- Although completely suppressed in the U.S. media, the
answer to the Iraq enigma is simple yet shocking - it an an oil CURRENCY
war. The Real Reason for this upcoming war is this administration's goal
of preventing further OPEC momentum towards the euro as an oil transaction
currency standard. However, in order to pre-empt OPEC, they need to gain
geo-strategic control of Iraq along with its 2nd largest proven oil reserves.
This lengthy essay will discuss the macroeconomics of the "petro-dollar"
and the unpublicized but real threat to U.S. economic hegemony from the
euro as an alternative oil transaction currency.
- THE REAL REASONS FOR THE UPCOMING WAR IN IRAQ
- A Macroeconomic and Geostrategic Analysis of
the Unspoken Truth
- By W. Clark
- "If a nation expects to be ignorant and free, it
expects what never was and never will be ... The People cannot be safe
without information. When the press is free, and every man is able to read,
all is safe."
- Those words by Thomas Jefferson embody the unfortunate
state of affairs that have beset our nation. As our government prepares
to go to war with Iraq, our country seems unable to answer even the most
basic questions about this war. First, why is there virtually no international
support to topple Saddam? If Iraq's WMD program truly possessed the threat
level that President Bush has repeatedly purported, why is there no international
coalition to militarily disarm Saddam? Secondly, despite over 300 unfettered
U.N inspections to date, there has been no evidence reported of a reconstituted
Iraqi WMD program. Third, and despite Bush's rhetoric, the CIA has not
found any links between Saddam Hussein and Al Qaeda. To the contrary, some
analysts believe it is far more likely Al Qaeda might acquire an unsecured
former Soviet Union Weapon(s) of Mass Destruction, or potentially from
sympathizers within a destabilized Pakistan.
- Moreover, immediately following Congress's vote on the
Iraq Resolution, we suddenly became aware of North Korea's nuclear program
violations. Kim Jong Il is processing uranium in order to produce nuclear
weapons this year. President Bush has not provided a rationale answer as
to why Saddam's seemingly dormant WMD program possesses a more imminent
threat that North Korea's active program? Strangely, Donald Rumsfeld suggested
that if Saddam were "exiled" we could avoid an Iraq war? Confused
yet? Well, I'm going to give their game away - the core driver for toppling
Saddam is actually the euro currency, the â,.
- Although completely suppressed in the U.S. media, the
answer to the Iraq enigma is simple yet shocking. The upcoming war in Iraq
war is mostly about how the ruling class at Langley and the Bush oligarchy
view hydrocarbons at the geo-strategic level, and the overarching macroeconomic
threats to the U.S. dollar from the euro. The Real Reason for this upcoming
war is this administration's goal of preventing further OPEC momentum towards
the euro as an oil transaction currency standard. However, in order to
pre-empt OPEC, they need to gain geo-strategic control of Iraq along with
its 2nd largest proven oil reserves.
- This lengthy essay will discuss the macroeconomics of
the "petro-dollar" and the unpublicized but real threat to U.S.
economic hegemony from the euro as an alternative oil transaction currency.
The following is how an astute and anonymous friend alluded to the unspoken
truth about this upcoming war with Iraq...
- "The Federal Reserve's greatest nightmare is that
OPEC will switch its international transactions from a dollar standard
to a euro standard. Iraq actually made this switch in Nov. 2000 (when the
euro was worth around 80 cents), and has actually made off like a bandit
considering the dollar's steady depreciation against the euro." (Note:
the dollar declined 15% against the euro in 2002.)
- "The real reason the Bush administration wants a
puppet government in Iraq - or more importantly, the reason why the corporate-military-industrial
network conglomerate wants a puppet government in Iraq - is so that it
will revert back to a dollar standard and stay that way." (While also
hoping to veto any wider OPEC momentum towards the euro, especially from
Iran - the 2nd largest OPEC producer who is actively discussing a switch
to euros for its oil exports).
- Furthermore, despite Saudi Arabia being our 'client state,'
the Saudi regime appears increasingly weak/ threatened from massive civil
unrest. Some analysts believe a "Saudi Revolution" might be plausible
in the aftermath of an unpopular U.S. invasion of Iraq (ie. Iran circa
1979) (1). Undoubtedly, the Bush administration is acutely aware of these
risks. Hence, the neo conservative framework entails a large and permanent
military presence in the Persian Gulf region in a post Saddam era, just
in case we need to surround and grab Saudi's oil fields in the event of
a coup by an anti-western group. But first back to Iraq.
- "Saddam sealed his fate when he decided to switch
to the euro in late 2000 (and later converted his $10 billion reserve fund
at the U.N. to euros) - at that point, another manufactured Gulf War become
inevitable under Bush II. Only the most extreme circumstances could possibly
stop that now and I strongly doubt anything can - short of Saddam getting
replaced with a pliant regime."
- Big Picture Perspective: Everything else aside from the
reserve currency and the Saudi/Iran oil issues (i.e. domestic political
issues and international criticism) is peripheral and of marginal consequence
to this administration. Further, the dollar-euro threat is powerful enough
that they'll rather risk much of the economic backlash in the short-term
to stave off the long-term dollar crash of an OPEC transaction standard
change from dollars to euros. All of this fits into the broader Great Game
that encompasses Russia, India, China."
- This information about Iraq's oil currency is censored
by the U.S. media as well as the Bush administration & Federal Reserve
as the truth could potentially curtail both investor and consumer confidence,
reduce consumer borrowing/ spending, create political pressure to form
a new energy policy that slowly weans us off middle-eastern oil, and of
course stop our march towards war in Iraq. This quasi "state secret"
can be found on a Radio Free Europe article discussing Saddam's switch
for his oil sales from dollars to the euros on Nov. 6, 2000 (2).
- "Baghdad's switch from the dollar to the euro for
oil trading is intended to rebuke Washington's hard-line on sanctions and
encourage Europeans to challenge it. But the political message will cost
Iraq millions in lost revenue. RFE/RL correspondent Charles Recknagel looks
at what Baghdad will gain and lose, and the impact of the decision to go
with the European currency."
- At the time of the switch many analysts were surprised
that Saddam was willing to give up millions in oil revenue for what appeared
to be a political statement. However, contrary to one of the main points
of this November 2000 article, the steady depreciation of the dollar versus
the euro since late 2001 means that Iraq has profited handsomely from the
switch in their reserve and transaction currencies. The euro has gained
roughly 17% against the dollar in that time, which also applies to the
$10 billion in Iraq's U.N. "oil for food" reserve fund that was
previously held in dollars has also gained that same percent value since
the switch. What would happen if OPEC made a sudden switch to euros, as
opposed to a gradual transition?
- "Otherwise, the effect of an OPEC switch to the
euro would be that oil-consuming nations would have to flush dollars out
of their (central bank) reserve funds and replace these with euros. The
dollar would crash anywhere from 20-40% in value and the consequences would
be those one could expect from any currency collapse and massive inflation
(think Argentina currency crisis, for example). You'd have foreign funds
stream out of the U.S. stock markets and dollar denominated assets, there'd
surely be a run on the banks much like the 1930s, the current account deficit
would become unserviceable, the budget deficit would go into default, and
so on. Your basic 3rd world economic crisis scenario.
- The United States economy is intimately tied to the dollar's
role as reserve currency. This doesn't mean that the U.S. couldn't function
otherwise, but that the transition would have to be gradual to avoid such
dislocations (and the ultimate result of this would probably be the U.S.
and the E.U. switching roles in the global economy)."
- In the aftermath of toppling Saddam it is clear the U.S.
will keep a large and permanent military force in the Persian Gulf. Indeed,
there is no "exit strategy" in Iraq, as the military will be
needed to protect the newly installed Iraqi regime, and perhaps send a
message to other OPEC producers that they might receive "regime change"
if they too move to euros for their oil exportsâ¤.
- Another underreported story from this summer regarding
the other OPEC 'Axis of Evil' country and their interest in the selling
oil in euros, Iran. (3)
- "Iran's proposal to receive payments for crude oil
sales to Europe in euros instead of U.S. dollars is based primarily on
economics, Iranian and industry sources said. But politics are still likely
to be a factor in any decision, they said, as Iran uses the opportunity
to hit back at the U.S. government, which recently labeled it part of an
"axis of evil."
- The proposal, which is now being reviewed by the Central
Bank of Iran, is likely to be approved if presented to the country's parliament,
a parliamentary representative said."There is a very good chance MPs
will agree to this idea ...now that the euro is stronger, it is more logical,"
the parliamentary representative said."
- More over, and perhaps most telling, during 2002 the
majority of reserve funds in Iran's central bank have been shifted to euros.
It appears imminent that Iran intends to switch to euros for their oil
- "More than half of the country's assets in the Forex
Reserve Fund have been converted to euro, a member of the Parliament Development
Commission, Mohammad Abasspour announced. He noted that higher parity rate
of euro against the US dollar will give the Asian countries, particularly
oil exporters, a chance to usher in a new chapter in ties with European
Union's member countries.
- He said that the United States dominates other countries
through its currency, noting that given the superiority of the dollar against
other hard currencies, the US monopolizes global trade. The lawmaker expressed
hope that the competition between euro and dollar would eliminate the monopoly
in global trade."
- Indeed, after toppling Saddam, this administration may
decide that Iran is the next target in the "war on terror." Iran's
interest in switching to the euro as their standard transaction currency
for oil exports is well documented. Perhaps this recent MSNBC article illustrates
the objectives of the neo conservatives (5).
- "While still wrangling over how to overthrow Iraq's
Saddam Hussein, the Bush administration is already looking for other targets.
President Bush has called for the ouster of Palestinian leader Yasir Arafat.
Now some in the administrationâ¤"and allies at D.C. think
tanksâ¤"are eyeing Iran and even Saudi Arabia. As one
senior British official put it: "Everyone wants to go to Baghdad.
Real men want to go to Tehran."
- Aside from these political risks regarding Saudi Arabia
and Iran, another risk factor isactually Japan. Perhaps the biggest gamble
in a protracted Iraq war may be Japan's weak economy (6). If the war creates
prolonged oil high prices ($45 per barrel over several months), or a short
but massive oil price spike ($80 to $100 per barrel), some analysts believe
Japan's fragile economy would collapse. Japan is quite hypersensitive to
oil prices, and if its banks default, the collapse of the second largest
economy would set in motion a sequence of events that would prove devastating
to the U.S. economy. Indeed, Japan's fall in an Iraq war could create the
economic dislocations that begin in the Pacific Rim but quickly spread
to Europe and Russia. The Russian government lacks the controls to thwart
a disorderly run on the dollar, and such an event could ultimately force
and OPEC switch to euros.
- Additionally, other risks might arise if the Iraq war
goes poorly or becomes prolonged, as it is possible that civil unrest may
unfold in Kuwait or other OPEC members including Venezuela, as the latter
may switch to euros just as Saddam did in November 2000. Thereby fostering
the very situation this administration is trying to prevent, another OPEC
member switching to euros as their oil transaction currency.
- Incidentally, the final "Axis of Evil" country,
North Korea, recently decided to officially drop the dollar and begin using
euros for trade, effective Dec. 7, 2002 (7). Unlike the OPEC-producers,
their switch will have negligible economic impact, but it illustrates the
geopolitical fallout of the President Bush's harsh rhetoric. Much more
troubling is North Korea's recent action following the oil embargo of their
country. They are in dire need of oil and food; and in an act of desperation
they have re-activated their pre-1994 nuclear program. Processing uranium
appears to be taking place at a rapid pace, and it appears their strategy
is to prompt negotiations with the U.S. regarding food and oil. The CIA
estimates that North Korea could produce 4-6 nuclear weapons by the second
half of 2003. Ironically, this crisis over North Korea's nuclear program
further confirms the fraudulent premise for which this war with Saddam
was entirely contrived.
- Unfortunately, neo conservatives such as George Bush,
Dick Cheney, Donald Rumsfeld, Paul Wolfowitz and Richard Pearle fail to
grasp that Newton's Law applies equally to both physics and the geo-political
sphere as well:
- "For every action there is an equal but opposite
- During the 1990s the world viewed the U.S. as a rather
self-absorbed but essentially benevolent superpower. Military actions in
Iraq (90-91' & 98'), Serbia and Kosovo (99') were undertaken with both
U.N. and NATO cooperation and thus afforded international legitimacy. President
Clinton also worked to reduce tensions in Northern Ireland and attempted
to negotiate a resolution to the Israeli-Palestinian conflict.
- However, in both the pre and post 9/11 intervals, the
"America first" policies of the Bush administration, with its
unwillingness to honor International Treaties, along with their aggressive
militarisation of foreign policy, has significantly damaged our reputation
abroad. Following 9/11, it appears that President Bush's "warmongering
rhetoric" has created global tensions - as we are now viewed as a
belligerent superpower willing to apply unilateral military force without
U.N. approval.Lamentably, the tremendous amount of international sympathy
that we witnessed in the immediate aftermath of the September 11th tragedy
has been replaced with fear and anger at our government. This administration's
bellicosity haschanged the worldview, and "anti-Americanism"
is proliferating even among our closest allies (8).
- Even more alarming, and completely unreported in the
U.S media, are some monetary shifts in the reserve funds of foreign governments
away from the dollar with movements towards the euro (China, Venezuela,
some OPEC producers and last week Russia flushed some of their dollars
for euros) (9). It appears that the world community may lack faith in the
Bush administration's economic policies, and along with OPEC, seems poised
to respond with economic retribution if the U.S. government is regarded
as an uncontrollable and dangerous superpower. The plausibility of abandoning
the dollar standard for the euro is growing. An interesting U.K. article
outlines the dynamics and the potential outcomes
- ('Beyond Bush's Unilateralism: Another Bi-Polar World
or A New Era of Win-Win?')(10)
- "The most likely end to US hegemony may come about
through a combination of high oil prices (brought about by US foreign policies
toward the Middle East) and deeper devaluation of the US dollar (expected
by many economists). Some elements of this scenario:
- 1) US global over-reach in the "war on terrorism"
already leading to deficits as far as the eye can see -- combined with
historically-high US trade deficits - lead to a further run on the dollar.
This and the stock market doldrums make the US less attractive to the world's
- 2) More developing countries follow the lead of Venezuela
and China in diversifying their currency reserves away from dollars and
balanced with euros. Such a shift in dollar-euro holdings in Latin America
and Asia could keep the dollar and euro close to parity.
- 3) OPEC could act on some of its internal discussions
and decide (after concerted buying of euros in the open market) to announce
at a future meeting in Vienna that OPEC's oil will be re-denominated in
euros, or even a new oil-backed currency of their own. A US attack on Iraq
sends oil to â,40 per barrel.
- 4) The Bush Administration's efforts to control the domestic
political agenda backfires. Damage over the intelligence failures prior
to 9/11 and warnings of imminent new terrorist attacks precipitate a further
stock market slide.
- 5) All efforts by Democrats and the 57% of the US public
to shift energy policy toward renewables, efficiency, standards, higher
gas taxes, etc. are blocked by the Bush Administration and its fossil fuel
industry supporters. Thus, the USA remains vulnerable to energy supply
and price shocks.
- 6) The EU recognizes its own economic and political power
as the euro rises further and becomes the world's other reserve currency.
The G-8 pegs the euro and dollar into a trading band -- removing these
two powerful currencies from speculators trading screens (a "win-win"
for everyone!). Tony Blair persuades Brits of this larger reason for the
UK to join the euro.
- 7) Developing countries lacking dollars or "hard"
currencies follow Venezuela's lead and begin bartering their undervalued
commodities directly with each other in computerized swaps and counter
trade deals. President Chavez has inked 13 such country barter deals on
its oil, e.g., with Cuba in exchange for Cuban health paramedics who are
setting up clinics in rural Venezuelan villages.
- "The result of this scenario? The USA could no longer
run its huge current account trade deficits or continue to wage open-ended
global war on terrorism or evil. The USA ceases pursuing unilateralist
policies. A new US administration begins to return to its multilateralist
tradition, ceases its obstruction and rejoins the UN and pursues more realistic
- As for the events currently taking place in Venezuela,
items #2 and #7 on the above list may allude to why the Bush administration
quickly endorsed the failed military-led coup of Hugo Chavez in April 2002.
Although the coup collapsed after 2 days, various reports suggest the CIA
and a rather embarrassed Bush administration approved and may have been
actively involved with the civilian/military coup plotters. (11)
- "George W. Bush's administration was the failed
coup's primary loser, underscoring its bankrupt hemispheric policy. Now
it is slowly filtering out that in recent months White Houseofficials met
with key coup figures, including Carmona. Although the administration insists
that it explicitly objected to any extra-constitutional action to remove
Chavez, comments by senior U.S. officials did little to convey this."
- "The CIA's role in a 1971 Chilean strike could have
served as the working model for generating economic and social instability
in order to topple Chavez. In the truckers' strike of that year, the agency
secretly orchestrated and financed the artificial prolongation of a contrived
work stoppage in order to economically asphyxiate the leftist Salvador
- "This scenario would have had CIA operatives acting
in liaison with the Venezuelan military, as well as with opposition business
and labor leaders, to convert a relatively minor afternoon-long work stoppage
by senior management into a nearly successful coup de grace."
- Interestingly, according to an article by Michael Ruppert,
Venezuelan's ambassador Francisco Mieres-Lopez apparently floated the idea
of switching to the euro as their oil currency standard approximately one
year before the failed coup attempt... Furthermore, there is evidence that
the CIA is still active in its attempts to overthrow the democratically
elected Chavez administration. In fact, this past December a Uruguayan
government official recently exposed the ongoing covert CIA operations
in Venezuela (12):
- "Uruguayan EP-FA congressman Jose Bayardi says he
has information that far-reaching plan have been put into place by the
CIA and other North American intelligence agencies tooverthrow Venezuelan
President Hugo Chavez Frias"
- "Bayardi says he has received copies of top-secret
communications between the Bush administration in Washington and the government
of Uruguay requesting the latter's cooperation to support white collar
executives and trade union activists to "break down levels of intransigence
within the Chavez Frias administration"
- Venezuela is the fourth largest producer of oil, and
the corporate elites whose political power runs unfettered in the Bush/Cheney
oligarchy appear interested in privatizing Venezuela's oil industry. Furthermore,
the establishment might be concerned that Chavez's "barter deals"
with 12 Latin American countries and Cuba are effectively cutting the U.S.
dollar out of the vital oil transaction currency cycle. Commodities are
being traded among these countries in exchange for Venezuela's oil, thereby
reducing reliance on fiat dollars. If these unique oil transactions proliferate,
they could create more devaluation pressure on the dollar. Continuing attempts
by the CIA to remove Hugo Chavez appear likely.
- The U.S. economy has acquired several problems, including
as our record-high trade account deficit (almost 5% of GDP), $6.3 trillion
dollar deficit (55% of GDP), and the recent return to annual budget deficits
in the hundreds of billions. These are factors that would devalue the currency
of any nation under the "old rules." Why is the dollar still
strong despite these structural flaws? Well, the elites understand that
the strength of the dollar does not merely rest on our economic output
per se. The dollar posses two unique advantages relative to all other hard
- The reality is that the strength of the dollar since
1945 rests on being the international reserve currency and thus fiat currency
for global oil transactions (ie. "petro-dollar"). The U.S. prints
hundreds of billions of these fiat petro-dollars, which are then used by
nation states to purchase oil/energy from OPEC producers (except Iraq,
to some degree Venezuela, and perhaps Iran in the near future). These petro-dollars
are then re-cycled from OPEC back into the U.S. via Treasury Bills or other
dollar-denominated assets such as U.S. stocks, real estate, etc.
- The "old rules" for valuation of our currency
and economic power were based on our flexible market, free flow of trade
goods, high per worker productivity, manufacturing output/trade surpluses,
government oversight of accounting methodologies (ie. SEC), developed infrastructure,
education system, and of course total cash flow and profitability. While
many of these factors remain present, over the last two decades we have
diluted some of these "safe harbor" fundamentals. Despite imbalances
and some structural problems that are escalating within the U.S. economy,
the dollar as the fiat oil currency created "new rules". The
following exerts from an Asia Times article discusses the virtues of our
fiat oil currency and dollar hegemony (or vices from the perspective of
developing nations, whose debt is denominated in dollars). (13)
- "Ever since 1971, when US president Richard Nixon
took the dollar off the gold standard (at $35 per ounce) that had been
agreed to at the Bretton Woods Conference at the end of World War II, the
dollar has been a global monetary instrument that the United States, and
only the United States, can produce by fiat. The dollar, now a fiat currency,
is at a 16-year trade-weighted high despite record US current-account deficits
and the status of the US as the leading debtor nation. The US national
debt as of April 4 was $6.021 trillion against a gross domestic product
(GDP) of $9 trillion."
- "World trade is now a game in which the US produces
dollars and the rest of the world produces things that dollars can buy.
The world's interlinked economies no longer trade to capture a comparative
advantage; they compete in exports to capture needed dollars to service
dollar-denominated foreign debts and to accumulate dollar reserves to sustain
the exchange value of their domestic currencies.To prevent speculative
and manipulative attacks on their currencies, the world's central banks
must acquire and hold dollar reserves in corresponding amounts to their
currencies in circulation. The higher the market pressure to devalue a
particular currency, the more dollar reserves its central bank must hold.
This creates a built-in support for a strong dollar that in turn forces
the world's central banks to acquire and hold more dollar reserves, making
- This phenomenon is known as dollar hegemony, which is
created by the geopolitically constructed peculiarity that critical commodities,
most notably oil, are denominated in dollars. Everyone accepts dollars
because dollars can buy oil. The recycling of petro-dollars is the price
the US has extracted from oil-producing countries for US tolerance of the
oil-exporting cartel since 1973."
- "By definition, dollar reserves must be invested
in US assets, creating a capital-accounts surplus for the US economy. Even
after a year of sharp correction, US stock valuation is still at a 25-year
high and trading at a 56 percent premium compared with emerging markets.""The
US capital-account surplus in turn finances the US trade deficit. Moreover,
any asset, regardless of location, that is denominated in dollars is a
US asset in essence. When oil is denominated in dollars through US state
action and the dollar is a fiat currency,the US essentially owns the world's
oil for free. And the more the US prints greenbacks, the higher the price
of US assets will rise. Thus a strong-dollar policy gives the US a double
- This unique geo-political agreement with Saudi Arabia
has worked to our favor for the past 30 years, as this arrangement has
raised the entire asset value of all dollar denominated assets/properties,
and allowed the Federal Reserve to create a truly massive debt and credit
expansion (or 'credit bubble' in the view of some economists). These current
structural imbalances in the U.S. economy are sustainable as long as:
- 1)Nations continue to demand and purchase oil for their
- 2)The fiat reserve currency for global oil transactions
remain the U.S. dollar (and dollar only)
- These underlying factors, along with the "safe harbor"
reputation of U.S. investments afforded by the dollar's reserve currency
status propelled the U.S. to economic and military hegemony in the post-World
War II period. However, the introduction of the euro is a significant new
factor, and appears to be the primary threat to U.S. economic hegemony.
- More over, in December 2002 ten additional countries
were approved for full membership into the E.U. In 2004 this will result
in an aggregate GDP of $9.6 trillion and 450 million people, directly competing
with the U.S. economy ($10.5 trillion GDP, 280 million people).
- Especially interesting is a speech given by Mr Javad
Yarjani, the Head of OPEC's Petroleum Market Analysis Department, in a
visit to Spain (April 2002). He speech dealt entirely on the subject of
OPEC oil transaction currency standard with respect to both the dollar
and the euro. The following exerts from this OPEC executive provide insights
into the conditions that would create momentum for an OPEC currency switch
to the euro. Indeed, his candid analysis warrants careful consideration
given that two of the requisite variables he outlines for the switch have
taken place since this speech in early 2002. These vital stories are discussed
in the European media, but have been censored by our own mass media (14)
- "The question that comes to mind is whether the
euro will establish itself in world financial markets, thus challenging
the supremacy of the US dollar, and consequently trigger a change in the
dollar's dominance in oil markets. As we all know, the mighty dollar has
reigned supreme since 1945, and in the last few years has even gained more
ground with the economic dominance of the United States, a situation that
may not change in the near future. By the late 90s, more than four-fifths
of all foreign exchange transactions, and half of all world exports, were
denominated in dollars. In addition, the US currency accounts for about
two thirds of all official exchange reserves. The world's dependency on
US dollars to pay for trade has seen countries bound to dollar reserves,
which are disproportionably higher than America's share in global output.
The share of the dollar in the denomination of world trade is also much
higher than the share of the US in world trade.
- Having said that, it is worthwhile to note that in the
long run the euro is not at such a disadvantage versus the dollar when
one compares the relative sizes of the economies involved, especially given
the EU enlargement plans. Moreover, the Euro-zone has a bigger share of
global trade than the US and while the US has a huge current account deficit,
the euro area has a more, or balanced, external accounts position. One
of the more compelling arguments for keeping oil pricing and payments in
dollars has been that the US remains a large importer of oil, despite being
a substantial crude producer itself. However, looking at the statistics
of crude oil exports, one notes that the Euro-zone is an even larger importer
of oil and petroleum products than the US."
- "From the EU's point of view, it is clear that Europe
would prefer to see payments for oil shift from the dollar to the euro,
which effectively removed the currency risk. It would also increase demand
for the euro and thus help raise its value. Moreover, since oil is such
an important commodity in global trade, in term of value, if pricing were
to shift to the euro, it could provide a boost to the global acceptability
of the single currency. There is also very strong trade links between OPEC
Member Countries (MCs) and the Euro-zone, with more than 45 percent of
total merchandise imports of OPEC MCs coming from the countries of the
Euro-zone, while OPEC MCs are main suppliers of oil and crude oil products
- "Of major importance to the ultimate success of
the euro, in terms of the oil pricing, will be if Europe's two major oil
producers â¤" the United Kingdom and Norway join the
single currency. Naturally, the future integration of these two countries
into the Euro-zone and Europe will be important considering they are the
region's two major oil producers in the North Sea, which is home to the
international crude oil benchmark, Brent. This might create a momentum
to shift the oil pricing system to euros."
- "In the short-term, OPEC MCs, with possibly a few
exceptions, are expected to continue to accept payment in dollars. Nevertheless,
I believe that OPEC will not discount entirely the possibility of adopting
euro pricing and payments in the future. The Organization, like many other
financial houses at present, is also assessing how the euro will settle
into its life as a new currency. The critical question for market players
is the overall value and stability of the euro, and whether other countries
within the Union will adopt the single currency."
- Should the euro challenge the dollar in strength, which
essentially could include it in the denomination of the oil bill, it could
be that a system may emerge which benefits more countries in the long-term.
Perhaps with increased European integration and a strong European economy,
this may become a reality. Time may be on your side. I wish the euro every
- Based on this important speech, momentum for OPEC to
consider switching to the euro will grow once the E.U. expands in May 2004
to 450 million people with the inclusion of 10 additional member states.
The aggregate GDP will increase from $7 trillion to $9.6 trillion. This
enlarged E.U. will be an oil consuming purchasing population 33% larger
than the U.S., and over half of OPEC crude oil will be sold to the EU as
of mid-2004. This does not include other potential entrants such as the
U.K., Norway, Denmark and Sweden. I should note that since this speech
the euro has been trading at parity or above the dollar since late 2002,
and analysts predict the dollar will continue its downward trending in
2003 relative to the euro.
- Further, if or when the U.K. adopts the euro currency,
that development could provide critical motivation for OPEC to the make
the transition to euros. It appears the final two pivotal items that would
create the OPEC transition to euros will be based on if and when Norway's
Brent crude is re-dominated in euros, and when the U.K. adopts the euro.
Regarding the later, Tony Blair is lobbying heavily for the U.K. to adopt
the euro, and their adoption would seem imminent within this decade. Again,
I offer the following information from my astute acquaintance who analyzes
these matters very carefully regarding the euro:
- "The pivotal vote will probably be Sweden, where
approval this next autumn of adopting the euro also would give momentum
to the Danish government's strong desire to follow suit. Polls in Denmark
now indicate that the euro would pass with a comfortable margin and Norwegian
polls show a growing majority in favor of EU membership. Indeed, with Norway
having already integrated most EU economic directives through the EEA partnership
and with their strongly appreciated currency, their accession to the euro
would not only be effortless, but of great economic benefit.
- As go the Swedes, so probably will go the Danes &
Norwegians. It's the British who are the real obstacle to building momentum
for the euro as international transaction & reserve currency. So long
as the United Kingdom remains apart from the euro, reducing exchange rate
costs between the euro and the British pound remains their obvious priority.
British adoption (a near-given in the long run) would mount significant
pressure toward repegging the Brent crude benchmark - which is traded on
the International Petroleum Exchange in London - and the Norwegians would
certainly have no objection whatsoever that I can think of, whether or
not they join the European Union."
- Finally, the maneuvers toward reducing the global dominance
of the dollar are already well underway and have only reason to accelerate
so far as I can see. An OPEC pricing shift would seem rather unlikely prior
2004 - barring political motivations (ie. motivations of OPEC members)
or a disorderly collapse of the dollar (ie. prolonged high oil prices due
to Iraq war causes Japanese bank collapse)- but appears quite viable to
take place before the end of the decade."
- In otherwords, around 2005, from an economic and monetary
perspectivem, it will be logical for OPEC to switch to the euro for oil
pricing. Of course that will devalue the dollar, and hurt the US economy
unless it begins making some structual changes - or use its massive military
power to force events upon the OPEC states...
- Facing these potentialities, I hypothesize that President
Bush intends to topple Saddam in 2003 in a pre-emptive attempt to initiate
massive Iraqi oil production in far excess of OPEC quotas, to reduce global
oil prices, and thereby dismantle OPEC'sprice controls. The end-goal of
the neo-conservatives is incredibly bold yet simple in purpose, to use
the "war on terror" as the premise to finally dissolve OPEC's
decision-making process, thus ultimately preventing the cartel's inevitable
switch to pricing oil in euros.
- How would the Bush administration break-up the OPEC cartel's
price controls in a post-Saddam Iraq? First, the newly installed regime
(apparently a U.S. General for the first several months) will convert Iraq
back to the dollar standard. Next, with the U.S. military protecting the
oil fields, the Bush junta will undertake the necessary steps to rapidly
increase production of Iraq oil, quintupling Iraq's current output - and
well beyond OPEC's 2 million barrel per day quota.
- Dr. Nayyer Ali offers a succinct analysis of how Iraq's
underutilized oil reserves will not be a "profit-maker" for the
U.S. government, but it will serve as the crucial economic instrument used
by the Bush junta to leverage and hopefully dissolve OPEC's price controls,
thus causing the neo conservative's long sought goal of collapsing the
OPEC cartel (15):
- "Despite this vast pool of oil, Iraq has never produced
at a level proportionate to the reserve base. Since the Gulf War, Iraq's
production has been limited by sanctions and allowed sales under the oil
for food program (by which Iraq has sold 60 billion dollars worth of oil
over the last 5 years) and what else can be smuggled out. This amounts
to less than 1 billion barrels per year. If Iraq were reintegrated into
the world economy, it could allow massive investment in its oil sector
and boost output to 2.5 billion barrels per year, or about 7 million barrels
- Total world oil production is about 75 million barrels,
and OPEC combined produces about 25 million barrels.
- What would be the consequences of this? There are two
- First would be the collapse of OPEC, whose strategy of
limiting production to maximize price will have finally reached its limit.
An Iraq that can produce that much oil will want to do so, and will not
allow OPEC to limit it to 2 million barrels per day. If Iraq busts its
quota, then who in OPEC will give up 5 million barrels of production? No
one could afford to, and OPEC would die. This would lead to the second
major consequence, which is a collapse in the price of oil to the 10-dollar
range per barrel. The world currently uses 25 billion barrels per year,
so a 15-dollar drop will save oil-consuming nations 375 billion dollars
in crude oil costs every year."
- "The Iraq war is not a moneymaker. But it could
be an OPEC breaker. That however is a long-term outcome that will require
Iraq to be successfully reconstituted into a functioning state in which
massive oil sector investment can take place."
- The American people are largely oblivious to the economic
risks regarding President Bush's upcoming war. Not only is Japan's economy
at grave risk from a spike in oil prices, but additional risks relate to
Iran and Venezuela as well, either of whom could move to the euros, thus
providing further momentum for OPEC to act on their "internal discussions"
and switch to the euro as the fiat currency for oil. The Bush administration
believes that by toppling Saddam they will remove the juggernaut, thus
allowing the US to control Iraqi's huge oil reserves, and finally break-up
and dissolve the 10 remaining countries in OPEC.
- This last issue is undoubtedly a significant gamble even
in the best-case scenario of a quick and relatively painless war that topples
Saddam and leaves Iraq's oil fields intact. Undoubtedly, the OPEC cartel
could feel threatened by the Bush junta's stated goal of breaking-up OPEC's
price controls ($22-$28 per barrel). Perhaps the Bush administration's
ambitious goal of flooding the oil market with Iraqi crude may work, but
I have doubts. Will OPEC simply tolerate quota-busting Iraqi oil production,
thus delivering to them a lesson in self-inflicted hara-kiri (suicide)?
- Contrarily, OPEC could meet in Vienna and in an act of
self-preservation re-denominate the oil currency to the euro. Such a decision
by would mark the end of U.S. dollar hegemony, and thus the end of our
precarious economic superpower status. Again, I offer the astute analysis
of my expert friend regarding the colossal gamble this administration is
about to undertake:
- "One of the dirty little secrets of today's international
order is that the rest of the globe could topple the United States from
its hegemonic status whenever they so choose with a concerted abandonment
of the dollar standard. This is America's preeminent, inescapable Achilles
Heel for now and the foreseeable future.
- That such a course hasn't been pursued to date bears
more relation to the fact that other Westernized, highly developed nations
haven't any interest to undergo the great disruptions which would follow
- but it could assuredly take place in the event that the consensus view
coalesces of the United States as any sort of 'rogue'nation. In other words,
if the dangers of American global hegemony are ever perceived as a greater
liability than the dangers of toppling the international order (or, alternately,
if an 'every man for himself' crisis as discussed above spirals out of
control and forces their hand). The Bush administration and the neo conservative
movement has set out on a multiple-front course to ensure that this cannot
take place, in brief by a graduated assertion of military hegemony atop
the existent economic hegemony.
- The paradox I've illustrated with this one narrow scenario
is that the quixotic course itself may very well bring about the feared
outcome that it means to preempt. We shall see!"
- Under this administration we have returned to massive
deficit spending, and the lack of strong SEC enforcement has further eroded
investor confidence. Regrettably, the flawed economic and tax policies
and of the Bush administration may be exacerbating the weakness of the
dollar, if not outright accelerating some countries to diversify their
central bank reserve funds with euros as an alternative to the dollar.
>From a foreign policy perspective, the terminations of numerous international
treaties and disdain for international cooperation via the UN and NATO
have angered even our closest allies.
- Lastly, and despite President Bush's attempt to use the
threat of applying military force to OPEC producers who may wish to switch
to the euro for their oil payments, it appears their belligerent neo conservative
policies may paradoxically bring about the dire outcome they hope to prevent
- an OPEC currency switch to euros.
- The American people are not aware of such information
due to the U.S. mass media, which has been reduced to a handful of consumption/entertainment
and profit-oriented conglomerates that filter the flow of information in
the U.S. Indeed, the Internet provides the only source of unfiltered "real
- It would appear that any attempt by OPEC member states
in the Middle East or Latin America to transition to the euro as their
oil transaction currency standard shall be met with either overt U.S. military
actions or covert U.S. intelligence agency interventions. Under the guise
of the perpetual "war on terror" the Bush administration is manipulating
the American people about the unspoken but very real macroeconomic reasons
for this upcoming war with Iraq. This war in Iraq will have nothing to
with any threat from Saddam's old WMD program. This war will be over the
global currency of oil.
- Sadly, the U.S. has become largely ignorant and complacent.
Too many of us are willing to be ruled by fear and lies, rather than by
persuasion and truth. Will we allow our government to initiate the dangerous
"pre-emptive doctrine" by waging an unpopular war in Iraq, while
we refuse to acknowledge that Saddam does not pose an imminent threat to
the United States? We seem unable to address the structural weakness of
our economy due to massive debt manipulation, unaffordable 2001 tax cuts,
massive current account deficits, trade deficits, corporate accounting
abuses, unsustainable credit expansion, near zero personal savings, record
personal indebtedness, and our dependence and over consumption of cheap
Middle Eastern oil. How much longer can we reliably import our oil from
middle eastern states that dislike or despise us because of our biased
foreign policy towards Israel?
- Lastly, we must bear in mind Jefferson's insistence that
a free press is our best, and perhaps only mechanism to protect democracy,
and part of today's dilemma lies within the U.S. media conglomerates that
have failed to inform the People.
- Regardless of whatever Dr. Blix finds or doesn't find
in Iraq regarding WMD, it appears that President Bush is determined to
pursue his "pre-emptive" imperialist war to secure a large portion
of the earth's remaining hydrocarbons, and then use Iraq's underutilized
oil to destroy the OPEC cartel. Will this gamble work? Undeniably our nation
may suffer not only from economic retribution, but also from increased
Al-Qaeda sponsored terrorism as well. Will we stand idle and watch CNN,
as our government becomes an international pariah by discarding International
Law as it wages a unilateral war in Iraq?
- Is it morally defensible to deploy our brave but naÃve
young soldiers around the globe to enforce U.S. dollar hegemony for global
oil transactions - via the barrel of their guns? Will we allow imperialist
conquest in the Middle East to feed our excessive energy consumption, while
ignoring the duplicitous overthrowing of a democratically elected government
in Latin America? Shall we accept the grave price of an unjust war over
the currency of oil? We must not stand silent and watchour country become
a 'rogue' superpower, relying on brute force, thereby forcing the industrialized
nations or OPEC to abandon the dollar standard - thus with the mere stroke
of a pen - slay the U.S. Empire?
- Informed citizens believe this administration is pushing
us towards that dire outcome. Remaining silent is not only misguided, but
- This need not be our fate. When will we demand that our
government begin the long and difficult journey towards energy conservation,
the development of renewable energy sources, and sustained balanced budgets
to allow real deficit reduction? When will we repeal of the unaffordable
2001 tax cuts to create a balanced budget, enforce corporate accounting
laws, and substantially reinvest in our manufacturing and export sectors
to move our economy from a trade account deficit position back into a trade
account surplus position? Undoubtedly, we must make these and many more
painful structural changes to our economy if we are to restore our "safe
harbor" investment status.
- Ultimately we will have to make sacrifices by reducing
our excessive energy consumption that we have become accustomed to as a
society. It is imperative that our government also begins economic and
monetary reforms immediately. We must adopt our economy to accommodate
the inevitable competition to the dollar from the euro as an alternative
international reserve currency and oil transaction currency. The Bush administration's
seemingly entrenched political ideology appears quite incompatible with
these necessary economic reforms. Ultimately We the People must demand
a new and more responsible administration. We need leaders who are willing
to return balanced, conservative fiscal policies, and to our traditions
of engaging in multilateral foreign policies while seeking broad international
- It has been said that all wars are fought over resources
or ideology/religion. It appears that this administration may soon add
"currency wars" as a third paradigm. I fear that the world community
will not tolerate a U.S. Empire that uses its military power to conquer
sovereign nations who decide to sell their oil products in euros instead
of dollars. Likewise, if President Bush pursues an essentially unilateral
war against Iraq, I suspect the historians will not be kind to his administration.
Their agenda is clear to the world community, but when will U.S. patriots
become cognizant of their modus operandi?
- "If you tell a lie big enough and keep repeating
it, people will eventually come to believe it."
- "The lie can be maintained only for such time as
the State can shield the people from the political, economic and/or military
consequences of the lie. It thus becomes vitally important for the State
to use all of its powers to repress dissent, for the truth is the mortal
enemy of the lie, and thus by extension, the truth is the greatest enemy
of the State."
- - Joseph Goebbels, German Minister of Propaganda, 1933-1945
- END OF ESSAY
- Background Information on Hydrocarbons
- To understand hydrocarbons and how we got to this desperate
place in Iraq, I have listed four articles in the Reference Section from
Michael Ruppert's controversial website: 'From the Wilderness.' Although
some of Ruppert's articles are overwrought from time to time, their research
detailing the issues of hydrocarbons, and the interplay between energy
and the Bush junta's perpetual "war on terror" is quite informative.
Other than the core driver of the dollar versus euro currency threat, the
other issue related to the upcoming war with Iraq appears related to the
Caspian Sea region. Since the mid-late 1990s the Caspian Sea region of
Central Asiawas thought to hold approx. 200 billion barrels of untapped
oil (the later would be comparable to Saudi Arabia's reserve base)(16).
Based on an early feasibility study by Enron, the easiest and cheapest
way to bring this oil to market would be a pipeline from Kazakhstan, through
Afghanistan to the Pakistan border at Malta. In 1998 then CEO of Halliburton,
Dick Cheney, expressed much interest in building that pipeline.