NATO, Energy Politics, and De-Dollarization (Simplified and Completely Explained)

Q1. What is NATO and what were its founding objectives in post‑World War II Europe?

1. NATO (North Atlantic Treaty Organization) is a political and military alliance of North American and European countries, established in 1949 as a collective defence alliance.
2. NATO today has 32 members, including the US, UK, Canada, most EU states, and non‑EU countries like Norway and Turkey. Finland (2023) and Sweden (2024) are the recent members.
3. Founding Objectives:
   1. Collective Defence: Attack on one considered as attack on all (Article 5)
   2. Deterring Soviet expansion and containing communism in post-WWII Europe.
   3. Political cooperation and stability in war-torn Europe, ensuring Western democracies could consult on defence and security.

Q2. How has NATO’s role evolved from Cold War deterrence to contemporary relevance?

1. Cold War deterrence: Primarily served as a bulwark against Soviet military power in Europe.
2. Post-Cold War adaptation: Expanded eastward after 1991, integrating former Warsaw Pact states.
3. Collective security and crisis management: NATO has taken roles in out-of-region operations, including in the Balkans and Afghanistan, and humanitarian missions.
4. Contemporary relevance: With Russia’s invasion of Ukraine, NATO has focused on deterrence on its eastern flank, reinforcing defence commitments, and emphasising collective security in a changing global environment.
5. Also, the initiative of NATO Plus (NATO’s informal strategic partnerships with non-member countries, especially in the Indo-Pacific, such as Japan, Australia, South Korea, and New Zealand) reflects NATO’s shift from a purely Euro-Atlantic alliance to a body engaging with global security challenges like crisis management, cyber security, and political consultation on wider global security threats.

Q3. How do GDP size, GDP per capita, and defence spending reveal disparities within NATO, and how does US dominance shape alliance dynamics?

1. Economic and defence disparities:
   1. The United States’ GDP exceeds the GDP of all other NATO members, reflecting its outsized economic capacity relative to the rest of the bloc.
   2. The US also leads in GDP per capita, indicating stronger fiscal capacity for defence spending.
   3. Many European NATO states spend less than the alliance’s guideline of 2% of GDP on defence, whereas the US spends significantly more in absolute and relative terms.
2. Impact on alliance dynamics:
   1. US economic strength enables larger defence budgets, higher force projection, and leadership in coalition operations.
   2. Other members often rely on the US for capabilities such as nuclear deterrence and strategic mobility.
   3. This economic and military asymmetry grants the US disproportionate influence over NATO priorities and decision-making, shaping strategic objectives and burden-sharing debates.
3. Thus, the US dominates NATO’s military culture and resource allocation, while smaller economies play more limited roles in collective defence.

Q4. What institutional checks within NATO help limit unilateral US moves despite being a dominant member?

1. Institutional checks within NATO:
   1. Consensus-based decision-making: All NATO decisions require agreement by all member states via bodies such as the North Atlantic Council.
   2. Article 5 commitments bind members equally, preventing unilateral military action in the alliance’s name.
   3. Member states retain sovereign control over their forces and foreign policies, imposing limits on any one state’s unilateral actions.
2. Thus, while the US has significant informal leverage, NATO’s institutional framework prevents unilateral decisions, requiring collective agreement even if one member is dominant.

Q5. What would be the legal and strategic implications of a hypothetical US takeover of Greenland for NATO cohesion and international law?

1. Following US actions in Venezuela, senior US officials also publicly stated that Greenland should become US territory, despite it being an autonomous territory of Denmark, a fellow NATO member.
2. This raised serious concerns about alliance cohesion, respect for sovereignty among NATO members, and the credibility of NATO’s collective security principles.
3. Legal implications:
   1. A forcible takeover of Greenland, a territory of NATO member Denmark, would violate sovereignty principles under international law and the UN Charter.
   2. It would undermine the core principle that alliance members respect each other’s territorial integrity.
4. Strategic implications:
   1. Such an act could fracture alliance unity, pitting the US against a fellow member (Denmark).
   2. It would create a crisis of trust within the alliance and potentially erode collective security commitments.
   3. NATO’s credibility as a security organisation based on shared values and international norms would be severely damaged.

Q6. What is the petrodollar system, how did it emerge, and why does dollar‑denominated oil trade strengthen US financial influence?

1. US sanctions on Russian oil (tariffs up to 500%), actions in Venezuela and claims over Greenland indicate a broader strategic approach centred on energy dominance and safeguarding the petrodollar-based global oil trade.
2. The petrodollar system refers to the use of the US dollar for pricing and settling international oil trade.
3. Emergence: After the end of the Bretton Woods gold-backed dollar in the early 1970s, the US and Saudi Arabia agreed to price oil in dollars, encouraging other OPEC exporters to follow.
4. It strengthens US financial influence as:
   1. Global oil trade in dollars maintains constant demand for the currency, reinforcing its status as the principal global reserve currency.
   2. Oil importers must hold and use dollars, strengthening US financial markets, lowering borrowing costs, and giving the US monetary leverage in international trade.
5. Thus, sanctions and energy policy are not only punitive but also linked to sustaining US financial leadership and the international role of the dollar.

Q7. How do China and India’s alternative oil-trade practices and China’s EV dominance together advance de-dollarization and weaken the petrodollar system?

De-dollarization refers to the process by which countries reduce their dependence on the US dollar in international trade, finance, and reserves by using alternative currencies, payment systems, or settlement mechanisms.

1. India
   1. Has paid for some Russian crude oil in yuan, signalling currency diversification.
   2. Seeks alternative settlement mechanisms to reduce exposure to dollar sanctions and exchange risks.
2. BRICS
   1. Exploring parallel currency arrangements and payment systems. (Eg: BRICS local-currency settlements)
   2. Aims to reduce collective dependence on the US dollar in trade and finance.
3. China
   1. Uses the yuan for energy trade, including oil imports, promoting the internationalisation of the renminbi.
   2. Introduced petroyuan contracts, offering an alternative to dollar-denominated oil trade.
   3. Encourages sanctioned countries (e.g., Russia, Iran) to accept non-dollar settlements.
4. China’s dominance in electric vehicles and clean-energy supply chains reduces long-term oil demand, thereby weakening oil-based dollar trade and reinforcing global de-dollarization trends.