Oil prices are at an all-time high; the dollar and the health of the American economy are faltering; the global economic balance of power is shifting in favor of the Asian giants and the world's energy producers. What does this portend for America's global leadership and its ability to continue to pursue its agenda, especially vis-à-vis Iran and the Greater Middle East? This was the subject of a discussion cosponsored by The National Interest and The Nixon Center, held on February 8, 2008.

Geoffrey Kemp, director of regional strategic programs at The Nixon Center, opened the session, "The Falling Dollar and the Axis of Oil," by noting the "tinderbox" that has been created by the juxtaposition of the world's largest retrievable reserves in the zone from the Caspian Sea to the Persian Gulf (70 percent of the world's proven oil reserves and 40 percent of proven natural gas reserves)-what he terms the "energy ellipse"-with "the war zone" that stretches from Lebanon to Pakistan. Concentrated within the intersection of these two larger regions is a collection of some of the world's richest states-who nonetheless find themselves unbelievably vulnerable and whose wealth does not guarantee security. This sets the stage for the possible clash of geopolitical with geo-economic interests.

Flynt Leverett, director of the New America Foundation's Geopolitics of Energy Initiative, and former senior director at the National Security Council for the Middle East during the Bush administration, began his remarks by noting that the ongoing shifts in the global balance of power are not only a result of a U.S. decline but the emergence of new power centers arising outside of the West-trends that have been discussed in much greater detail by Steven Weber and his colleagues in The National Interest and his colleague Parag Khanna at The New America Foundation. He then went on to discuss the major theme of his recent TNI article "Black is the New Green," that a "perfect storm" has emerged which puts U.S. global economic leadership-and by extension, its strategic preeminence-at risk. This includes the dramatic rise in energy prices over the last six years; the sustained redistribution of wealth away from the United States in favor of the key manufacturing powers (especially in Asia) and the energy producers; the deepening linkages between these two groups-especially the west Asian energy producers with the East Asian manufacturers-that bypasses the United States; and growing U.S. current-account and fiscal deficits that increasingly are being financed by other governments and government agencies.

Leverett noted that "financial power is real power"-especially since other states now have the ability to affect the value of the dollar and to use their economic leverage to affect U.S. policy. At present, alluding to Kemp's tinderbox, most states do not want to replace the United States in its leadership role-but they are more willing now to restrain the United States or raise the cost for American action if they feel Washington is acting as a dysfunctional hegemon or directly challenging their interests.

Brad Setser, the Council on Foreign Relations' fellow for geo-economics, agreed with the general outline of Leverett's comments. He noted that since 2002 the U.S. current- account deficit has increased significantly and is now being financed not by private capital (because U.S. interest rates are so low) but by official flows to the United States. Moreover, as the U.S. economy itself has slowed, and as oil prices have continued to rise, America's dependence on other governments-via their central banks and sovereign wealth funds-to finance its deficits has only increased. Finally-and significantly for foreign policy-there is a growing overlap between the major creditor countries of the United States and those states that would be left out of any "concert of democracies"-China, Russia and the Gulf states.

But Setser also pointed out that we can overstate the prospects for these creditor nations to coordinate their activities to pressure the United States. Their interests may often clash; they do not have intricately-linked financial connections nor have they tended to coordinate their activities vis-à-vis the dollar; and they all have interests in keeping the dollar floating. Chinese exporters still want to use the dollar; other major manufacturing states, therefore, do not want to undercut their own exports by valuing their own currencies against the dollar-notably India's negative experience when the rupee appreciated by 10 percent against the greenback, which meant India not only lost export markets to China but Chinese goods became more competitive even in India's domestic markets. The Gulf states, especially the Saudis, are willing to absorb some negative economic costs in order to retain their strategic relations with the United States.

Setser asked whether or not the United States, in the end, might be able to prevail in a game of "chicken"-that it could pursue policies that other states might object to without those states pulling America's credit card. As an example, he pointed out that while most of the world objected to the Gulf War, these creditor states are nonetheless financing it and they are increasing the amount of capital they are sending to the U.S.-$50 billion in January 2008 alone.

So the leverage is there-but it, so far, does not appear to have been exercised.

Nikolas K. Gvosdev is editor of The National Interest.