Displacement of the dollar as the world's leading transactional and reserve currency would hurt the United States economically, by reducing seigniorage benefits accruing to the U.S. Treasury from foreigners holding dollars-in effect, an interest-free loan for the U.S. government. More importantly, it would raise the costs of financing America's twin deficits. By extension, these economic losses-whether actually imposed or only threatened by a critical mass of America's creditors-could constrain U.S. "freedom of action" internationally, in a manner reminiscent of America's exercise of leverage over British decision-making during the 1956 Suez crisis.

Trends in global financial markets in coming years will almost certainly further weaken America's financial and monetary position. Unless current trends in global energy markets are purely cyclical-and, therefore, the price of oil drops substantially in the near-to-medium term-energy market developments will exacerbate this vulnerability. Preventing creditor nations from exploiting that vulnerability is one of the most important challenges facing the United States during the next decade.

Unfortunately, this challenge is almost completely overlooked in current debates about the direction of U.S. foreign policy-still often defined by some conservatives' continued attachment to America's unilateral prerogatives or by the shared belief of some neoconservatives and liberal internationalists that a "Concert of Democracies" can replace the UN Security Council as the legitimator of U.S. military initiatives. These notions overlook a critical reality: A "community" of largely non-democratic manufacturing powers and energy exporters is already laying the groundwork for real strategic collaboration, aimed at limiting America's ability to carry out precisely such hegemonic agendas.

Minimizing the strategic risks associated with America's financial and monetary vulnerability is going to require hard foreign-policy choices. First, the United States must recognize that, fundamentally, this vulnerability is rooted in perceptions that American strategic initiatives and positions are increasingly threatening to the interests of key creditor nations. These initiatives and positions include the Iraq War, feckless stewardship of the Arab-Israeli peace process, refusal to pursue serious diplomacy with Iran, support for "color" revolutions in former Soviet states and lackluster vision in managing China's rise.

Second, the United States should make the cultivation of mutually beneficial strategic partnerships with major energy producers, such as Russia and Saudi Arabia, a much higher foreign-policy priority. As Dimitri Simes has argued, successive U.S. administrations have crafted policy toward Russia on the basis of an increasingly unrealistic assumption that Moscow has no choice but to tolerate whatever America wants to do.⁷ Similarly, U.S. policymakers continue to operate as if Saudi Arabia somehow needs America more than America needs Saudi Arabia.

The United States can no longer afford to maintain these illusions. The next U.S. administration will need to establish broad-based strategic understandings with Russia, Saudi Arabia and other important energy exporters to raise confidence in the benefits of America's continued international leadership. With regard to Russia, the United States should make clear that, while the Kremlin will not have a veto over U.S. policy in Central and Eastern Europe, Washington recognizes that Moscow has important interests in the post-Soviet space. With regard to Saudi Arabia, the United States should work to restore Saudi leaders' perceptions that American hegemony in the Middle East is strongly positive for the kingdom's interests; this will require serious dialogue with Saudi leaders about how U.S. policy can accommodate Saudi interests and initiatives on Arab-Israeli peacemaking and regional security.

Finally, the United States needs a long-term strategy for accommodating China's economic and political rise that assures Beijing of America's respect for legitimate Chinese interests while also protecting America's most important interests in Asia. This will require a much more robust American effort to shape the evolution of existing multilateral institutions in Asia-and to create new ones, especially for energy and security issues.

The rise and evolution of the axis of oil is a watershed development in the history of American primacy. This development is rooted in structural shifts in the global energy balance and global financial flows; the next U.S. administration will not be able to escape the strategic consequences of these shifts by fatuous invocations of "energy independence" or "putting our economic house in order." The continuation of America's international primacy now truly depends on Washington's ability to take account of the perceptions and interests of others in its foreign-policy decision-making.

The author is grateful to Hillary Mann Leverett, Pierre Noël and Øystein Noreng for their indispensable contributions to his analysis and understanding of the issues treated in this article, and to Sameer Lalwani for outstanding research assistance.

Flynt Leverett is a senior fellow and the director of The New America Foundation's Geopolitics of Energy Initiative.

¹Flynt Leverett and Pierre Noël, "The New Axis of Oil", The National Interest, No. 84 (Summer 2006).

²In 1956, the Eisenhower Administration-opposed to the Anglo-French campaign to seize the Suez Canal in cooperation with Israel-orchestrated a run on sterling that compelled the Eden government to secure financing from the International Monetary Fund to defend the pound's value. Washington then refused to back the loan unless Britain withdrew its forces from Suez; in short order, decisions were taken in London and Paris for British and French troops to leave Egypt.

³The GCC includes three of the so-called "OPEC Five" states-Saudi Arabia, Kuwait and the United Arab Emirates-as well as Qatar, the world's leading producer and exporter of liquefied natural gas. (Bahrain and Oman are also members.)

⁴Naazneen Barma, Ely Ratner and Steven Weber, "A World Without the West", The National Interest, No. 90 (Jul./Aug. 2007).

⁵Dollar "optimists" include prominent academic economists and policy experts such as Richard Cooper, Ronald McKinnon and current Federal Reserve Chairman Ben Bernanke.

⁶Dollar "pessimists" include a number of prominent academic economists, policy experts at the Peterson Institute for International Economics, Morgan Stanley's Stephen Roach, former Treasury Secretary Lawrence Summers and former Federal Reserve Chairman Alan Greenspan.

⁷Dimitri K. Simes, "Losing Russia: The Costs of Renewed Confrontation", Foreign Affairs, Vol. 86, No. 6 (November/December 2007).