Washington's 'trigger-happy' sanctions could make foreign move away from the dollar

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In the past, the U.S. has been 'extremely trigger-happy' when it comes to stinging economic measures, says the co-director of the Institute for the Analysis of Global Security. Central banks may want to diversify their foreign reserve portfolios instead of relying too much on the US dollar.

People at the think tank in Washington say that "central banks are starting to ask questions." They also wonder if relying on the dollar and "putting all their eggs in one basket" is a good idea, Gal Luft said.

Because of sanctions and other economic punishments, he said: "The United States has gone over the top, and it has been very quick to use them."

The White House didn't answer a question from CNBC.

"Unacceptable and unheard of" steps have been taken by the U.S. in recent weeks, Luft said. These include effectively freezing Russia's central bank reserves and cutting it off from the interbank messaging system called SWIFT.

The overall picture is not good because what we’re getting today is a heart attack on top of a heart attack.

Gal Luft

co-director of the Institute for the Analysis of Global Security

He said one in 10 countries in the world is under some form of U.S. sanctions.

“That has a cumulative effect and as a result, we see the dollar playing less and less of a role and portfolios of central banks,” Luft said.

People are talking about this after a report in the Wall Street Journal said that Saudi Arabia is speeding up talks with China to accept yuan instead of dollars for the oil that China buys from Saudi Arabia. This comes after this.

U.S. dollars are the most common way that oil is sold, and that has allowed the U.S. government to run "huge deficits," he said on Monday.

Luft, on the other hand, said that sanctions make governments want to move away from the U.S. dollar.

He said that the American political class doesn't think about the consequences of what they do, which is bad.

“It’s like a bunch of kids running around with guns shooting all over the place without realizing what they’re actually doing, without looking at the cumulative impact of all of this,” he said.

“On the one hand, you are sanctioning right and left. On the other hand, you want countries to buy your Treasurys and finance your debt. That’s not a sustainable scenario,” he said.

‘Heart attack’ in energy

Luft, who is a senior advisor to the US Energy Security Council, talked about the uncertainty in global energy markets on her own.

Putting a heart attack on top of a heart attack doesn't look good, he said. He was referring to the Covid pandemic and the Russia-Ukraine war. "It's not good," he said.

In his words: "The combination of the two is really a double hit."

Oil prices have changed a lot over the last two years. They fell when the pandemic started and rose when Russia invaded Ukraine in February.

Luft said there has been a shift in the world's energy, financial, and geopolitical systems, and a "new world order" has come into being.

Because of this, "the change is never pleasant." People say that "it's always painful, but that's how we can change the world."

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