/Blogs\/Articles\/2024\/07\/12\/emerging-markets-show-resilience-despite-global-monetary-tightening?utm_medium=email&utm_source=govdelivery.<\/p>\n\n\n\n[19]<\/a> Franklin, Joshua, and Stephen Gandel. \u201cFed\u2019s High-Rates Era Handed $1TN Windfall to US Banks.\u201d Financial Times<\/em>, September 22, 2024. https:\/\/www.ft.com\/content\/4c013d3b-796b-47a3-a964-02f753d39846.<\/p>\n\n\n\n[20]<\/a> \u201cDeveloping Countries Paid Record $1.4 Trillion on Foreign Debt in 2023,\u201d World Bank<\/em>, December 3, 2024, https:\/\/www.worldbank.org\/en\/news\/press-release\/2024\/12\/03\/developing-countries-paid-record-1-4-trillion-on-foreign-debt-in-2023.<\/a><\/p>\n\n\n\n[21]<\/a> World Bank, IDS, 2023. International Debt Report 2023<\/em>. Washington, DC: World Bank. doi:10.1596\/978-1-4648-2032-8. License: Creative Commons Attribution CC BY 3.0 IGO<\/p>\n\n\n\n[22]<\/a> Millard, Rachel, \u201cUK Household Energy Bills to Fall as Ofgem Reduces Price Cap by 12%,\u201d Financial Times<\/em>, February 23, 2024. https:\/\/www.ft.com\/content\/ee6c7d3f-bc49-4f02-90a5-5012938a648d.<\/p>\n\n\n\n[23]<\/a> Note that Energy subsidies (scaled by GDP) are much higher in the developing world compared to advanced western economies. \u201cClimate Change: Fossil Fuel Subsidies\u201d International Monetary Fund (IMF)<\/em>, https:\/\/www.imf.org\/en\/Topics\/climate-change\/energy-subsidies#Energy%20Subsidies.<\/p>\n\n\n\n[24]<\/a> \u201cActive IMF Lending Commitments as of April 30, 2024,\u201d International Monetary Fund (IMF),<\/em> https:\/\/www.imf.org\/external\/np\/fin\/tad\/extarr11.aspx?memberKey1=ZZZZ&date1key=2025-12-31.<\/p>\n\n\n\n[25]<\/a> Mona Ali, \u201cReforming the IMF,\u201d May 13, 2023, Phenomenal World<\/em>, https:\/\/www.phenomenalworld.org\/analysis\/reforming-the-imf\/.; \u201cIMF Executive Board Completes the Sixth Review of the Extended Arrangement under the Extended Fund Facility for Ukraine,\u201d International Monetary Fund (IMF)<\/em>, December 20, 2024, https:\/\/www.imf.org\/en\/News\/Articles\/2024\/12\/20\/pr-24493-ukraine-imf-completes-6th-rev-of-extended-arrangement-under-eff.; \u201cIMF Executive Board Approves US$15.6 Billion under a New Extended Fund Facility (EFF) Arrangement for Ukraine as part of a US$115 Billion Overall Support Package,\u201d International Monetary Fund (IMF)<\/em>, March 31, 2023, https:\/\/www.imf.org\/en\/News\/Articles\/2023\/03\/31\/pr23101-ukraine-imf-executive-board-approves-usd-billion-new-eff-part-of-overall-support-package.<\/p>\n\n\n\n[26]<\/a> With this policy change, the number of countries that pay IMF surcharges will decline from twenty to about thirteen. Ukraine\u2019s surcharges on its 2023 IMF loan agreement will be cut by about forty percent. See:<\/p>\n\n\n\n\u201cUkraine\u2019s Interest Payments on IMF Loans to Decrease: IMF Revises Its Charges and Surcharge Policy,\u201d National Bank of Ukraine<\/em>, October 14, 2024, https:\/\/bank.gov.ua\/en\/news\/all\/protsentni-plateji-ukrayini-za-kreditami-mvf-znizyatsya–fond-pereglyanuv-politiku-dodatkovih-styagnen.; \u201cIMF Executive Board Concludes the Review of Charges and the Surcharge Policy, and Approves Reforms,\u201d International Monetary Fund (IMF), <\/em>October 21, 2024, https:\/\/www.imf.org\/en\/News\/Articles\/2024\/10\/21\/pr-24385-imf-concludes-the-review-of-charges-and-surcharge-policy-and-approves-reforms\/.; \u201cFrequently Asked Questions on the Fund\u2019s Charges and the Surcharge Policy,\u201d International Monetary Fund (IMF), <\/em>October 11, 2024, https:\/\/www.imf.org\/en\/About\/FAQ\/charges-and-surcharge-policy.<\/a><\/p>\n\n\n\n[27]<\/a> Ian Clark, Olga Fedosova, Dimitrios Lyratzakis. \u201cUkraine Concludes Historic Restructuring of US$20.5 Billion of International Bonds.\u201d White & Case LLP, September 10, 2024. https:\/\/www.whitecase.com\/insight-alert\/ukraine-concludes-historic-restructuring-us205-billion-international-bonds?utm_source=chatgpt.com.<\/p>\n\n\n\n[28]<\/a> Conflict, creditors and a car crash: How Ukraine clinched a wartime debt restructuring | Reuters. Accessed March 22, 2025. https:\/\/www.reuters.com\/markets\/europe\/conflict-creditors-car-crash-how-ukraine-clinched-wartime-debt-restructuring-2024-09-03\/.<\/p>\n\n\n\n[29]<\/a> Brooke Masters, \u201cBlackrock and JPMorgan Help Set up Ukraine Reconstruction Bank,\u201d Financial Times<\/em>, June 19, 2023, https:\/\/www.ft.com\/content\/3d6041fb-5747-4564-9874-691742aa52a2.<\/p>\n\n\n\n[30]<\/a> Dan Sabbagh, \u201cCivilian Casualties of Explosive Weapons at Highest Level in More than a Decade,\u201d The Guardian, <\/em>January 14, 2025, https:\/\/www.theguardian.com\/world\/2025\/jan\/14\/civilian-casualties-of-explosive-weapons-at-highest-level-in-more-than-a-decade?utm_source=chatgpt.com.<\/p>\n\n\n\n[31]<\/a> \u201cSaudi Air War 2015-2022.\u201d Yemen Data Project. Accessed March 19, 2025. https:\/\/yemendataproject.org\/data\/saudi-air-war-2015-2022.<\/p>\n\n\n\n[32] US Department of Energy 2024. (LNG shipping through the Suez has dried up completely.)<\/p>\n\n\n\n
[33] \u201cIMF Mission Concludes Visit to Egypt for the Fourth Review under the Extended Fund Facility ,\u201d International Monetary Fund (IMF)<\/em>, November 20, 2024, https:\/\/www.imf.org\/en\/News\/Articles\/2024\/11\/20\/pr-24429-egypt-imf-mission-concludes-visit-to-egypt-for-the-4th-review-under-the-eff<\/a><\/p>\n\n\n\n\u201cFrequently Asked Questions on Egypt and the IMF,\u201d International Monetary Fund (IMF)<\/em>, August 26, 2024, https:\/\/www.imf.org\/en\/Countries\/EGY\/Egypt-qandas.<\/p>\n\n\n\n[34]<\/a> Lazard, 2024. \u201cThe 2020-2025 Sovereign Debt Crisis: What Have We Learnt and What Lies Ahead?\u201d https:\/\/www.lazard.com. Accessed March 7, 2025. https:\/\/www.lazard.com\/research-insights\/the-2020-2025-sovereign-debt-crisis-what-have-we-learnt-and-what-lies-ahead\/.<\/p>\n\n\n\n[35]<\/a> Patrick Werr and Karin Strohecker, \u201cEgypt Announces $35 Billion UAE Investment on Mediterranean Coast,\u201d Reuters, <\/em>February 23, 2024,https:\/\/www.reuters.com\/business\/egypt-announces-multi-billion-uae-investment-boost-forex-2024-02-23\/.<\/p>\n\n\n\n[36]<\/a> \u201cIMF Staff and the Egyptian Authorities Reach Staff Level Agreement on the First and Second Reviews under the EFF Arrangement.\u201d IMF, March 6, 2024. https:\/\/www.imf.org\/en\/News\/Articles\/2024\/03\/06\/pr-2459-egypt-staff-and-authorities-reach-agreement-on-reviews-under-the-eff-arrangement.; Nafisa Eltahir, \u201cEgyptian pound steadies after devaluation, IMF deal,\u201d Reuters, <\/em>March 7, 2024, https:\/\/www.reuters.com\/world\/africa\/egyptian-pound-stable-after-devaluation-imf-deal-2024-03-07\/.; Tarek El-Tablawy and Abdel Latif Wahba, \u201cEgypt Holds Key Rate Even as Inflation Shows Signs of Easing,\u201d Bloomberg, <\/em>December 26, 2024, https:\/\/www.bloomberg.com\/news\/articles\/2024-12-26\/egypt-holds-key-rate-even-as-inflation-shows-signs-of-easing.<\/p>\n\n\n\n[37]<\/a> \u201cEU pledges \u20ac7.4 billion aid and investment package for Egypt\u201d Ahramonline<\/em>, Accessed March 19, 2025. https:\/\/english.ahram.org.eg\/NewsContent\/3\/12\/519550\/Business\/Economy\/EU-pledges-\u20ac-billion-aid-and-investment-package-fo.aspx.<\/p>\n\n\n\n[38]<\/a> \u201cSpeech by President von Der Leyen with Egyptian President El-Sisi at the EU-Egypt Investment Conference.\u201d Enlargement and Eastern Neighbourhood, June 29, 2024. https:\/\/enlargement.ec.europa.eu\/news\/speech-president-von-der-leyen-egyptian-president-el-sisi-eu-egypt-investment-conference-2024-06-29_en.<\/p>\n\n\n\n
The financial warfare launched against Russia since 2022 has been novel in scale and scope. Notably, however, the US Department of the Treasury did not impose a countrywide sanctions program on Russia like it has on Iran, Cuba, or North Korea. While ten very large Russian banks were sanctioned and removed from SWIFT, the international financial messaging network, more than three hundred Russian banks were not.[6]<\/a> This is because of Russia\u2019s importance to the global energy system: before the war in Ukraine, Russia supplied almost half (forty six percent) of Europe\u2019s natural gas.[7]<\/a><\/p>\n\n\n\n While careful not to shut Russian oil and gas out of global markets, the western axis did try to reduce the petro-rents flowing to Moscow. In the summer of 2022, the EU agreed to join the US and UK in embargoing sea-borne Russian crude oil\u2014a decision that went into effect in February 2023. In September 2022, the US-UK-EU triad imposed a price cap on Russian oil exports amounting to $60 per barrel. US Treasury Secretary Janet Yellen initially sold the price ceiling as foreign policy with domestic benefits. Dampening the price of Russian oil would help fight inflation at home.[8]<\/a> Yellen later reframed the policy in a more altruistic light: as a means for enabling the flow of cheaper Russian oil to low and middle-income economies.[9]<\/a> Putin\u2019s administration retaliated against the price cap by cutting natural gas deliveries to Europe, among other measures. After the explosive attacks on the Nord Stream 1 pipeline under the Baltic Sea\u2014allegedly by Ukrainian saboteurs\u2014in the fall of 2022, Russia\u2019s gas flow to Europe plummeted.<\/p>\n\n\n\n Despite the sanctions exemptions granted to Russian energy exports, commodity markets reacted violently to the shock of war. The steepest US energy price shock since the 1970s ultimately resulted in the most rapid-fire round of interest-rate hikes by the Federal Reserve since those associated with the 1980s Volcker Shock. The dollar is the <\/em>systemically significant price in the global financial system.[10]<\/a> Its upward march, reaching a twenty-year peak, destabilized balance sheets across the world.[11]<\/a> Reversing a decades-long trend, as of 2021, commodity prices (most of which are denominated in dollars) are now positively correlated with the currency.[12]<\/a> Enhanced by the shale boom, American hydrocarbons currently generate more than a fifth of the world\u2019s supply, making the US oil and gas sector, the world\u2019s largest.[13]<\/a> In a peculiar convergence\u2014what I call the \u2018hydrocarbon dollar\u2019\u2014the hegemonic world currency has taken on characteristics associated with the currencies of large commodity exporters such as Australia or Canada, even though the share of commodities in the US export basket is far less.[14]<\/a><\/p>\n\n\n\n For the United States, higher commodity prices in 2022 led to positive terms of trade effects (the ratio of export prices to import prices), slightly uplifting the US trade deficit otherwise weighed down by large deficits on merchandise exports.[15]<\/a> While dollar appreciation hurt US manufacturing[16]<\/a> and contributed to an unprecedented US current account deficit of more than a trillion dollars, the US oil and gas industry was the biggest beneficiary of the commodity-dollar price surge.[17]<\/a><\/p>\n\n\n\n As a volatile mix of inflation, interest-rate hikes, and dollar appreciation reverberated across the global economy, many developing countries who rely on commodity imports and dollar loans found themselves unable to cope with their external bills. From 2022 \u2013 2023, higher interest rates and a stronger dollar drew forty one percent of global financial inflows to the US.[18]<\/a> While US banks earned a cool trillion dollars from the Fed\u2019s interest rate hikes,[19]<\/a> low and middle-income countries (LMICs) spent a record $1.4 trillion servicing debts owed to foreign creditors.[20]<\/a> Rich countries like Germany and the UK could afford to cushion households against the pain by offering energy subsidies. LMICS, however, found themselves priced out of international credit markets.[21]<\/a> Seeking International Monetary Fund loans, they had little choice but to follow IMF diktat and cut fuel subsidies.[22]<\/a> Cutting subsidies, after all, is the quickest way for a borrowing government to signal its commitment to reducing government budget deficits\u2014certainly much easier than reforming tax systems.[23]<\/a> Inasmuch as fiscal consolidation is a perennial conditionality on governments seeking IMF assistance, LMICs were stuck between Scylla and Charybdis.<\/p>\n\n\n\n As it played out, the triple (commodity-dollar-interest-rate) price-shock on top of the pandemic-related budgetary pressures led ninety-seven LIMCs to seek and secure IMF loans between 2022 and 2024. This number of borrowers is unprecedented in the history of the funding agency.[24]<\/a> For many countries, Fund support came at a steep cost. Apart from policy conditionalities, more than eighty percent of IMF lending is non-concessionary. In many instances, IMF loans come with considerable fees and surcharges attached. Despite being under fire from Russian forces, even Ukraine\u2019s $15.6 billion loan from the Fund was subjected to these extra charges.[25]<\/a> (Ukraine had however secured a temporary pause in its international debt payments by August 2022.) It was only in late 2024, following campaigns against the IMF\u2019s surcharge policy, that the Fund moved to reduce its interest-rate related charges, surcharges, and other fees. [26]<\/a> As its largest debtors, countries such as Argentina and Ukraine\u2014whose surcharges will be cut by about forty percent\u2014as well as Egypt and Ecuador will benefit the most from this policy pivot.<\/p>\n\n\n\n The international community\u2019s interventions went even further regarding Ukraine. In the Paris offices of Ukraine\u2019s legal advisors, Rothschild & Co., with the Fund\u2019s staff on call providing around-the-clock technical assistance, Ukraine secured a 37% percent principal haircut on about $20.5 billion worth of its international bonds held by, among others, large asset managers such as BlackRock and Amundi.[27]<\/a> It was one of the fastest and largest sovereign debt restructurings in recent memory\u2014smaller only than the haircuts provided to Greece and Argentina.[28]<\/a> Having some of its debt wiped off the books enables Ukraine to continue receiving more IMF financing. However generous, IMF support paled in comparison to Washington\u2019s financial assistance to Ukraine, which amounted to $35 billion between 2022 and 2023. Like IMF loans, which came with conditionalities, US assistance came with strings attached: some unknown share of the dollars received by Ukraine would be recycled back to US agencies and firms. These included American behemoths BlackRock and JP Morgan Chase who were contracted by the Ukrainian government to design its postwar reconstruction financial facility, the Ukraine Development Fund. [29]<\/a> Hidden away from the front pages, American asset managers, bank-holding companies, and private wealth management advisors now determine the shape of Ukraine\u2019s finances.<\/p>\n\n\n\n Facing its own set of dilemmas, Egypt, like Ukraine, secured emergency financing from varied sources. In Egypt\u2019s case, the dollars arrived after the country\u2019s financial situation\u2014already in dire straits since the pandemic\u2014took a swift turn for the worst after October 7, 2023. Bordering the Gaza Strip, Egypt\u2019s economy would be exposed to Israel\u2019s campaign in several ways, including disruptions in commercial shipping. [30]<\/a> As Israel Defense Forces were carpet-bombing parts of Gaza, Houthi militants from Yemen (expressing solidarity with Palestinians) launched attacks on commercial vessels in the Red Sea. From 2015 to 2022, Yemen itself had endured more than twenty-five thousand air raids by a Saudi-UAE led coalition. Other members of the bombing campaign in Yemen included Egypt, Jordan and Qatar, with the US and UK providing logistical and technical assistance.[31]<\/a><\/p>\n\n\n\n While the Houthi fighters were focused on inflicting economic damage on Israel by, for e.g., disrupting cargo shipments to the country, among the vessels they targeted were LNG tankers from Qatar enroute to Europe via the Suez Canal.[32]<\/a> Consequently, as ships were rerouted away from Suez, the resulting seventy percent decline in commercial shipping traffic receipts led to a precipitous fall in Egypt\u2019s foreign-exchange earnings.[33]<\/a> Having taken on major debts to manage the price shock of 2022, the drying up of Suez cashflow left Egypt spending half of its public revenues on debt servicing.[34]<\/a><\/p>\n\n\n\n Amidst this febrile state-of-affairs, Egyptian authorities played a familiar card. Positioning itself as a key mediator between Israel and Hamas\u2014and having already earned its stripes as Abu Dhabi\u2019s ally during the Arab Spring\u2014Cairo made the sell that it was too important a strategic partner to allow it to fail. Leveraging Egypt’s importance to regional security, Cairo got the dollars flowing. First to arrive were billions in investment from ADQ, one of Abu Dhabi\u2019s sovereign wealth funds. The terms and conditions of the arrangement handed ADQ the rights to develop Ras El-Hekma, a massive beachfront overlooking the Mediterranean.[35]<\/a> In exchange for taking a less-than-majority ownership stake in the project, the Egyptian government received an immediate cash infusion of $24 billion. (The total size of the investment is around $35 billion).<\/p>\n\n\n\n It was this deal that enabled Egypt to secure a fresh credit line from the IMF. This was because the ADQ investment allowed the country to satisfy the Fund\u2019s stipulations around \u201cexternal financing assurances\u201d: Per the IMF\u2019s \u2018debt sustainability\u2019 requirements, borrowing governments need to demonstrate they can access other external creditors in order to secure an IMF loan. The cash infusion of $24 billion from Abu Dhabi led the IMF to quickly settle on an augmented loan agreement with Egypt in March 2024, amounting to $8 billion.[36]<\/a> Shortly thereafter, the European Union president Ursula von der Leyen came calling with a grants and loan package worth \u20ac7.4 billion ($8.1 billion).[37]<\/a> Von der Leyen would return to Cairo a month later for an investment conference where European companies pledged deals with Egyptian partners amounting to \u20ac40 billion.[38]<\/a> The UK followed suit with its own smaller package. <\/p>\n\n\n\n Development in the Suez Canal Economic Zone was back on the agenda, as was energy. (Refined petroleum and petroleum gas are Egypt\u2019s largest exports.[39]<\/a>) Also on the agenda: more funding for Egyptian security intended for controlling emigration flows to Europe. Counting the ~$10 billion that the Saudi state had agreed to park in the Egyptian central bank in 2022 to stabilize its balance of payments accounts, the international bailout approximated $57 billion.[40]<\/a> As major credit ratings agencies uplifted their forecasts for Egypt, investors lobbied for the country\u2019s reinclusion in JPMorgan\u2019s index for emerging market sovereign debt\u2014which, in turn, would enable Egypt to attract investment from passive funds, which are often large, long-term holders of sovereign debt. (Egypt had been kicked out the index twice before.)<\/p>\n\n\n\n This time, too, emergency relief came with a price. First, there were interest rate hikes. As demanded by the IMF, the Central Bank of Egypt raised interest-rates, already 21%, by an astounding 600 basis points in late February 2024. The Egyptian central bank allowed the currency to depreciate, despite President Abdel Fattah El Sisi\u2019s previous pledges\u2014for \u2018national security reasons\u2019\u2014on exchange rate preservation.[41]<\/a> On March 6th<\/sup>, the Egyptian pound crashed by 62% before clawing some gains back and closing 38% weaker against the dollar.[42]<\/a> To demonstrate fiscal responsibility, Egyptian policymakers also agreed to reduce planned infrastructure spending.<\/p>\n\n\n\n Egypt and Ukraine\u2019s examples speak to the enduring relevance of \u201cextreme conditionalities.\u201d A dynamic associated with the late nineteenth to early twentieth century and explicated by economic historian Didac Queralt, \u201cextreme conditionalities\u201d refers to the manner in which emerging market sovereigns in danger of defaulting on their foreign loans pawn state assets for new external indebtedness.[43]<\/a> A stronger form of this very thesis was made more than a century ago by the political economist, Rosa Luxemburg. In her magnum opus, The Accumulation of Capital, <\/em>Luxemburg wrote that the external borrowing involved in the construction of the Suez canal would entrap Egypt in servitude to its European creditors. Suez \u201cformed the nucleus,\u201d wrote Luxemburg, \u201cfor Egypt\u2019s immense national debt which was to bring about her military occupation by Britain.\u201d [44]<\/a> She pointedly noted that Egypt\u2019s state of insolvency did not prevent European financiers from dishing out more loan contracts. Not unlike present circumstances, back then, Egypt\u2019s indebtedness to its foreign creditors furthered European capital\u2019s entrenchment into Egyptian finances. Over time, this meant that Egyptian land would become collateral for public debt owed to foreign creditors or would simply be taken over by British authorities as the costs of occupation, paid as baksheesh<\/em> (tribute).[45]<\/a> Luxemburg commented that the nine percent nominal interest rate on Egyptian borrowing in 1874 was \u2018exorbitant.\u2019 Today, the benchmark interest rate in Egypt is more than twenty-seven percentage points.<\/p>\n\n\n\n Indeed, conditionalities attached to foreign assistance have long been a form of economic coercion employed by powerful states. The United States\u2019 post World War II financial assistance to Europe colloquially known as the Marshall Plan was one in which US economic interests were thoroughly entwined with national security concerns. A consolidated communist bloc in Europe threatened US access to European markets.[46]<\/a> Rebuilding overseas markets in Europe would prove useful in absorbing excess output (\u2018overcapacity\u2019) in the US economy, where unequal income distribution\u2014much like in China today\u2014hindered domestic consumption.[47]<\/a> More than just financing postwar reconstruction, the European Recovery Program was configured around Europe paying for US goods and services.[48]<\/a> Ultimately, seventy percent of Marshall plan aid was used to purchase US goods: for instance, capital equipment to build Europe\u2019s first commercial geothermal plant in Tuscany.[49]<\/a><\/p>\n\n\n\n Over a quarter of ERP aid\u2014$13.3 billion at the time, equivalent to roughly $200 billion today\u2014was allocated to the UK.[50]<\/a> Marshall Plan dollars arrived in Europe only a few years after December 1945, when the US finally agreed to give the UK a desperately needed $3.75 billion loan. In addition to fresh capital injections, the December 1945 Anglo-American Financial Agreement involved the settlement of Britain\u2019s Lend-Lease war debts (for which the US provided an additional $650 million). In Britain, the fact that US assistance was arriving in the form of an interest-bearing loans was regarded with some chagrin. While America had supplied the aid, including to the Soviets, that ensured the Allied victory\u2014as the UK foreign secretary stated, the war was won on \u201ca wave of [American-supplied] oil\u201d\u2014the US had been a late party to the theatre of operations, entering the fight only in December 1941.[51]<\/a> Feeling that they had carried the Allied effort, UK parliamentarians were aggrieved that US policymakers treated the UK\u2019s war debt on such transactional terms, as if it was equivalent to an interest-bearing commercial loan. (The British view was, of course, a distorted one: Allied forces would not have won the war were it not for the Soviets pushing back the Germans in the east.)<\/p>\n\n\n\n There were debates in Parliament about whether or not to accept the 1945 US loan at all, given its less than generous terms and conditions. That the loan contract urged Britain to dismantle its preferential trading regime (known as the Sterling Area) and reduce its external indebtedness was cause for even greater agita. Britain\u2019s debts to the Sterling Area were about twelve billion (nominal) dollars in July 1944, far greater than what Britain owed the United States.[52]<\/a> The American loan contract of 1945 clearly stipulated that the dollars borrowed could not be used by Britain to settle any other external obligations.[53]<\/a> As had become clear at the Bretton Woods summit in 1944, both the UK and the US would rather that the issue of Sterling balances be swept aside. And as would become the pattern with US overseas financial assistance, the 1945 loan, too, specified that the financing provided by the US should facilitate Britain\u2019s purchase of American goods and services.<\/p>\n\n\n\n Contentious as the negotiation process was, the American loan did not end up shoring up Britain\u2019s finances. To the astonishment of policymakers on both sides of the Atlantic, the loan was used up after just two years. That the dollars were drawn down so quickly had to do with another of the loan\u2019s terms: namely, that the sterling be made fully convertible.[54]<\/a> This conditionality provoked the hemorrhaging of UK foreign reserves, with investors dumping pound sterling as soon as exchange controls on UK trade transactions were lifted in July 1947.[55]<\/a> To prevent the pound from sliding further, Britain went back on exchange controls in August 1947, but only after securing permission from its creditors in Washington.[56]<\/a><\/p>\n\n\n\n The two world wars had ravaged British balance sheets. A net international lender before WWI, Britain would emerge from WWII as the largest of sovereign borrowers.[57]<\/a> In a world where money was ultimately backed by gold, Britain\u2019s indebtedness had dimmed the pound\u2019s prospects. Britain\u2019s century-long experiment with the gold-standard had, of course, ended in the interwar years. In 1919, sustained financial pressures led the UK Treasury to officially suspend sterling\u2019s convertibility into gold. Attempts at reestablishing sterling-gold parity at the pre-war peg proved deflationary and ultimately gave way on the heels of the Wall Street crash of 1929. And yet, even though New York had overpowered London as the dominant global financial center by the 1920s\u2014and the US manufacturing capacity was far greater than that of British by the dawn of the post-war era\u2014it would still be some time before the dollar displaced sterling as the premium foreign reserve and trade vehicle currency. [58]<\/a> Even in 1957, sterling still financed almost half of world trade.[59]<\/a><\/p>\n\n\n\n Safeguarding sterling from dollar encroachment required geopolitical maneuvering. London\u2019s financial administrators were no stranger to monetary machinations, having honed them in the colonies. Early in the 20th century, colonial authorities transferred India\u2019s Gold Standard reserves to London where they became a monetary buffer at the Bank of England. (Gradually converted into sterling debt securities, India\u2019s gold was transformed into a cheap source of liquidity for the City of London.[60]<\/a>) With the end of sterling-gold convertibility in 1919, countries that were part of the informal sterling zone\u2014who tended to deposit their foreign-currency reserves in London\u2014switched from pegging to gold to pegging against sterling.[61]<\/a> By the 1930s, the loosely knitted sterling bloc had shrunk to just the Commonwealth countries (except for Canada) and a handful of others including Egypt, Palestine, Sudan, and Transjordan. [62]<\/a> The second world war de facto <\/em>led to experimenting with exchange controls in the sterling bloc. The Sterling Area was carved out into a legally defined unit in 1940.<\/p>\n\n\n\n The 1932 tariffs on manufactured imports, whereby Australia, Canada and other dominions negotiated for privileged access to the UK market in exchange for a reduction in their own tariffs, no doubt, proved instructive in designing Sterling Area policies. Weaponizing trade relations is an increasingly familiar feature of the contemporary world economy. Applying coercive pressure on trade partners is, of course, central to President Trump\u2019s ambitions in his second-term in office. Trump has declared that he will negotiate reductions in tariffs with US trade partners if they set up production (inward foreign direct investment) in the United States. But even under the Biden administration, while US Treasury Secretary Yellen promoted \u2018friendshoring\u2019 \u2014as in, increasing trade ties with geopolitical allies\u2014US National Security Advisor Jake Sullivan strongarmed \u201csmall yard, high fence\u201d trade tactics: prohibiting, for e.g., US imports of advanced semi-conductor chips from China. Along with export controls, the Biden administration increased US sanctions on Chinese entities\u2014only escalating Trump\u2019s economic aggression towards China during his first term.<\/p>\n\n\n\n With regard to Sterling Area policies, financial controls complemented coercive trade practices. Reinforcing the core of the Sterling Area demanded a reservoir of hard-currency reserves. Accordingly, Sterling Area members collectively pooled their foreign exchange revenues (including sterling earned from exporting to Britain) at the Bank of England.[63]<\/a> UK authorities enacted strict controls on members\u2019 access to their own foreign reserves.[64]<\/a> While sterling transfers within the sterling zone were permitted, monetary flows between sterling and non-sterling areas were tightly regulated. If countries left the Sterling Area, they would lose access to a preferential trading zone (which would mean facing a greater tariff burden) as well as ease of financing from London\u2019s deep and liquid capital markets.[65]<\/a><\/p>\n\n\n\n The gold and dollar deposits of Sterling Area members as well as the money owed to them by Britain (on its imports from the Sterling Area) were held in London. In rather obscure fashion, they came to be recorded in Britain\u2019s financial accounts as \u2018sterling balances.\u2019 [66]<\/a> By 1945, aggregate sterling balances were seven times larger than the UK\u2019s gold and dollar reserves.[67]<\/a> The eminent British economist Lord John Maynard Keynes reported to the House of Lords in 1945 that two thirds of Britain\u2019s sterling balances were owed to India, Egypt, Palestine, and Ireland.[68]<\/a><\/p>\n\n\n\n The American position that Britain disband the Sterling Area predated the 1945 Anglo-American loan agreement. At the Bretton Woods meetings in July 1944, the Americans reiterated their disgruntlement with Britain\u2019s trade protectionism. The Sterling Area stood against the ethos of the postwar multilateralism the United States sought to establish through negotiations at Bretton Woods\u2014a new trade and monetary order underpinned by the dollar.[69]<\/a> While the Bretton Woods conference cultivated an aura of multilateralism, deliberations regarding the future of the world economic order were mostly limited to those between the American and British delegates\u2014led by the senior US Treasury official Harry Dexter White and, on the UK side, John Maynard Keynes.[70]<\/a><\/p>\n\n\n\n The parlous state of UK finances, in particular its massive external liabilities (sterling balances), conditioned Keynes\u2019 ability to negotiate with White. In 1941, Keynes argued that sterling balances should either be funded\u2014presumably with American assistance\u2014or frozen, as they had been during the war. [71]<\/a> Mindful of this, White intended to enlist British support for a new dollar-based world monetary regime by delivering a partial write-off of Britain\u2019s outstanding debt to the Sterling Area. The greatest portion of Britain\u2019s frozen or \u2018blocked\u2019 \u2018sterling balances\u2019\u2014more than a third of approximately twelve billion (nominal) dollars in July 1944\u2014were owed to India. [72]<\/a> Second only to India, Egypt\u2019s frozen balances amounted to a billion dollars.<\/p>\n\n\n\n At Bretton Woods, demands by India\u2019s delegates that some of India\u2019s blocked sterling balances be converted into dollars for food imports were brushed aside.[73]<\/a> The Bengal famine\u2014the result of demand compression enforced to help finance Allied war spending\u2014led to drastic declines in Indian food-consumption.[74]<\/a> 1.5 million deaths had been recorded in 1943-1944 alone.[75]<\/a> Amidst Anglo-American wrangling over the contours of a new international monetary arrangement, Keynes rejected India and Egypt\u2019s proposals for a trilateral resolution (involving the US) of their approximately five billion dollars in blocked sterling balances. He insisted on a bilateral resolution between the UK and each of its creditors. [76]<\/a> Keynes was well aware that fiscal incapacity would make for further pound sterling devaluation, thereby reducing the size of Britain\u2019s outstanding sterling balances.[77]<\/a><\/p>\n\n\n\n On August 14, 1947, a London settlement determined the sterling balances of the freshly partitioned Indian Subcontinent. The money was returned to India and Pakistan in piecemeal installments. England\u2019s creditors, its former colonial possessions, were not made whole. London had the upper hand in related contestations concerning Lend-Lease aid to India (for which, Keynes had argued, India should pay Britain), interest accumulated on sterling balances, and the capitalization of pensions owed to colonial officers.[78]<\/a> Exchange-rate movements inflicted further damage: Lacking a protective currency devaluation clause, the Subcontinent\u2019s sterling balances would be further eroded when the sharp devaluation of the pound in 1949.<\/p>\n\n\n\n Less than a decade after its rushed withdrawal from India, Britain\u2019s adventurism in the Middle East would be thwarted by the Suez Crisis. The 1956 crisis would quickly embroil \u2018virtually every element of world politics.\u2019[79]<\/a> Postwar reconstruction and rearmament had made for a fast-growing oil market and a dollar shortage in Europe.[80]<\/a> In 1947, Britain insisted that Cairo repudiate at least some of the sterling balances that London owed it. (In Parliament, in March 1951, Winston Churchill revealed that as Prime Minister he, too, had supported repudiating Egypt\u2019s financial claims.[81]<\/a>) When Cairo pressed for the expedited return of its frozen sterling balances, London presented it with an ultimatum: either leave the Sterling Area with some of its sterling balances or have its sterling balances fully blocked.[82]<\/a> Having essentially forced Egypt\u2019s withdrawal from the Sterling Area in July 1947\u2014all the while constructing a narrative that Egypt left of its own volition\u2014the Bank of England reduced the amount of Egypt\u2019s sterling balances that it had promised to release.[83]<\/a> As was the case with India\u2019s sterling balances that remained in London, Egypt\u2019s, too, would diminish with the 1949 devaluation.<\/p>\n\n\n\n Oil was the largest commodity in mid twentieth century global trade. Two thirds of oil destined to Europe flowed through the Suez;[84]<\/a> an entire three fourths of UK oil imports were from the Middle East.[85]<\/a> British troops had long been stationed in the Suez Canal Zone where the Anglo-French Suez Canal Company extracted tolls and fees from ships using the strait. Crude oil reserves (outside the United States and Eastern Europe) were more or less split between American and British firms.[86]<\/a> In 1949, the British government projected that half of the Sterling Area dollar deficit came from oil imports. A quarter of this was from Sterling Area expenditures on American-owned oil, for example, that produced by Arabian American Oil Company i.e., Aramco.[87]<\/a> In 1950, the UK ordered Sterling Area members to reduce their purchases of much more expensive \u2018dollar oil\u2019 and purchase \u2018sterling oil\u2019 instead. In effect, this mandated that Area members purchase oil from the majority-British controlled Anglo-Iranian Oil Company (a firm that would later be rebranded as British Petroleum, i.e. BP).[88]<\/a><\/p>\n\n\n\n Sterling Area dollar reserves provided a financial shield for Britain\u2019s external balance sheets. The dollars could be deployed (sold) to defend (buy) the pound in the event of future sterling devaluations. Furthermore, a projected expansion in British controlled Iranian oil would require absorption by friendly markets. Despite having left the Sterling Area, Egypt, too, continued purchasing sterling oil: its policymakers recognized that continuing trade relations with Britain would enhance its chances of receiving its remaining Sterling balances.[89]<\/a><\/p>\n\n\n\n To say that the years leading up to the Suez crisis were eventful is an understatement. Israel\u2019s statehood and the ensuing displacement of Palestine\u2019s population (al Nakba<\/em>) in 1948 had led to regional tumult. In protest, the Saudis refused the passage of Israeli ships across the Suez. In 1949, after Israel tried to establish a port at the Gulf of Aqaba to secure sea access to Asian markets, Egypt imposed a blockade (with Saudi cooperation) on Israeli ships across the Gulf. This prevented the delivery of oil from a British-owned refinery in Haifa, forcing the plant to operate at a fourth of its full lower capacity.[90]<\/a><\/p>\n\n\n\n The Egyptian blockade signaled the capability of Arab states to thwart western and Israeli oil interests.[91]<\/a> Its successes encouraged bolder actions in the domain of energy. In 1951, Iran\u2019s Prime Minister, Mohammad Mosaddegh, nationalized the assets of the Anglo-Iranian Oil Company. In retaliation, the British government imposed an embargo on Iranian oil exports.[92]<\/a> By 1953, a covert operation supported by the US and UK intelligence agencies had ousted Mossadegh from office, setting the stage for his eventual replacement by the Shah. The US thereafter established a forty-plus percent stake in the western consortium controlling Iranian oil.[93]<\/a><\/p>\n\n\n\n In 1954, Egypt\u2019s President Gamal Abdel Nasser signed the Anglo-Egyptian Agreement, securing the withdrawal of British troops from the Suez Canal Zone. The next year, Nasser proposed that Washington sell Cairo $27 million worth of weapons. The US demanded a cash payment knowing full well that the cash-strapped nation would be unable to honor the transaction.[94]<\/a> Nasser\u2019s previous position of neutrality vis a vis Israel had changed; US President General Dwight D. Eisenhower keenly felt that Nasser was playing both the Americans and the Soviets. (As recently as 2022, Egyptian armament purchases from Russia exceeded those from the United States.[95]<\/a>) The Eisenhower administration was concerned about the balance of power in the region. Then, in July 1956, the US and UK backtracked on their joint agreement with the World Bank to provide Egypt $70 million in hard currency grants to facilitate the first stages of the construction of the Aswan High Dam\u2014like Suez, a decade-long billion dollar plus project, the largest of its kind in the world.[96]<\/a><\/p>\n\n\n\n By then, Nasser\u2019s massive ($83-$200 million) arms deal with the Soviets in Czechoslovakia as well as the Soviet offer to help finance the new Aswan dam had come to light.[97]<\/a> According to the World Bank, the Egyptian-Czechoslovak arms agreement would make it very difficult for Egypt (whose foreign exchange reserves were in question) to pay back Aswan-related debt.[98]<\/a> In a fiery exchange in Washington that July, the US Secretary of State, John Foster Dulles reneged US assistance to Egypt. Less than a week after the Anglo-American betrayal and with the Soviets still hemming and hawing (Soviet assistance for Aswan would materialize, but only later), Nassar opted to nationalize the Suez Canal Company. He declared that the fees raised in Suez would help finance the mega hydro-electrification and irrigation project.[99]<\/a><\/p>\n\n\n\n While Nasser\u2019s takeover had not stopped the flow of traffic through the Canal, on the pretext of guaranteeing safe passage for ships crossing the Suez, British and French troops occupied the canal after sending out Israeli forces to occupy the Sinai. [100]<\/a> Kinetic warfare\u2014most prominently, the Royal Air Force\u2019s bombing of Port Said at the northern end of the Canal\u2014was accompanied by financial strikes: Egypt\u2019s sterling balances were, once again, blocked.[101]<\/a> The latter action gave pause to other sovereigns, such as Kuwait, about the safety of holding reserves in London. To protect the former Anglo-French owners, the Suez Canal Company\u2019s overseas cash balances were frozen by the United States and Switzerland, and despite filing writs of attachment, the Egyptian government couldn\u2019t access them.<\/p>\n\n\n\n Britain\u2019s incursion into the Suez had been a bid to safeguard its own financial and energy security. Set in this context, the operation\u2019s failure is rather spectacular. In the aftermath of the invasion, speculation in world currency markets drove repeated sell-offs of sterling assets. UK foreign reserves fell below the Bank of England\u2019s preferred buffer. Aware of Britain\u2019s financial squeeze, Eisenhower refused to support Britain\u2019s request for money from the IMF or the US EX-IM bank[102]<\/a>: As he stipulated, the US would not help Britain pay for oil imports unless there was a ceasefire. The threat of financial reprisal and market chaos led the UK to capitulate by withdrawing its troops from the Suez. Ironically, it was an act of financial weaponization by its closest ally that halted Britain\u2019s expansionist ambitions. (Securing Israel\u2019s withdrawal from Sinai took longer. It was only after Eisenhower applied consistent pressure in the face of pro-Israel Congressional resistance\u2014including by threatening to suspend US investment in Israeli sovereign debt\u2014and after he signaled that the US would support UN proposals to sanction Israel that the latter withdrew from the Sinai Peninsula and Gaza Strip.[103]<\/a>).<\/p>\n\n\n\n It was the US, then, that helped end Britain\u2019s long occupation of Egypt. Motivating Washington was Eisenhower\u2019s fear that the oil-exporting countries in the Middle East would turn against the West if it continued to meddle in the Suez. In the face of Soviet encroachment, western access to Middle Eastern energy resources was at stake. As had been the pattern with US foreign policy, the United States\u2019 own interests motivated its defense of Egypt\u2019s sovereignty.<\/p>\n\n\n\n The Suez debacle set the stage for the full-spectrum dominance of the US dollar\u2014and for the reworking of the Anglo-American financial relationship.[104]<\/a> The sterling crisis had prompted the Bank of England to restrict UK banks from lending internationally in pounds. Dollar lending, however, was exempt from this stricture.[105]<\/a> Ironically, it was this contingency (among others) that paved the way for London becoming the center of the offshore dollar system.<\/p>\n\n\n\n With the United States\u2019 assent, Britain became the IMF\u2019s largest borrower for the next couple of decades.[106]<\/a> Echoing the IMF\u2019s move to lend to war-torn Ukraine despite the country\u2019s inability to meet the Fund\u2019s pre-lending requirement that borrowers exhibit sustainable levels of debt, IMF loans to Britain also meant relaxing Article VI which prohibited the IMF from lending to countries facing a \u2018large or sustained\u2019 capital outflow.\u2019[107]<\/a> It was only decades later, during the Thatcher era, thanks to North Sea oil revenues, that Britain\u2019s balance of payments were no longer a pressing concern. Post Suez, Egypt, too, would go on to experience balance of payments crises. Then too, because of Egypt\u2019s geopolitical importance as an Arab power, it was deemed too \u2018strategic to fail.\u2019[108]<\/a> In the decades to follow, Egypt would become a top IMF borrower, second only to Argentina.[109]<\/a><\/p>\n\n\n\n The war in Ukraine has had many unintended consequences. It has certainly boosted US hydrocarbon and defense exports. The price shock of 2022 made crude oil the world\u2019s most expensive traded product (worth $1.45 trillion). While Saudi Aramco was the largest oil exporter and China the biggest importer, US oil and gas profits (earned from domestic and foreign sales) were unmatched\u2014amounting to more than three hundred billion dollars in 2022.[110]<\/a><\/p>\n\n\n\n The export boom in United States\u2019 liquified natural gas (LNG) is directly attributable to the Russo-Ukraine war. On the one hand, war-induced reductions in Russian energy flows to Europe prompted most of western Europe, including Germany, to secure supplies from Qatar, Abu Dhabi and the United States. Having previously shunned US LNG for its heavy carbon footprint, in 2023 close to half of Europe\u2019s LNG imports were from the US. The surge in European demand made the US the world\u2019s top LNG exporter.[111]<\/a> War-induced price effects proved hugely beneficial for American firms, too. While prices for LNG increased three-fold in the US between December 2021 and September 2022, they increased eight-fold in Europe.[112]<\/a> By virtue of most US LNG contracts having \u2018destination flexibility\u2019\u2014a legal provision which allows traders to deliver product to any non-sanctioned destination\u2014American firms could take full advantage of the price increases in Europe.[113]<\/a><\/p>\n\n\n\n In effect the LNG bonanza was a coup for hydrocarbon dollar. Despite the ambitions of the Biden administration when it came to climate policy, materially, the LNG boom buttressed the US fossil fuel industry. The consequences for the planet were clear as the United States recorded their highest greenhouse gas emissions levels ever.[114]<\/a> With Trump\u2019s second term in office, the Biden administration\u2019s \u2018friendshoring\u2019 policy has been replaced by a more brutish law of the jungle: Trump has threatened Europe with tariffs unless it scales up its US hydrocarbon purchases.[115]<\/a> He has also reversed Biden\u2019s pause on new LNG export licenses from countries without free trade agreements and begun approving new LNG export licenses.[116]<\/a><\/p>\n\n\n\n Demand for natural gas represents a quarter of total global energy demand. About a quarter of global demand comes from within the US.[117]<\/a> Europe\u2019s demand for natural gas has consistently declined since the 2022 price shock and is expected to fall by twenty five percent by 2030.[118]<\/a> While nearly seventy percent of Russian LNG went to Europe in 2024\u2014a record high\u2014Russian supply comprised just seventeen percent of Europe\u2019s LNG imports.[119]<\/a> Russian piped gas continues to flow to Europe, but at a much more diminished scale. The future of sanctions continues to drive uncertainty.[120]<\/a><\/p>\n\n\n\n In terms of supply, projections hold that LNG gas production will increase by five percent in 2025, with American production responsible for the majority of the expansion.[121]<\/a> (Three quarters of the global liquefaction capacity approved between 2022 and 2023 was in the US.) The bulk of future demand for US LNG does not lie in Europe but in Asia. China is today the world\u2019s largest LNG importer, and Indian demand is growing rapidly, too. Asia is expected to drive about forty five percent of LNG demand in 2025.[122]<\/a> Rising Asian LNG demand has coalesced with rising American supply, begging interesting questions of the Trump White House. As early as 2021-2022, US LNG contracts with China already exceeded contracts with Europe.[123]<\/a> A transactional presidency would press for new deals pushing US LNG exports to China for the latter\u2019s continued investment in US Treasuries. In the fevered dreams of hydrocarbon traders and those seeking continued US Treasury dominance, this could be what d\u00e9tente looks like. But when transactionalism shades into bullying, the outcomes can become chaotic. One need look no further than the ongoing trade war for evidence. Already, China has retaliated against Trump\u2019s ten percent tariffs on all US imports from China by imposing fifteen percent tariffs on US LNG imports.[124]<\/a> China has not imported any US LNG for more than a month. Presently, US LNG buyers in China holding long-term contracts are diverting their LNG shipments to Europe.[125]<\/a> China\u2019s penchant for holding US Treasuries has also diminished.<\/p>\n\n\n\n In his call for American \u201cenergy dominance\u201d, it is clear that Trump understands reducing inflation while hiking tariffs (which are inflationary) will hinge on reducing energy prices. Consequently, on day one in office, Trump signed off on a declaration of national energy emergency to \u2018unleash American energy\u2019.[126]<\/a> Sustainable development requires decarbonization, but tariffs and trade battles herald inflation, which may, at some point, require the Fed to raise interest rates. Given that the bulk of green projects are debt-financed, (i.e. dependent on interest rates) spending on clean infrastructure in the Global South is bound to decline over the next four years.<\/p>\n\n\n\n President Trump\u2019s inaugural address promised to end wars. In fact, Trump\u2019s return to the White House was instrumental in Biden\u2019s ability to secure a ceasefire agreement between Israel and Hamas. Gazans have begun to return to a moonscape rubble or, as Trump has put it, a \u2018massive demolition site\u2019, with more tonnage of bombs dropped than on any other modern urban landscape. Financing the rebuilding and prerequisite removal of the rubble\u2014fifty million tons of twisted concrete and steel, chemical spills, ground water leached with metals, such as lead from solar panels, as well as human remains\u2014remains in question.[127]<\/a> Seeking to reduce government spending, Trump\u2019s first moves in office included slashing the US foreign assistance program known as USAID.<\/p>\n\n\n\n In his February meeting with Netanyahu, Trump announced that that the US will take over the Gaza strip; he asserted that, given its \u2018phenomenal location\u2019 overlooking the Mediterranean, \u201csome fantastic things could be done with Gaza.\u201d In response to Trump\u2019s Riviera plan for Gaza, which involves the forced removal of Palestinians from their land, the Arab League has proposed an alternate $53 billion reconstruction plan\u2014using World Bank estimates\u2014in which Palestinians remain on their land. This alternative, the outcome of a League summit in Cairo, has been supported by the major European powers.[128]<\/a><\/p>\n\n\n\n Egypt\u2019s proposal, coined the Gaza Recovery, Reconstruction, and Development plan (henceforth Gaza Recovery<\/em>), was prepared under El Sisi\u2019s directive. In many spaces, it has been called technocratic. It is, in fact, fantastical. Drawing on past \u2018experiments\u2019 in catastrophe in Hiroshima, Berlin, and Beirut, Gaza Recovery<\/em> calls for an \u2018integrated economic and social renaissance\u2019 made possible through \u2018international and regional investment funds\u2019. As can be seen with Egypt\u2019s own experience with international funding, these credit contracts tend to carry expectations of \u2018extreme conditionalities.\u2019 Even more troubling is the fact that this alternative plan for Gaza is one which hasn\u2019t been written by Palestinians themselves. It is, instead, an Egyptian effort, written in a context in which the heavily indebted nation can scarcely afford to displease its creditors in Washington and elsewhere.<\/p>\n\n\n\n Each map of the new Gaza strip, built along a green tree-lined spine, prominently demarcates designated crossings into Israel and Sinai. The security cordon separating Gaza from the rest of Israel will continue. (The Egyptian president has revealed that Cairo has been training Palestinians to serve as security forces during the transitional international governance of Gaza overseen by UN peacekeepers.) While Gaza Recovery <\/em>promises an architectural Mecca in the future with domed minarets for rooftops and fifteen shopping malls, in the interim, shipping containers will be repurposed as 200,000 housing units for 1.6 million. This, despite the fact that the numbers of displaced Palestinians is around 2 million. Development-related proposals are equally off the mark. The population in Gaza has very high literacy rate\u201498%, far greater than Egypt\u2019s 71%. The Gaza plan nevertheless skews heavily towards generating employment opportunities in agriculture and fishing.[129]<\/a> Neglecting Israel\u2019s control of entry, the plan projects 60,000 jobs for the tourism sector, just ten thousand less than estimated jobs for industry (and twenty thousand less than that expected in fishing).[130]<\/a> While seeking to honor the victims of the war on Gaza, the proposal also seeks to turn part of Gaza\u2019s rubble into a land reclaimation project by the coast\u2014with a Belgian company allegedly prepared to take the lead.[131]<\/a><\/p>\n\n\n\n At the end of February, Trump attempted to extort a favorable deal from Ukraine\u2014demanding that the US take half of the share of all of Ukraine\u2019s mineral resources as compensation for some measure of US protection short of a security guarantee. The plan was temporarily thwarted with farcical scenes at the White House where Trump and Vice President Vance publicly rebuked Ukraine\u2019s President Zelenskyy. Ukraine remains over the barrel, though, and hemmed in by extreme conditionalities. An agreement along the lines of Washington\u2019s designs seems inevitable. Recent negotiations between Trump and Putin have led to a temporary limited ceasefire. Both Kremlin and Kiev have declared that they will pause targeting each others energy infrastructure. (It turns out that Ukraine\u2019s strikes on Russian oil and gas infrastructure have hurt Russian state revenues.[132]<\/a>)<\/p>\n\n\n\n What awaits Gaza is as yet unknown. What is for certain, though, is that Gaza\u2019s Mediterranean coastline\u2014for which Egypt\u2019s blueprint has a Corniche road in mind, and quite possibly its offshore gas marine reserves, which contain a modest 32 BCM of natural gas[133]<\/a>\u2014will come into play, at least symbolically, in this new era of \u2018extreme conditionality.\u2019[134]<\/a> <\/p>\n\n\n\n On March 15, Trump authorized US Central Command to bomb targets in Yemen\u2019s capital Sana\u2019a. For their part, the Houthis had paused attacks on the Red Sea, respecting the Gaza ceasefire. Nevertheless, the US opted to engage with the intent of strengthening its regional dominance\u2014already, late last year, over forty thousand US troops were stationed in the Middle Eastern arena.[135]<\/a> The same day, Centcom\u2019s Twitter feed showed images of a missile launch from a US Navy vessel as well as mushroom clouds following the bombardment of the targeted location. Given the context, it is worth noting, that on an institutional basis, the US Department of Defense is the planet\u2019s single-largest emitter of hydrocarbons.[136]<\/a><\/p>\n\n\n\n Two days later, in flagrant violation of the January 19 ceasefire between Israel and Hamas, Israel Defense Forces launched the largest airstrikes witnessed in the Gaza strip in more than two months. Israeli commentators noted that this copycat action, coming days after the US strikes on Yemen, was a desperate attempt by Netanhayu to prevent his governing coalition from collapsing as he faces domestic backlash.[137]<\/a> That single night of aerial bombardment killed more than four hundred in Gaza.[138]<\/a> Local reports, meanwhile, indicate that security forces contracted by Qatar, the United States, and Egypt\u2014countries that had promised to guarantee the ceasefire\u2014had withdrawn from Gaza\u2019s Netzarim corridor.[139]<\/a> <\/p>\n\n\n\n This publication has been supported by the Rosa-Luxemburg-Stiftung. The positions expressed herein do not necessarily reflect the views of Rosa-Luxemburg-Stiftung<\/em>.<\/p>\n\n\n\n [1]<\/a> Chad Bown, \u201cRussia’s war on Ukraine: A sanctions timeline,\u201d Peterson Institute for International Economics<\/em>, December 21, 2023, https:\/\/www.piie.com\/blogs\/realtime-economics\/2022\/russias-war-ukraine-sanctions-timeline.<\/p>\n\n\n\n See: Kimberly Donovan and Maia Nikoladze, \u201cRussia Sanctions Database,\u201d Atlantic Council<\/em>,2023, https:\/\/www.atlanticcouncil.org\/blogs\/econographics\/russia-sanctions-database.<\/p>\n\n\n\n [2]<\/a> Other countries included Norway, Switzerland, Lichtenstein and Singapore. Ukraine also imposed sanctions. See: Donovan and Nikoladze.<\/p>\n\n\n\n [3]<\/a> Philip Gordon, \u201cEurope Has No Choice but to Seize Frozen Russian Assets,\u201d Financial Times<\/em>, March 5, 2025. https:\/\/www.ft.com\/content\/f012f511-1bde-4e99-90fe-f81a393ed6ad.<\/p>\n\n\n\n [4]<\/a> \u201cConsolidated Russia Sanctions Data Dashboard.\u201d Castellum.AI. Accessed March 20, 2025. https:\/\/www.castellum.ai\/russia-sanctions-dashboard.<\/p>\n\n\n\n [5]<\/a> Miles Johnson, \u201cWhat happened to Russia\u2019s seized superyachts?,\u201d Financial Times, <\/em>July 20, 24, https:\/\/www.ft.com\/content\/db20e533-7cf6-4cb9-bfd6-a6b6c8b36985.<\/p>\n\n\n\n [6]<\/a> Donovan and Nikoladze.<\/p>\n\n\n\n [7]<\/a> Guy Chazan, “The Competing Theories of the Nord Stream Explosions.” Financial Times<\/em>, September 6, 2024. https:\/\/www.ft.com\/content\/120d3b78-68b4-4b42-9e65-c55e8fd77fd0.<\/a><\/p>\n\n\n\n Max Seddon and David Sheppard, \u201cRussia Indefinitely Suspends Nord Stream Gas Pipeline to Europe,\u201d Financial Times<\/em>, September 2, 2022. https:\/\/www.ft.com\/content\/5867c175-df16-4c8b-9b7a-a868a19d0138.<\/p>\n\n\n\n [8]<\/a> Su-Lin Tan, \u201cYellen Says Price Cap on Russian Oil Is ‘One of Our Most Powerful Tools’ to Address Inflation,\u201d CNBC,<\/em> July 14, 2022, https:\/\/www.cnbc.com\/2022\/07\/14\/yellen-says-price-cap-on-russian-oil-can-help-address-inflation.html.<\/p>\n\n\n\n [9]<\/a> Andrea Shalal, \u201cYellen Says Russian Oil Price Cap Could Save African Countries $6 BLN Annually,\u201d Reuters, <\/em>January 20, 2023, https:\/\/www.reuters.com\/world\/yellen-says-russian-oil-price-cap-could-save-african-countries-6-bln-annually-2023-01-20\/#:~:text=Yellen%20said%20ending%20the%20war,African%20countries%20%246%20billion%20annually.<\/p>\n\n\n\n [10]<\/a> For the notion of systemically significant prices, see: Robert C. Hockett and Saule T. Omarova, \u201cSystemically Significant Prices,\u201c Journal of Financial Regulation<\/em> 2, no. 1 (2016): 1-20, https:\/\/doi.org\/10.1093\/jfr\/fjw007.; Isabella M. Weber et al., \u201cInflation in times of overlapping emergencies: Systemically significant prices from an input\u2013output perspective,\u201d Industrial and Corporate Change <\/em>33, no. 2 (2024): 297\u2013341. https:\/\/doi.org\/10.1093\/icc\/dtad080.<\/p>\n\n\n\n [11]<\/a> \u201cReal Broad Effective Exchange Rate for United States [RBUSBIS],\u201d Federal Reserve Bank of St. Louis<\/em>, February 20, 2025, https:\/\/fred.stlouisfed.org\/series\/RBUSBIS<\/a>.<\/p>\n\n\n\n [12]<\/a> Boris Hofmann, Deniz Igan and Daniel Rees, \u201cThe changing nexus between commodity prices and the dollar: causes and implications,\u201d Bank for International Settlements<\/em>, April 13, 2023, https:\/\/www.bis.org\/publ\/bisbull74.pdf.; See also Daniel M. Rees, \u201cCommodity prices and the US Dollar,\u201d BIS Working Papers No 1083. Basel: Bank for International Settlements<\/em>, March 11, 2023. https:\/\/ideas.repec.org\/p\/bis\/biswps\/1083.html.<\/p>\n\n\n\n [13]<\/a> Mona Ali, “Militarized Adaptation,” Phenomenal World<\/em>, January 25, 2023, [14]<\/a> Hofmann, Igan, and Rees<\/p>\n\n\n\n [15]<\/a> Hofmann, Igan, and Rees.<\/p>\n\n\n\n [16]<\/a>Ana Swanson, \u201cAmerica’s Trade Deficit Surged in 2022, Nearing $1 Trillion,\u201d The New York Times<\/em>, February 7, 2023, https:\/\/www.nytimes.com\/2023\/02\/07\/business\/economy\/us-trade-deficit.html?searchResultPosition=1.<\/p>\n\n\n\n [17]<\/a> Gregor Semieniuk et al., \u201cDistributional implications and share ownership of record oil and gas profits,\u201d (University of Massachusetts at Amherst: 2024), doi: 10.7275\/55083.<\/p>\n\n\n\n [18]<\/a> Cian Allen and Rudolfs Bems, \u201cEmerging Markets Show Resilience Despite Global Monetary Tightening,\u201d IMF Blog<\/em>, July 12, 2024, “https:\/\/www.imf.org\/en\/Blogs\/Articles\/2024\/07\/12\/emerging-markets-show-resilience-despite-global-monetary-tightening?utm_medium=email&utm_source=govdelivery”https:\/\/www.imf.org\/en\/Blogs\/Articles\/2024\/07\/12\/emerging-markets-show-resilience-despite-global-monetary-tightening?utm_medium=email&utm_source=govdelivery.<\/p>\n\n\n\n [19]<\/a> Franklin, Joshua, and Stephen Gandel. \u201cFed\u2019s High-Rates Era Handed $1TN Windfall to US Banks.\u201d Financial Times<\/em>, September 22, 2024. https:\/\/www.ft.com\/content\/4c013d3b-796b-47a3-a964-02f753d39846.<\/p>\n\n\n\n [20]<\/a> \u201cDeveloping Countries Paid Record $1.4 Trillion on Foreign Debt in 2023,\u201d World Bank<\/em>, December 3, 2024, https:\/\/www.worldbank.org\/en\/news\/press-release\/2024\/12\/03\/developing-countries-paid-record-1-4-trillion-on-foreign-debt-in-2023.<\/a><\/p>\n\n\n\n [21]<\/a> World Bank, IDS, 2023. International Debt Report 2023<\/em>. Washington, DC: World Bank. doi:10.1596\/978-1-4648-2032-8. License: Creative Commons Attribution CC BY 3.0 IGO<\/p>\n\n\n\n [22]<\/a> Millard, Rachel, \u201cUK Household Energy Bills to Fall as Ofgem Reduces Price Cap by 12%,\u201d Financial Times<\/em>, February 23, 2024. https:\/\/www.ft.com\/content\/ee6c7d3f-bc49-4f02-90a5-5012938a648d.<\/p>\n\n\n\n [23]<\/a> Note that Energy subsidies (scaled by GDP) are much higher in the developing world compared to advanced western economies. \u201cClimate Change: Fossil Fuel Subsidies\u201d International Monetary Fund (IMF)<\/em>, https:\/\/www.imf.org\/en\/Topics\/climate-change\/energy-subsidies#Energy%20Subsidies.<\/p>\n\n\n\n [24]<\/a> \u201cActive IMF Lending Commitments as of April 30, 2024,\u201d International Monetary Fund (IMF),<\/em> https:\/\/www.imf.org\/external\/np\/fin\/tad\/extarr11.aspx?memberKey1=ZZZZ&date1key=2025-12-31.<\/p>\n\n\n\n [25]<\/a> Mona Ali, \u201cReforming the IMF,\u201d May 13, 2023, Phenomenal World<\/em>, https:\/\/www.phenomenalworld.org\/analysis\/reforming-the-imf\/.; \u201cIMF Executive Board Completes the Sixth Review of the Extended Arrangement under the Extended Fund Facility for Ukraine,\u201d International Monetary Fund (IMF)<\/em>, December 20, 2024, https:\/\/www.imf.org\/en\/News\/Articles\/2024\/12\/20\/pr-24493-ukraine-imf-completes-6th-rev-of-extended-arrangement-under-eff.; \u201cIMF Executive Board Approves US$15.6 Billion under a New Extended Fund Facility (EFF) Arrangement for Ukraine as part of a US$115 Billion Overall Support Package,\u201d International Monetary Fund (IMF)<\/em>, March 31, 2023, https:\/\/www.imf.org\/en\/News\/Articles\/2023\/03\/31\/pr23101-ukraine-imf-executive-board-approves-usd-billion-new-eff-part-of-overall-support-package.<\/p>\n\n\n\n [26]<\/a> With this policy change, the number of countries that pay IMF surcharges will decline from twenty to about thirteen. Ukraine\u2019s surcharges on its 2023 IMF loan agreement will be cut by about forty percent. See:<\/p>\n\n\n\n \u201cUkraine\u2019s Interest Payments on IMF Loans to Decrease: IMF Revises Its Charges and Surcharge Policy,\u201d National Bank of Ukraine<\/em>, October 14, 2024, https:\/\/bank.gov.ua\/en\/news\/all\/protsentni-plateji-ukrayini-za-kreditami-mvf-znizyatsya–fond-pereglyanuv-politiku-dodatkovih-styagnen.; \u201cIMF Executive Board Concludes the Review of Charges and the Surcharge Policy, and Approves Reforms,\u201d International Monetary Fund (IMF), <\/em>October 21, 2024, https:\/\/www.imf.org\/en\/News\/Articles\/2024\/10\/21\/pr-24385-imf-concludes-the-review-of-charges-and-surcharge-policy-and-approves-reforms\/.; \u201cFrequently Asked Questions on the Fund\u2019s Charges and the Surcharge Policy,\u201d International Monetary Fund (IMF), <\/em>October 11, 2024, https:\/\/www.imf.org\/en\/About\/FAQ\/charges-and-surcharge-policy.<\/a><\/p>\n\n\n\n [27]<\/a> Ian Clark, Olga Fedosova, Dimitrios Lyratzakis. \u201cUkraine Concludes Historic Restructuring of US$20.5 Billion of International Bonds.\u201d White & Case LLP, September 10, 2024. https:\/\/www.whitecase.com\/insight-alert\/ukraine-concludes-historic-restructuring-us205-billion-international-bonds?utm_source=chatgpt.com.<\/p>\n\n\n\n [28]<\/a> Conflict, creditors and a car crash: How Ukraine clinched a wartime debt restructuring | Reuters. Accessed March 22, 2025. https:\/\/www.reuters.com\/markets\/europe\/conflict-creditors-car-crash-how-ukraine-clinched-wartime-debt-restructuring-2024-09-03\/.<\/p>\n\n\n\n [29]<\/a> Brooke Masters, \u201cBlackrock and JPMorgan Help Set up Ukraine Reconstruction Bank,\u201d Financial Times<\/em>, June 19, 2023, https:\/\/www.ft.com\/content\/3d6041fb-5747-4564-9874-691742aa52a2.<\/p>\n\n\n\n [30]<\/a> Dan Sabbagh, \u201cCivilian Casualties of Explosive Weapons at Highest Level in More than a Decade,\u201d The Guardian, <\/em>January 14, 2025, https:\/\/www.theguardian.com\/world\/2025\/jan\/14\/civilian-casualties-of-explosive-weapons-at-highest-level-in-more-than-a-decade?utm_source=chatgpt.com.<\/p>\n\n\n\n [31]<\/a> \u201cSaudi Air War 2015-2022.\u201d Yemen Data Project. Accessed March 19, 2025. https:\/\/yemendataproject.org\/data\/saudi-air-war-2015-2022.<\/p>\n\n\n\n [32] US Department of Energy 2024. (LNG shipping through the Suez has dried up completely.)<\/p>\n\n\n\n [33] \u201cIMF Mission Concludes Visit to Egypt for the Fourth Review under the Extended Fund Facility ,\u201d International Monetary Fund (IMF)<\/em>, November 20, 2024, https:\/\/www.imf.org\/en\/News\/Articles\/2024\/11\/20\/pr-24429-egypt-imf-mission-concludes-visit-to-egypt-for-the-4th-review-under-the-eff<\/a><\/p>\n\n\n\n \u201cFrequently Asked Questions on Egypt and the IMF,\u201d International Monetary Fund (IMF)<\/em>, August 26, 2024, https:\/\/www.imf.org\/en\/Countries\/EGY\/Egypt-qandas.<\/p>\n\n\n\n [34]<\/a> Lazard, 2024. \u201cThe 2020-2025 Sovereign Debt Crisis: What Have We Learnt and What Lies Ahead?\u201d https:\/\/www.lazard.com. Accessed March 7, 2025. https:\/\/www.lazard.com\/research-insights\/the-2020-2025-sovereign-debt-crisis-what-have-we-learnt-and-what-lies-ahead\/.<\/p>\n\n\n\n [35]<\/a> Patrick Werr and Karin Strohecker, \u201cEgypt Announces $35 Billion UAE Investment on Mediterranean Coast,\u201d Reuters, <\/em>February 23, 2024,https:\/\/www.reuters.com\/business\/egypt-announces-multi-billion-uae-investment-boost-forex-2024-02-23\/.<\/p>\n\n\n\n [36]<\/a> \u201cIMF Staff and the Egyptian Authorities Reach Staff Level Agreement on the First and Second Reviews under the EFF Arrangement.\u201d IMF, March 6, 2024. https:\/\/www.imf.org\/en\/News\/Articles\/2024\/03\/06\/pr-2459-egypt-staff-and-authorities-reach-agreement-on-reviews-under-the-eff-arrangement.; Nafisa Eltahir, \u201cEgyptian pound steadies after devaluation, IMF deal,\u201d Reuters, <\/em>March 7, 2024, https:\/\/www.reuters.com\/world\/africa\/egyptian-pound-stable-after-devaluation-imf-deal-2024-03-07\/.; Tarek El-Tablawy and Abdel Latif Wahba, \u201cEgypt Holds Key Rate Even as Inflation Shows Signs of Easing,\u201d Bloomberg, <\/em>December 26, 2024, https:\/\/www.bloomberg.com\/news\/articles\/2024-12-26\/egypt-holds-key-rate-even-as-inflation-shows-signs-of-easing.<\/p>\n\n\n\n [37]<\/a> \u201cEU pledges \u20ac7.4 billion aid and investment package for Egypt\u201d Ahramonline<\/em>, Accessed March 19, 2025. https:\/\/english.ahram.org.eg\/NewsContent\/3\/12\/519550\/Business\/Economy\/EU-pledges-\u20ac-billion-aid-and-investment-package-fo.aspx.<\/p>\n\n\n\n [38]<\/a> \u201cSpeech by President von Der Leyen with Egyptian President El-Sisi at the EU-Egypt Investment Conference.\u201d Enlargement and Eastern Neighbourhood, June 29, 2024. https:\/\/enlargement.ec.europa.eu\/news\/speech-president-von-der-leyen-egyptian-president-el-sisi-eu-egypt-investment-conference-2024-06-29_en.<\/p>\n\n\n\nII. Hegemonic Transition<\/strong><\/h2>\n\n\n\n
III. Empire\u2019s Ends<\/strong><\/h2>\n\n\n\n
IV. Extreme Conditionality<\/strong><\/h2>\n\n\n\n
\n\n\n\n
\n\n\n\n<\/figure>\n\n\n\n
\n\n\n\n
https:\/\/www.phenomenalworld.org\/analysis\/militarized-adaptation\/.<\/a><\/p>\n\n\n\n