petro-Euros versus petroDollars: economic battle between Europe and US for global control
Iran's proposed Euro-based oil trading system
is a factor behind the threat of war on Iran
Saddam Hussein's shift to petro-euros was a reason the US attacked Iraq
The Organization of Petroleum Exporting Countries (OPEC) is shifting
away from total reliance on the dollar as an international currency -
and adopting the euro as an alternative. This is probably the US government's
worst nightmare, economically speaking. Saddam Hussein's biggest crime
in recent years - in the minds of the US elites - is his demand to be
paid in euros instead of dollars for the oil that Iraq exports (it was
a wise business decision, given that the dollar has dropped and the euro
is now worth $1.10, as of March 10, 2003 - $1.20 reached in December,
2003) These articles provide background and detail about the war between
the dollar and the euro, which will be waged by proxy in Iraq (and Iran).
Update: as of September 2007, the euro is at $1.40 -- a substantial decline in the value of the dollar. This website does not keep track of the constant fluctuations, but the long term trend is obvious.
March 2008 - $1.50, $1.58, falling falling falling ...
What the United States gained in terms of European good
will after World War II has been lost forever. And as the Euro continues
to remain stronger than the dollar, there is little incentive anywhere
for people here to remember.
-- Michael Ruppert
Iran stops selling oil in U.S. dollars -report
Reuters - Saturday, December 8, 2007 - 10:10 am
TEHRAN (Reuters) - Iran has completely stopped selling any of its oil for U.S. dollars, an Iranian news agency reported on Saturday, citing the oil minister of the world's fourth-largest crude producer.
The ISNA news agency did not give a direct quote from Oil Minister Gholamhossein Nozari. A senior oil official last month said "nearly all" of Iran's crude oil sales were now being paid for in non-U.S. currencies.
For nearly two years, OPEC's second biggest producer has been reducing its exposure to the dollar, saying the weak U.S. currency is eroding its purchasing power.
BEHIND THE DRUMS OF WAR WITH IRAN:
NUCLEAR WEAPONS OR COMPOUND INTEREST?
On October 25, 2007, the United States announced harsh new penalties on the Iranian military and its state-owned banking systems. Sanctions, bellicose rhetoric and the implicit threat of military action are goads for another war, one that critics fear is more likely to ignite a nuclear holocaust than prevent one. The question is, why is Iran considered such a serious threat? The official explanation is that it is planning to develop nuclear weapons. But the head of the UN watchdog agency IAEA says he has "no concrete evidence" of an Iranian weapons program. And even if there were one, a number of countries have tested or possess nuclear weapons outside the Nuclear Non-Proliferation Treaty, including Pakistan, North Korea, India, and probably Israel; yet we don't consider that grounds for military action. Iran would just be joining a long list of nuclear powers.
Another theory says the push for war is all about oil; but Iran supplies only 15 percent of total Persian Gulf oil exports, and its oil is already for sale. We don't need to go to war for it. We can just buy it.
A third theory says the saber-rattling is about defending the dollar. Iran is threatening to open its own oil bourse, and it is already selling about 85 percent of its oil in non-dollar currencies. Iran has broken the petrodollar stranglehold imposed in the 1970s, when OPEC entered into a covert agreement with the United States to sell oil only in U.S. dollars.
Dollar's Retreat Raises Fear of Collapse
By Carter Dougherty
The International Herald Tribune
Thursday 13 September 2007
Frankfurt - Finance ministers and central bankers have long fretted that at some point, the rest of the world would lose its willingness to finance the United States' proclivity to consume far more than it produces - and that a potentially disastrous free-fall in the dollar's value would result.
But for longer than most economists would have been willing to predict a decade ago, the world has been a willing partner in American excess - until a new and home-grown financial crisis this summer rattled confidence in the country, the world's largest economy.
On Thursday, the dollar briefly fell to another low against the euro of $1.3927, as a slow decline that has been under way for months picked up steam this past week.
Greenspan: Euro Gains As Reserve Choice
Monday September 17, 8:07 am ET
Report: Former Fed Boss Says Euro Could Replace U.S. Dollar As Favored Reserve Currency
FRANKFURT, Germany (AP) -- Former U.S. Federal Reserve chairman Alan Greenspan said it is possible that the euro could replace the U.S. dollar as the reserve currency of choice.
Recycling
Petro Dollars and the Emergence of Petro Euros
In November 2000,
Iraq announced that it would cease to accept dollars for its oil,
and would accept instead only euros. At the time, financial analysts
suggested that Iraq would lose tens of millions of dollars in value
because of this currency switch; in fact, over the following two years,
Iraq made millions. Other oil-exporting
nations, including Iran and Venezuela, have stated that they are contemplating
a similar move. If OPEC as a whole were to switch from dollars
to euros, the consequences to the US economy would be catastrophic. Investment money would flee the country, real estate values
would plummet, and Americans would shortly find themselves living
in Third-World conditions.
Currently, if any country wishes to obtain
dollars with which to buy oil, it can do so only by selling its goods
or resources to the US, taking out a loan from a US bank (or the World
Bank - functionally the same thing), or trading its currency on the
open market and thus devaluing it. The US is in effect importing goods
and services virtually for free, its massive trade deficit representing
a huge interest-free loan from the rest of the world. If the dollar
were to cease being the world's reserve currency, all of that would
change overnight ....
For US geostrategists, the prevention of an
OPEC switch from dollars to euros must therefore seem paramount. An
invasion and occupation of Iraq would effectively give the US a voting
seat in OPEC while placing new American bases within hours' striking
distance of Saudi Arabia, Iran, and several other key OPEC countries.
The second factor likely weighing on Bush's
decision to invade Iraq is the depletion of US energy resources and
the consequently increasing American dependency on oil imports. The
oil production of all non-OPEC countries, taken together, probably
peaked in 2002. From now on, OPEC will have ever more economic power
in the world. Moreover, global oil production will probably peak within
a few years. As I have discussed elsewhere, alternatives to fossil
fuels have not been developed sufficiently to permit a coordinated
process of substitution once oil and natural gas grow scarce. The
implications - especially for major consumer nations such as the US
- will eventually be ruinous.
Both problems are of overwhelming urgency.
Bush's Iraq strategy is apparently an offensive one designed to enlarge
the US empire, but in reality it is primarily defensive in character
since its deeper purpose is to forestall an economic cataclysm.
It is the two factors of dollar hegemony and
oil depletion - even more than the hubris of the neo-conservative
strategists in Washington - that are prompting an overall de-emphasis
of long-standing alliances with Europe, Japan, and South Korea; and
the increasing deployment of US troops in the Middle East and Central
Asia.
While no one is talking about it openly, top
echelons in the governments of Russia, China, Britain, Germany, France,
Saudi Arabia and other countries are keenly aware of these factors
- hence the shifting alliances, the veto threats, and the back-room
negotiations leading up to the US invasion of Iraq.
But the war, though by now inevitable, remains
a highly risky gamble. Even if it ends in days or weeks with a decisive
American victory, we will not know for some time whether that gamble
has paid off. ....
Even in the best case, petroleum resources
are limited and, as they gradually run out over the next few decades,
will be unable to support the further industrialization of China or
the maintenance of industrial infrastructure in Europe, Russia, Japan,
Korea, or the US.
Who will rule Eurasia? In the end, no single
power will be capable of doing so, because the energy-resource base
will be insufficient to support a continent-wide system of transportation,
communication, and control. Thus Russian geopolitical fantasies are
as vain as those of the US. For the next half-century there
will be just enough energy resources left to enable either a horrific
and futile contest for the remaining spoils, or a heroic cooperative
effort toward radical conservation and transition to a post-fossil-fuel
energy regime.
The next century will see the end of global
geopolitics, one way or another. If our descendants are fortunate,
the ultimate outcome will be a world of modest, bioregionally organized
communities living on received solar energy.
Russia`s Switch into the Euro signals Decline of
US Dollar as a Global Currency
The Global Redlining of America:
Bush Plunges U.S. into Rapid Decline www.blackcommentator.com 16 October 2003
The previously unthinkable is now on the table. Russia,
the world's second largest oil exporter, is giving serious consideration
to trading its black gold in euros, a switch that would surely set dominos
in motion among other oil producing nations and, ultimately, knock the
dollar off its global throne.
The Real Reasons for the Upcoming War With Iraq: A Macroeconomic
and Geostrategic Analysis of the Unspoken Truth
by W. Clark January 2003 (last revised 6 March) Independent Media Center www.ratical.org/ratville/CAH/RRiraqWar.html
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.
By Paul Harris - YellowTimes.org Columnist (Canada) YellowTimes.org
–
There are many reasons for George Bush's single-minded drive toward Baghdad.
In other articles I have written for YellowTimes.org, I hinted that a
not so obvious reason for the drive against Iraq is Bush's war against
Europe. In fact, I have now come to believe that is the primary reason
for his Iraqophenia.
Whenever a nation decides to go to war, there are plans made for who is
going to win and who is going to lose; no one goes to war expecting to
lose, but it isn't always the obvious target of the aggression that is
the real thrust behind the war. Sometimes, it isn't a case of what you
expect to win from a war, but rather a case of what you hope someone else
loses; and it doesn't have to be your stated enemy who you hope will sustain
the losses.
In this case, Bush's hoped-for victim is the European economy. It is robust,
and is likely to become much stronger in the easily foreseeable future.
Britain's entry into the European Monetary Union is inevitable; Scandinavia
will join sooner rather than later. Already, even without those countries,
there will be 10 new member nations in May 2004, which will swell the
GDP of the E.U. to about $9.6 trillion with 450 million people as against
$10.5 trillion and 280 million people in the United States. This represents
a formidable competing block for the United States but the situation is
significantly more complex than what is revealed just by those numbers.
And much of it hinges on the future of Iraq.
I have written before, as have many others, that this upcoming war is
about oil. To be sure there are other reasons, but oil is the single most
impelling force. Not in the way you might expect, however. It isn't so
much that there are believed to be huge untapped oil reserves in Iraq,
untapped only due to outdated technology; it isn't so much an American
desire to get its grubby hands on that oil; it is much more a question
of whose grubby hands the Americans want to keep it out of.
What precipitated all of this was not September 11, nor a sudden realization
that Saddam was still a nasty guy, nor just the change in leadership in
the United States. What precipitated it was Iraq's November 6, 2000 switch
to the euro as the currency for its oil transactions. At the time of the
switch, it might have seemed daft that Iraq was giving up such a lot of
oil revenue to make a political statement. But that political statement
has been made and the steady depreciation of the dollar against the euro
since then means that Iraq has derived good profits from switching its
reserve and transaction currencies. The euro has gained about 17 percent
against the dollar since that time, which also applies to the $10 billion
held in Iraq's United Nations "oil for food" reserve fund.
So the question arises, as it did for George Bush, what happens if OPEC
makes a sudden switch to euros? In a nutshell, all hell breaks loose.
At the end of World War II, an agreement was reached at the Bretton Woods
Conference which pegged the value of gold at $35 per ounce and that became
the international standard against which currency was measured. But in
1971, Richard Nixon took the dollar off the gold standard and ever since,
the dollar has been the most important global monetary instrument, and
only the United States can produce them. The dollar, now a fiat currency,
is at a 16-year trade-weighted high despite record U.S. current-account
deficits and the status of the U.S. as the leading debtor nation. The
U.S. national debt as of April 4, 2002 was $6.021 trillion against GDP
of $9 trillion.
Trade between nations has become a cycle in which the U.S. produces dollars
and the rest of the world produces things that dollars can buy. Nations
no longer trade to capture comparative advantage but rather to capture
needed dollars to service dollar-denominated foreign debts and to accumulate
dollar reserves in order to sustain the exchange value of their domestic
currencies. In an effort to prevent speculative and potentially harmful
attacks on their currencies, those nations' central banks must acquire
and hold dollar reserves in amounts corresponding to their own currencies
in circulation. This creates a built-in support for a strong dollar that
in turn forces the world's central banks to acquire and hold even more
dollar reserves, making the dollar stronger still.
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 reality is that the strength of the dollar since 1945 rests on being
the international reserve currency for global oil transactions (i.e.,
"petro-dollar"). The U.S. prints hundreds of billions of these
fiat petro-dollars, which are then used by nation states to purchase oil
and energy from OPEC producers (except presently Iraq and, to some degree,
Venezuela). 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 recycling of petro-dollars is the price
the U.S. has extracted since 1973 from oil-producing countries for U.S.
tolerance of the oil-exporting cartel.
Dollar reserves must be invested in U.S. assets which produces a capital-accounts
surplus for the U.S. economy. Despite poor market performance during the
past year, U.S. stock valuation is still at a 25-year high and trading
at a 56 percent premium compared with emerging markets. The U.S. capital-account
surplus finances the U.S. trade deficit.
Since it is the U.S. that prints the petro-dollars, they control the flow
of oil. Period. When oil is denominated in dollars through U.S. state
action and the dollar is the only fiat currency for trading in oil, an
argument can be made that the U.S. essentially owns the world's oil for
free.
So what happens if OPEC as a group decides to follow Iraq's lead and suddenly
begins trading oil on the euro standard? Economic meltdown. Oil-consuming
nations would have to flush dollars out of their central bank reserves
and replace them with euros. The dollar would crash in value and the consequences
would be those one could expect from any currency collapse and massive
inflation (think of Argentina for an easy example). Foreign funds would
stream out of U.S. stock markets and dollar denominated assets; there
would 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.
And that's just in the United States. Japan would be particularly hard
hit because of total dependence on foreign oil and incredible sensitivity
to the U.S. dollar. If Japan's economy tumbles, so does that of many other
countries, especially the United States in a crescendo of dominos.
Now, this is the potential effect of a "sudden" switch to euros.
A more gradual shift might be manageable but even that would change the
financial and political balance of the world. Given the size of the European
market, its population, its need for oil (it actually imports more oil
than the U.S.), it may be rapidly approaching that the euro will become
the de facto monetary standard for the world.
There are some good reasons for OPEC as a group to follow Iraq and begin
to value oil in euros. There seems little doubt that they would relish
the opportunity to make a political statement after years of having to
kowtow to the U.S., but there are solid economic reasons as well.
The mighty dollar has reigned supreme since 1945, and in the last few
years has gained even more ground with the economic dominance of the United
States. By the late 1990s, more than four-fifths of all foreign exchange
transactions, and half of all world exports, were denominated in dollars.
In addition, U.S. currency accounts for about two thirds of all official
exchange reserves. The world's dependency on U.S. dollars to pay for trade
has seen countries bound to dollar reserves, which are disproportionately
higher than America's share of global output.
It is important to note that the euro is not at any disadvantage versus
the dollar when one compares the relative sizes of the economies involved,
especially given the E.U. enlargement plans. Moreover, the E.U. has a
bigger share of global trade than the U.S. and while the U.S. has a huge
current account deficit, the E.U. has a more balanced external accounts
position. One of the more compelling arguments for keeping oil pricing
and payments in dollars has been that the U.S. remains a large importer
of oil, despite being a substantial producer itself. But the EU is an
even larger importer of oil and petroleum products than the U.S., and
represents for OPEC a more attractive market, closer and less domineering.
The point of Bush's war against Iraq, therefore, is to secure control
of those oil fields and revert their valuation to dollars, then to increase
production exponentially, forcing prices to drop. Finally, the point of
Bush's war is to threaten significant action against any of the oil producers
who would switch to the euro.
In the long run, then, it is not really Saddam who is the target; it is
the euro and, therefore, Europe. There is no way the United States will
sit by idly and let those upstart Europeans take charge of their own fate,
let alone of the world's finances.
Of course, all of this depends on Bush's insane plan not becoming the
trigger for a Third World War, as it so readily might.
Excerpts from "The Real Reasons for the Upcoming War with Iraq: A
Macroeconomic and Geostrategic Analysis of the Unspoken Truth" used
with permission of the author, William R. Clark. This author owes a debt
of gratitude to Mr. Clark and encourages you to read Mr. Clark's complete
essay at: http://www.ratical.org/ratville/CAH/RRiraqWar.html.
[Paul Harris is self-employed as a consultant providing Canadian businesses
with the tools and expertise to successfully reintegrate their sick or
injured employees into the workplace. He has traveled extensively in what
we arrogant North Americans refer to as "the Third World," and
he believes that life is very much like a sewer: what you get out of it
depends on what you put into it. Paul lives in Canada.]
Paul Harris encourages your comments: pharris@ YellowTimes.org
YellowTimes.org is an international news and opinion publication. YellowTimes.org
encourages its material to be reproduced, reprinted, or broadcast provided
that any such reproduction identifies the original source, http://www.YellowTimes.org.
Internet web links to http://www.YellowTimes.org are appreciated.
Syria
switches to Euro for foreign reserves
Syria switches to euro amid confrontation with US
Mon Feb 13, 2006 5:11 PM ET
A story title that will be repeated many times in the years
to come ...
December 27, 2004 Dollar Falls to New Low Vs Euro
NEW YORK (Reuters) - The dollar fell to new lows against the euro on Monday,
part of broad losses the U.S. currency suffered as traders gunned down
technical targets amid thin market conditions.
Many traders and investors were on extended vacations after the Christmas
holiday keeping volume relatively low and causing small orders to have
exaggerated effects on prices.
"Today traders primarily went after stop-loss orders, taking advantage
of thin market conditions between the Christmas holiday and the New Year
and succeeding in driving the dollar lower," said Alex Beuzelin,
foreign exchange analyst with Ruesch International.
"It was largely a technical move that was very consistent with the
underlying fundamental concerns on the greenback," he added. Stop-losses
are orders to buy or sell a currency when it hits a predetermined level.
In a session rife with technically driven moves, small purchases of euros
triggered stop-loss buy orders which lifted the euro zone currency to
a new all-time high of $1.3640,
according to Reuters data.
Bush is destroying the economy,
the Bill of Rights, and the Earth "The dollar fell to record lows around $1.2647 per euro
... bringing its losses this year to more than 17 percent."
Dollar Plumbs New Lows Vs Euro, Reuters,
Dec 31, 2003
Jan 5, 2004 (Reuters) - "Gold futures traded above $425 an ounce for the
first time in more than 15 years in New York Monday, extending its watershed
rally on the first trading day of 2004 as investors continued to diversify
out of the beleagured dollar. Other precious metals surged as well, but
gold is considered a form of currency and is seen as a hard alternative
to the greenback. It built on last year's 20 percent gain as the dollar
hit a new low against the soaring euro and fell to its cheapest level
against the yen in three years."
"America's challenge is not just
to reduce its current-account deficit to a level which foreigners are
happy to finance by buying more dollar assets, but also to persuade existing
foreign creditors to hang on to their vast stock of dollar assets, estimated
at almost $11 trillion. A fall in the dollar sufficient to close the current-account
deficit might destroy its safe-haven status. If the dollar falls by another
30%, as some predict, it would amount to the biggest default in history:
not a conventional default on debt service, but default by stealth, wiping
trillions off the value of foreigners' dollar assets.
"The dollar's loss of reserve-currency status would lead America's
creditors to start cashing those cheques—and what an awful lot of
cheques there are to cash. As that process gathered pace, the dollar could
tumble further and further."
The dollar fell to fresh nine-year lows in trade-weighted
terms on Thursday and gold prices reached a 16-year peak amid concerns
over tensions in the Middle East and a renewed belief in the dollar's
longer-term decline.
Traders said reports of Yassir Arafat's continuing ill-health were weighing
on the dollar. “This spells trouble for the dollar since it could
mean protracted US involvement in the region, not just Iraq,”
said Kamal Sharma, currencies strategist at Dresdner Kleinwort Wasserstein.
Middle Eastern investors, including central banks, have been active
in the market selling dollars over the past two days, according to traders.
There has been speculation for some time that investors in the region
would seek to diversify their largely dollar-based wealth as the greenback
weakened.
“People are not just looking at simply the next few months for
the dollar, they're looking more broadly at a decline over the next
few years,” said Tony Norfield, global head of currency strategy
at ABN Amro.
The greenback's weakness was also attributed to the re-election of President
George W. Bush. Since the start of Mr Bush's first term the dollar has
fallen 20.8 per cent in trade-weighted terms and observers do not expect
a change in dollar policy in his second term.
“Dollar sentiment is dire at the moment,” said Derek Halpenny,
senior currency economist at Bank of Tokyo-Mitsubishi. “Bush has
been given an extremely strong mandate and that raises doubts about
his commitment to reduce the budget deficit by half over a five-year
period.”
Thursday's selling saw the dollar fall to $1.2886, within 0.4 cents
of its February all-time low against the euro. It declined to an eight-year
low of SFr1.1854 against the Swiss franc, a 12-year low of C$1.2034
against the Canadian dollar and to within a whisker of a six-month low
against the yen.
Gold hit a 16-year high of $432.95 a troy ounce, before settling at
$429.65/$430.40 in late London trade.
The dollar's decline against the euro was hastened by Jean-Claude Trichet,
the president of the European Central Bank, who emphasised the risk
of inflation at a press conference but declined to say that the euro's
strength of the euro was hurting the eurozone.
The U.S. also faces a unique problem in that commodities
such as oil and base metals are priced in U.S. dollars.
Steven DeSanctis, small-cap strategist with Prudential Equity Group
said his biggest concern is that oil prices can stay high in dollar
terms, as people outside the U.S. are effectively paying less.
Economies using the euro will see lower energy costs and a lift in their
economies, but in the U.S. -- the world's largest consumer of oil --
companies will see profits erode. http://uk.news.yahoo.com/031221/325/ehl5i.html Sunday December 21, 05:53 PM
Dollar's drop becomes more ominous
By Nick Olivari
www.hindustantimes.com/news/181_490084,00020008.htm
OPEC may trade oil in euros to compensate for dollar decline Associated Press
Caracas (Venezuela), December 10
OPEC Secretary General Alvaro Silva said the organisation is considering
trading oil in euros to compensate for the US dollar's decline in value.
Another alternative is to trade in a basket of currencies other than the
greenback, Silva told Venezuela's state news agency, Venpres.
"There is a talk of trading crude in euros. It is one of the alternatives,"
the former Venezuelan oil minister said from Vienna late on Monday.
"It is possible that the organisation will discuss that, and make
a decision at some point in time," he said.
Silva did not provide more details.
At its meeting in Vienna last week, the Organisation of Petroleum Exporting
Countries expressed concern that the US dollar's decline against the euro
and yen was eroding its members' purchasing power.
Many OPEC members are Middle Eastern countries reliant on imports from
western Europe and Japan.
OPEC decided last week to keep its target output ceiling stable at 24.5
million barrels a day. Saudi Oil Minister Ali Naimi said the decision
was due in part to the weakening dollar.
The US dollar hit a new low against the euro on Monday, with the European
common currency reaching USD 1.2276. The greenback is at a three-year
low against the yen at 107.19 yen.
March 26 — For months, the prospect, and now the reality, of
war with Iraq have unnerved but not yet disrupted global currency
markets. The odds are still small that the war will trigger a currency
crisis. If it does, you’ll see it in a fast-falling dollar;
and given our current sour relations with much of the G-7, we might
not be able to do much about it.
IN THE INTERNATIONAL ECONOMY, more money is made or lost from currency
movements—or at least, more money is made or lost faster—than
any other way. Speculators such as hedge funds can sometimes make
or lose a fortune overnight in currency bets, but the value of the
dollar, the yen, and the euro are fundamentally driven by the normal
transactions of the global economy. When a London bank buys U.S. Treasuries
or shares in a U.S. company, or a Spanish firm buys computers from
a U.S. maker, it has to use pounds or euros to buy dollars, so it
can pay the American seller. The more demand for dollars to carry
out the daily business of trade and investment, the more euros or
pounds it takes to buy them.
The war has not been good for the dollar. Since last November, the
greenback has fallen nearly 7 percent against a basket of other major
currencies. First, Middle Eastern investors converted a lot of their
dollar holdings and took them home: By the New Year, all the imponderables
about the coming war left European and Asian investors reluctant to
expand their U.S. holdings. The result has been less foreign investment
in the United States, translating into less demand for dollars in
world markets.
.... The war gave the dollar a shove, but it’s been sliding
for more than a year—down almost 15 percent since early 2002.
.... The dollar’s decline in the last four months has reduced
the dollar value of these holdings by $445 billion; its fall over
the last year cost more than $950 billion.
A falling dollar is bad news for a lot of people because greenbacks
are also the global economy’s principal medium of exchange.
Foreign producers of oil and many other commodities, along with a
goodly share of global manufacturing companies, prefer payment in
dollars to Saudi riyals or South Korean wan. Foreign governments,
or at least their finance ministries, also usually like a steady dollar,
since dollars make up two-thirds of the reserves they hold to back
up their own currencies. The 15 percent fall in the dollar has made
a lot of people in a lot of places a little poorer.
Add local news and weather to the MSNBC home page. A weaker dollar,
however, is good news for U.S. exporters because it makes their products
cheaper in foreign markets. It also helps U.S. companies that compete
with foreign imports, because a stronger euro or yen—the other
side of the weaker dollar—makes imports more expensive in the
United States.
The worst is probably yet to come, because the dollar’s decline
reflects not only all the uncertainties about the war’s impact
on U.S. growth, but also increasing concerns about a structural imbalance
in the American and global economies. The core of the problem is that
we don’t save enough. To keep spending and investing at the
rates we have, we have to tap the savings of foreigners. The bookkeeping
expression of this undersaving, or the amount we have to borrow, is
the current account deficit—$503 billion last year.
Indonesia considers switch from dollar to euro Asia Times April 1, 2003
JAKARTA - Echoing a wider move away from the US dollar, the Indonesian
government and the central bank, Bank Indonesia, may begin to use the
euro in export-import transactions and foreign-exchange reserves.
The statement was made by Finance Minister Boediono, Bank Indonesia governor
Syahril Sabirin and senior deputy governor Anwar Nasution here on the
weekend in connection with state oil company Pertamina's plan to use the
euro in its trade transactions.
"The US dollar is now still dominating trade. It is possible to use
[the] euro when it replaces the dollar's position," the minister
said.
Boediono said that if the US dollar continues to weaken compared with
other foreign currencies including the euro, users of the greenback may
seek more stable currencies.
(Asia Pulse/Antara) www.atimes.com/atimes/Southeast_Asia/ED01Ae04.html
The Euro And The War On Iraq
By Amir Butler
ATrueWord.com
info@atrueword.com
3-29-2003
As Mark Twain once noted, prophecy is always difficult, particularly
with regards to the future. However, it is a safe bet that as soon
as Saddam is toppled one of the first tasks of the America-backed
regime will be to restore the US dollar as the nation's oil currency.
In November 2000, Iraq began selling its oil for euros, moving away
from the post-World War II standard of the US dollar as the currency
of international trade. Whilst seen by many at the time as a bizarre
act of political defiance, it has proved beneficial for Iraq, with
the euro gaining almost 25% against the dollar during 2001. It now
costs around USD$1.05 to buy one Euro.
Iraq's move towards the euro is indicative of a growing trend. Iran
has already converted the majority of its central bank reserve funds
to the euro, and has hinted at adopting the euro for all oil sales.
On December 7th, 2002, the third member of the axis of evil, North
Korea, officially dropped the dollar and began using euros for trade.
Venezuela, not a member of the axis of evil yet, but a large oil producer
nonetheless, is also considering a switch to the euro. More importantly,
at its April 14th, 2002 meeting in Spain, OPEC expressed an interest
in leaving the dollar in favour of the euro.
If OPEC were to switch to the euro as the standard for oil transactions,
it would have serious ramifications for the US economy. Oil-consuming
economies would have to flush the dollars out of their central bank
holdings and convert them to euros. Some economists estimate that
with the market flooded, the US dollar could drop up to 40% in value.
As the currency falls, there would be a monetary evacuation by foreign
investors abandoning the US stock markets and dollar-denominated assets.
Imported products would cost Americans a lot more, and the trade deficit
would be magnified.
It is foreign demand for the US dollar that funds the US federal budget
deficits. Foreign investors flush with dollars typically look to US
treasury securities as a means of secure investment. With a large
reduction in such investment, the country could potentially go into
default. Things could turn very bad, very quickly.
In May 2004 an additional 10 member nations will join the European
Union. At that point, the EU will represent an oil consumer 33% larger
than the United States. In order to mitigate currency risks, the Europeans
will increasingly pressure OPEC to trade in euros, and with the EU
at that stage buying over half of OPEC oil production, such a change
seems likely.
This is a scenario that America cannot afford to see eventuate. The
US will go to any length to fend off an attempt by OPEC to dump greenbacks
as its reserve currency. Attacking Iraq and installing a client regime
in Baghdad may have a preventative effect. It will certainly ensure
that Iraq returns to using dollars and provide a violent example to
any other nation in the region contemplating a migration to the euro.
An American-backed junta in Iraq would also enable the US to smash
OPEC's hold over oil prices. The US or its client regime could increase
Iraqi oil production to levels well beyond OPEC quotas, driving prices
down worldwide and weakening the economies of the oil producing nations,
thus lessening their likelihood of abandoning the dollar. It would
have the short term effect of reducing the profits of domestic oil
companies, but the long term effect of securing America's economic
hegemony.
The frequently offered canard of the Left that this war is being fought
to secure oil revenues for American oil companies may have some truth
to it. However, a more plausible explanation may be that the Bush
administration is waging war to protect the dollar and smash the OPEC
hold over international oil prices. It's a war whose purpose is bigger
than Halliburton or Exxon: it's a war being fought to maintain America's
position in the world.
Attending the 1992 Earth Summit in Rio, George Bush Senior told the
world that, "the American way of life is not negotiable".
As cruise missiles rain on Iraq, we are learning just how 'non-negotiable'
that way of life really is.
Amir Butler is executive director of the Australian Muslim Public
Affairs Committee (AMPAC), and writes for ATrueWord.com. He can be
contacted at abutler@atrueword.com.
Independent Strategy sees the weakening dollar as the fourth strand
in the decline of empire.
"The dollar will go on down because the good empire has the same
faultlines as many other empires: unsustainable living standards at
the core depend on flows of wealth from the periphery," says
Independent Strategy in terms that would not be out of a place in
a Marxist textbook. "The US no longer earns the return needed
to sustain these flows. The costs of war and unilateralism will increase
the thirst for capital, but reduce the return earned by it."
In plain English, America relies on the rest of the world to finance
its deficits. The rest of the world was happy to do so when the US
economy was strong and returns were high, but investors will put their
cash elsewhere if America looks weak economically. America borrows
hundreds of millions of dollars from the rest of the world each day
to cover its savings gap and, under George Bush, US dependence on
foreign capital is set to increase.
The decline of empire thesis is not exactly new. Paul Kennedy, the
British historian, wrote the best-selling The Rise and Fall of the
Great Powers back in 1988, where he coined the phrase "imperial
overstretch". It was a great read, but then the US embarked on
a record-breaking expansion that lasted 10 years and saw Wall Street
shoot up to over 11,000 points.
But that great economic expansion turned out not to be so great after
all, culminating in a wave of financial misreporting and outright
fraud at Enron and WorldCom. The twilight of empires can last a long
time, but judging from his reckless unilateralism and his economic
vandalism, George Bush seems to be determined to do his level best
to hasten that decline.
Whether the price of oil is surging to new highs, as it is today,
or slumping, as is predicted after a war in Iraq, there is one enduring
constant.
Oil trading, whether from Norway to the Netherlands, Britain to Bermuda,
or Bahrain to Bangladesh, operates through the US greenback.
The oil-dollar nexus is one of the foundations of the world economy
that inevitably filters through to geopolitics. Recycling so-called
petrodollars, the proceeds of these high oil prices, has helped the
United States run its colossal trade deficits. But the past year has
seen the quiet emergence of the 'petroeuro'.
Effectively, the normal standards of economics have not applied to
the US, because of the international role of the dollar. Some $3 trillion
(£1,880 billion) are in circulation around the world helping
the US to run virtually permanent trade deficits. Two-thirds of world
trade is dollar-denominated. Two-thirds of central banks' official
foreign exchange reserves are also dollar-denominated.
Dollarisation of the oil markets is one of the key drivers for this,
alongside, in recent years, the performance of the US economy. The
majority of countries that require oil imports require dollars to
pay for their fuel. Oil exporters similarly hold, as their currency
reserve, billions in the currency in which they are paid. Investing
these petrodollars straight back into the US economy is possible at
zero currency risk.
So the US can carry on printing money - effectively IOUs - to fund
tax cuts, increased military spending, and consumer spending on imports
without fear of inflation or that these loans will be called in. As
keeper of the global currency there is always the last-ditch resort
to devaluation, which forces other countries' exporters to pay for
US economic distress. It's probably the nearest thing to a 'free lunch'
in global economics.
And for a long time, everything has worked smoothly. The oil industry
was born in Texas, and so developed in dollars. The complex web of
supply chains, distribution, and futures markets, all run off the
central rock that is the US dollar.
But now there is the euro. At the time of its launch, various overblown
claims were made to its role as 'co-hegemon', sharing the spoils of
reserve currency status. The rapid fall in the euro after its launch
put paid to such suggestions. But the single currency has since rescued
itself, reigniting talk of euro-ised oil. In fact, it's happening
already.
Iraqi oil, two-thirds of which is being snapped up by US companies,
can only be paid for in euros.
'It was a political move on the part of the Iraqi government to show
that the euro could be a substitute for the dollar in denominating
the oil price,' says Fadhil Chalabi of the Centre for Global Energy
Studies.
That move was made in the same week that the euro reached its historic
low of $0.82 in October 2000. The subsequent 30 per cent rise in the
euro has greatly helped the United Nations' oil-for-food programme
in Iraq.
Soon afterwards, Jordan launched its own bilateral trade scheme with
Iraq, carried out entirely in euros.
Last year, in a little noticed Opec speech to a Spanish Finance Ministry
conference, Javad Yarjani, a senior Iranian oil diplomat, said: 'It
is quite possible that as bilateral trade increases between the Middle
East and the European Union, it could be feasible to price oil in
euros. This would foster further ties between these trading blocs
by increasing commercial exchange, and by helping attract much-needed
European investment in the Middle East.'
Yarjani said the 'critical question is the overall value and stability
of the euro, and whether other countries within the union adopt the
single currency'.
The first point is beginning to be answered. The second refers to
Britain and Norway. If either joins the single currency, the key Brent
benchmark could be redenominated in euros, offering an impetus to
movers within Opec.
The rising value of the euro makes redenomination in the immediate
financial interest of European oil majors such as TotalFinaElf and
Shell. Over the past year both companies have seen profits gobbled
up by the dollar slump, as their profits are calculated in euros.
Opec member countries too would have a strong interest in moving to
euros. The eurozone is the biggest importer of oil in the world and
45 per cent of Middle East imports are from Europe. Even US oil majors
would benefit from selling their oil in a currency that is increasing
in value, say US energy consultants.
The Iranian and Russian parliaments have recently discussed adopting
the euro for oil sales.
Last year Russia entered into negotiations with Germany over the establishment
of an exchange to sell oil futures denominated in euros. Russia, which
on some measures is the world's Number 1 oil producer at the moment,
is awash with petrodollars, but trades mainly with Europe. Russia's
foreign exchange holdings recently reached an all-time high of $50bn.
At the moment, European consumers are benefiting from the link between
oil and the dollar. The euro's surge has, in effect, paid for much
of the increase in the price of oil. This, however, is just the flipside
of the very high prices in France and Germany in Autumn 2000, which
were a combination of a very weak euro and high oil price. US consumers
have no such additional worries, as there is no currency risk.
So there is a huge list of potential winners from a move to price
oil in euros, but movement remains slow.
'At various points in time since the early 1970s, oil producers have
discussed this, especially in periods when the dollar has been weak.
Opinions have tended to be wide-ranging, depending on the strategic
and trade alliances certain members have with particular trade blocs,'
said Yarjani.
That was an elliptical reference to the overwhelming influence of
Saudi Arabia, whose government is the staunchest ally of the US within
Opec.
'The Saudis are holding the line on oil prices in Opec and should
they, for example, go along with the rest of the Opec people in demanding
that oil be priced in euros, that would deal a very heavy blow to
the American economy,' Youssef Ibrahim, of the influential US Council
on Foreign Relations, told CNN.
Last year the former US Ambassador to Saudi Arabia told a committee
of the US Congress: 'One of the major things the Saudis have historically
done, in part out of friendship with the United States, is to insist
that oil continues to be priced in dollars. Therefore, the US Treasury
can print money and buy oil, which is an advantage no other country
has. With the emergence of other currencies and with strains in the
relationship, I wonder whether there will not again be, as there have
been in the past, people in Saudi Arabia who raise the question of
why they should be so kind to the United States.'
Historically, empires have been exporters of capital, rather than
importers like the US. The dollar has been vital to this revolution.
At the euro's launch Martin Feldstein, a Harvard economist, pointed
to the possibility that the single currency could weaken the status
of the dollar to the extent that it 'could complicate international
military relationships'. Feldstein is an outside contender to replace
Alan Greenspan at the Federal Reserve.
Oil pricing is just the background to a wider issue. The Bank of China
and the Russian Central Bank are both rumoured to be waiting for the
best moment to increase the holdings of euros. Only 5 per cent of
Chinese reserves are held in euros, but more than 20 per cent of its
trade is with Europe. Middle Eastern states hold $700bn of US assets,
but comparatively little in Europe.
So is the euro the missing link between the 'axis of evil' and the
'axis of weasel'? It is greatly appreciated in the former and was
invented in the latter. Research by State Street shows that the euro
has gained 'safe haven' status since last August as the dollar has
lost it. It's likely this shift is a temporary phenomenon. Petroeuros
may just change that.
www.GuluFuture.com/news/eurozone_war030323.htm
AILING DOLLAR STRIKES
AT EURO IN IRAQ WAR
23rd March, 2003 17:00 GMT
An Economic Perspective On The War
It's Not About Oil Or Iraq.
It's About The US And Europe Going
Head-To-Head On World Economic Dominance.
By Geoffrey Heard, Australia
Summary: Why is George Bush so hell bent on war with Iraq? Why does
his administration reject every positive Iraqi move? It all makes sense
when you consider the economic implications for the USA of not going
to war with Iraq. The war in Iraq is actually the US and Europe going
head to head on economic leadership of the world.
America's Bush administration has been caught in outright lies, gross
exaggerations and incredible inaccuracies as it trotted out its litany
of paper thin excuses for making war on Iraq. Along with its two supporters,
Britain and Australia, it has shifted its ground and reversed its position
with a barefaced contempt for its audience. It has manipulated information,
deceived by commission and omission and frantically "bought"
UN votes with billion dollar bribes.
Faced with the failure of gaining UN Security Council support for invading
Iraq, the USA has threatened to invade without authorisation. It would
act in breach of the UN's very constitution to allegedly enforced UN
resolutions.
It is plain bizarre. Where does this desperation for war come from?
There are many things driving President Bush and his administration
to invade Iraq, unseat Saddam Hussein and take over the country. But
the biggest one is hidden and very, very simple. It is about the currency
used to trade oil and consequently, who will dominate the world economically,
in the foreseeable future -- the USA or the European Union.
Iraq is a European Union beachhead in that confrontation. America had
a monopoly on the oil trade, with the US dollar being the fiat currency,
but Iraq broke ranks in 1999, started to trade oil in the EU's euros,
and profited. If America invades Iraq and takes over, it will hurl the
EU and its euro back into the sea and make America's position as the
dominant economic power in the world all but impregnable.
It is the biggest grab for world power in modern times.
America's allies in the invasion, Britain and Australia, are betting
America will win and that they will get some trickle-down benefits for
jumping on to the US bandwagon.
France and Germany are the spearhead of the European force -- Russia
would like to go European but possibly can still be bought off.
Presumably, China would like to see the Europeans build a share of international
trade currency ownership at this point while it continues to grow its
international trading presence to the point where it, too, can share
the leadership rewards.
DEBATE BUILDING ON THE INTERNET
Oddly, little or nothing is appearing in the general media about this
issue, although key people are becoming aware of it -- note the recent
slide in the value of the US dollar. Are traders afraid of war? They
are more likely to be afraid there will not be war.
But despite the silence in the general media, a major world discussion
is developing around this issue, particularly on the internet. Among
the many articles: Henry Liu, in the 'Asia Times' last June, it has
been a hot topic on the Feasta forum, an Irish-based group exploring
sustainable economics, and W. Clark's "The Real Reasons for the
Upcoming War with Iraq: A Macroeconomic and Geostrategic Analysis of
the Unspoken Truth" has been published by the 'Sierra Times', 'Indymedia.org',
and 'ratical.org'.
This debate is not about whether America would suffer from losing the
US dollar monopoly on oil trading -- that is a given -- rather it is
about exactly how hard the USA would be hit. The smart money seems to
be saying the impact would be in the range from severe to catastrophic.
The USA could collapse economically.
OIL DOLLARS
The key to it all is the fiat currency for trading oil.
Under an OPEC agreement, all oil has been traded in US dollars since
1971 (after the dropping of the gold standard) which makes the US dollar
the de facto major international trading currency. If other nations
have to hoard dollars to buy oil, then they want to use that hoard for
other trading too. This fact gives America a huge trading advantage
and helps make it the dominant economy in the world.
As an economic bloc, the European Union is the only challenger to the
USA's economic position, and it created the euro to challenge the dollar
in international markets. However, the EU is not yet united behind the
euro -- there is a lot of jingoistic national politics involved, not
least in Britain -- and in any case, so long as nations throughout the
world must hoard dollars to buy oil, the euro can make only very limited
inroads into the dollar's dominance.
In 1999, Iraq, with the world's second largest oil reserves, switched
to trading its oil in euros. American analysts fell about laughing;
Iraq had just made a mistake that was going to beggar the nation. But
two years on, alarm bells were sounding; the euro was rising against
the dollar, Iraq had given itself a huge economic free kick by switching.
Iran started thinking about switching too; Venezuela, the 4th largest
oil producer, began looking at it and has been cutting out the dollar
by bartering oil with several nations including America's bete noir,
Cuba. Russia is seeking to ramp up oil production with Europe (trading
in euros) an obvious market.
The greenback's grip on oil trading and consequently on world trade
in general, was under serious threat. If America did not stamp on this
immediately, this economic brushfire could rapidly be fanned into a
wildfire capable of consuming the US's economy and its dominance of
world trade.
HOW DOES THE US
GET ITS DOLLAR ADVANTAGE?
Imagine this: you are deep in debt but every day you write cheques for
millions of dollars you don't have -- another luxury car, a holiday
home at the beach, the world trip of a lifetime.
Your cheques should be worthless but they keep buying stuff because
those cheques you write never reach the bank! You have an agreement
with the owners of one thing everyone wants, call it petrol/gas, that
they will accept only your cheques as payment. This means everyone must
hoard your cheques so they can buy petrol/gas. Since they have to keep
a stock of your cheques, they use them to buy other stuff too. You write
a cheque to buy a TV, the TV shop owner swaps your cheque for petrol/gas,
that seller buys some vegetables at the fruit shop, the fruiterer passes
it on to buy bread, the baker buys some flour with it, and on it goes,
round and round -- but never back to the bank.
You have a debt on your books, but so long as your cheque never reaches
the bank, you don't have to pay. In effect, you have received your TV
free.
This is the position the USA has enjoyed for 30 years -- it has been
getting a free world trade ride for all that time. It has been receiving
a huge subsidy from everyone else in the world. As it debt has been
growing, it has printed more money (written more cheques) to keep trading.
No wonder it is an economic powerhouse!
Then one day, one petrol seller says he is going to accept another person's
cheques, a couple of others think that might be a good idea. If this
spreads, people are going to stop hoarding your cheques and they will
come flying home to the bank. Since you don't have enough in the bank
to cover all the cheques, very nasty stuff is going to hit the fan!
But you are big, tough and very aggressive. You don't scare the other
guy who can write cheques, he's pretty big too, but given a 'legitimate'
excuse, you can beat the tripes out of the lone gas seller and scare
him and his mates into submission.
And that, in a nutshell, is what the USA is doing right now with Iraq.
AMERICA'S PRECARIOUS
ECONOMIC POSITION
America is so eager to attack Iraq now because of the speed with which
the euro fire could spread. If Iran, Venezuela and Russia join Iraq
and sell large quantities of oil for euros, the euro would have the
leverage it needs to become a powerful force in general international
trade. Other nations would have to start swapping some of their dollars
for euros.
The dollars the USA has printed, the 'cheques' it has written, would
start to fly home, stripping away the illusion of value behind them.
The USA's real economic condition is about as bad as it could be; it
is the most debt-ridden nation on earth, owing about US$12,000 for every
single one of it's 280 million men, women and children. It is worse
than the position of Indonesia when it imploded economically a few years
ago, or more recently, that of Argentina.
Even if OPEC did not switch to euros wholesale (and that would make
a very nice non-oil profit for the OPEC countries, including minimising
the various contrived debts America has forced on some of them), the
US's difficulties would build. Even if only a small part of the oil
trade went euro, that would do two things immediately:
* Increase the attractiveness to EU members of joining the 'eurozone',
which in turn would make the euro stronger and make it more attractive
to oil nations as a trading currency and to other nations as a general
trading currency.
* Start the US dollars flying home demanding value when there isn't
enough in the bank to cover them.
* The markets would over-react as usual and in no time, the US dollar's
value would be spiralling down.
THE US SOLUTION
America's response to the euro threat was predictable. It has come out
fighting.
It aims to achieve four primary things by going to war with Iraq:
* Safeguard the American economy by returning Iraq to trading oil in
US dollars, so the greenback is once again the exclusive oil currency.
* Send a very clear message to any other oil producers just what will
happen to them if they do not stay in the dollar circle. Iran has already
received one message -- remember how puzzled you were that in the midst
of moderation and secularization, Iran was named as a member of the
axis of evil?
* Place the second largest reserves of oil in the world under direct
American control.
* Provide a secular, subject state where the US can maintain a huge
force (perhaps with nominal elements from allies such as Britain and
Australia) to dominate the Middle East and its vital oil. This would
enable the US to avoid using what it sees as the unreliable Turkey,
the politically impossible Israel and surely the next state in its sights,
Saudi Arabia, the birthplace of al Qaeda and a hotbed of anti-American
sentiment.
* Severe setback the European Union and its euro, the only trading bloc
and currency strong enough to attack the USA's dominance of world trade
through the dollar.
* Provide cover for the US to run a covert operation to overturn the
democratically elected government of Venezuela and replace it with an
America-friendly military supported junta -- and put Venezuala's oil
into American hands.
Locking the world back into dollar oil trading would consolidate America's
current position and make it all but impregnable as the dominant world
power -- economically and militarily. A splintered Europe (the US is
working hard to split Europe; Britain was easy, but other Europeans
have offered support in terms of UN votes) and its euro would suffer
a serious setback and might take decades to recover.
It is the boldest grab for absolute power the world has seen in modern
times. America is hardly likely to allow the possible slaughter of a
few hundred thousand Iraqis stand between it and world domination.
President Bush did promise to protect the American way of life. This
is what he meant.
JUSTIFYING WAR
Obviously, the US could not simply invade Iraq, so it began casting
around for a 'legitimate' reason to attack. That search has been one
of increasing desperation as each rationalization has crumbled. First
Iraq was a threat because of alleged links to al Qaeda; then it was
proposed Iraq might supply al Qaeda with weapons; then Iraq's military
threat to its neighbours was raised; then the need to deliver Iraqis
from Saddam Hussein's horrendously inhumane rule; finally there is the
question of compliance with UN weapons inspection.
The USA's justifications for invading Iraq are looking less impressive
by the day. The US's statements that it would invade Iraq unilaterally
without UN support and in defiance of the UN make a total nonsense of
any American claim that it is concerned about the world body's strength
and standing.
The UN weapons inspectors have come up with minimal infringements of
the UN weapons limitations -- the final one being low tech rockets which
exceed the range allowed by about 20 percent. But there is no sign of
the so-called weapons of mass destruction (WMD) the US has so confidently
asserted are to be found. Colin Powell named a certain north Iraqi village
as a threat. It was not. He later admitted it was the wrong village.
'Newsweek' (24/2) has reported that while Bush officials have been trumpeting
the fact that key Iraqi defector, Lt. Gen. Hussein Kamel, told the US
in 1995 that Iraq had manufactured tonnes of nerve gas and anthrax (Colin
Powell's 5 February presentation to the UN was just one example) they
neglected to mention that Kamel had also told the US that these weapons
had been destroyed.
Parts of the US and particularly the British secret 'evidence' have
been shown to come from a student's masters thesis.
America's expressed concern about the Iraqi people's human rights and
the country's lack of democracy are simply not supported by the USA's
history of intervention in other states nor by its current actions.
Think Guatemala, the Congo, Chile and Nicaragua as examples of a much
larger pool of US actions to tear down legitimate, democratically elected
governments and replace them with war, disruption, starvation, poverty,
corruption, dictatorships, torture, rape and murder for its own economic
ends. The most recent, Afghanistan, is not looking good; in fact that
reinstalled a murderous group of warlords which America had earlier
installed, then deposed, in favour of the now hated Taliban.
Saddam Hussein was just as repressive, corrupt and murderous 15 years
ago when he used chemical weapons, supplied by the US, against the Kurds.
The current US Secretary for Defence, Donald Rumsfeld, so vehement against
Iraq now, was on hand personally to turn aside condemnation of Iraq
and blame Iran. At that time, of course, the US thought Saddam Hussein
was their man -- they were using him against the perceived threat of
Iran's Islamic fundamentalism.
Right now, as 'The Independent' writer, Robert Fisk, has noted, the
US's efforts to buy Algeria's UN vote includes promises of re-arming
the military which has a decade long history of repression, torture,
rape and murder Saddam Hussein himself would envy. It is estimated 200,000
people have died, and countless others been left maimed by the activities
of these monsters. What price the US's humanitarian concerns for Iraqis?
(Of course, the French are also wooing Algeria, their former north African
territory, for all they are worth, but at least they are not pretending
to be driven by humanitarian concerns.)
Indonesia is another nation with a vote and influence as the largest
Muslim nation in the world. Its repressive, murderous military is regaining
strength on the back of the US's so-called anti-terror campaign and
is receiving promises of open and covert support -- including intelligence
sharing.
AND VENEZUELA
While the world's attention is focused on Iraq, America is both openly
and covertly supporting the "coup of the rich" in Venezuela,
which grabbed power briefly in April last year before being intimidated
by massive public displays of support by the poor for democratically-elected
President Chavez Frias. The coup leaders continue to use their control
of the private media, much of industry and the ear of the American Government
and its oily intimates to cause disruption and disturbance.
Venezuela's state-owned oil resources would make rich pickings for American
oil companies and provide the US with an important oil source in its
own backyard.
Many writers have noted the contradiction between America's alleged
desire to establish democracy in Iraq while at the same time, actively
undermining the democratically-elected government in Venezuela. Above
the line, America rushed to recognise the coup last April; more recently,
President Bush has called for "early elections", ignoring
the fact that President Chavez Frias has won three elections and two
referendums and, in any case, early elections would be unconstitutional.
One element of the USA's covert action against Venezuela is the behaviour
of American transnational businesses, which have locked out employees
in support of "national strike" action. Imagine them doing
that in the USA! There is no question that a covert operation is in
process to overturn the legitimate Venezuelan government. Uruguayan
congressman, Jose Nayardi, made it public when he revealed that the
Bush administration had asked for Uruguay's support for Venezuelan white
collar executives and trade union activists "to break down levels
of intransigence within the Chavez Frias administration". The process,
he noted, was a shocking reminder of the CIA's 1973 intervention in
Chile which saw General Pinochet lead his military coup to take over
President Allende's democratically elected government in a bloodbath.
President Chavez Frias is desperately clinging to government, but with
the might of the USA aligned with his opponents, how long can he last?
THE COST OF WAR
Some have claimed that an American invasion of Iraq would cost so many
billions of dollars that oil returns would never justify such an action.
But when the invasion is placed in the context of the protection of
the entire US economy for now and into the future, the balance of the
argument changes.
Further, there are three other vital factors:
First, America will be asking others to help pay for the war because
it is protecting their interests. Japan and Saudi Arabia made serious
contributions to the cost of the 1991 Gulf war.
Second -- in reality, war will cost the USA very little -- or at least,
very little over and above normal expenditure. This war is already paid
for! All the munitions and equipment have been bought and paid for.
The USA would have to spend hardly a cent on new hardware to prosecute
this war -- the expenditure will come later when munitions and equipment
have to be replaced after the war. But amunitions, hardware and so on
are being replaced all the time -- contracts are out. Some contracts
will simply be brought forward and some others will be ramped up a bit,
but spread over a few years, the cost will not be great. And what is
the real extra cost of an army at war compared with maintaining the
standing army around the world, running exercises and so on? It is there,
but it is a relatively small sum.
Third -- lots of the extra costs involved in the war are dollars spent
outside America, not least in the purchase of fuel. Guess how America
will pay for these? By printing dollars it is going to war to protect.
The same happens when production begins to replace hardware components,
minerals, etc. are bought in with dollars that go overseas and exploit
America's trading advantage.
The cost of war is not nearly as big as it is made out to be. The cost
of not going to war would be horrendous for the USA -- unless there
were another way of protecting the greenback's world trade dominance.
AMERICA'S TWO ACTIVE ALLIES
Why are Australia and Britain supporting America in its transparent
Iraqi war ploy?
Australia, of course, has significant US dollar reserves and trades
widely in dollars and extensively with America. A fall in the US dollar
would reduce Australia's debt, perhaps, but would do nothing for the
Australian dollar's value against other currencies. John Howard, the
Prime Minister, has long cherished the dream of a free trade agreement
with the USA in the hope that Australia can jump on the back of the
free ride America gets in trade through the dollar's position as the
major trading medium. That would look much less attractive if the euro
took over a significant part of the oil trade.
Britain has yet to adopt the euro. If the US takes over Iraq and blocks
the euro's incursion into oil trading, Tony Blair will have given his
French and German counterparts a bloody nose, and gained more room to
manouevre on the issue -- perhaps years more room.
Britain would be in a position to demand a better deal from its EU partners
for entering the "eurozone" if the new currency could not
make the huge value gains guaranteed by a significant role in world
oil trading. It might even be in a position to withdraw from Europe
and link with America against continental Europe.
On the other hand, if the US cannot maintain the oil trade dollar monopoly,
the euro will rapidly go from strength to strength, and Britain could
be left begging to be allowed into the club.
THE OPPOSITION
Some of the reasons for opposition to the American plan are obvious
-- America is already the strongest nation on earth and dominates world
trade through its dollar. If it had control of the Iraqi oil and a base
for its forces in the Middle East, it would not add to, but would multiply
its power.
The oil-producing nations, particularly the Arab ones, can see the writing
on the wall and are quaking in their boots.
France and Germany are the EU leaders with the vision of a resurgent,
united Europe taking its rightful place in the world and using its euro
currency as a world trading reserve currency and thus gaining some of
the free ride the United States enjoys now. They are the ones who initiated
the euro oil trade with Iraq.
Russia is in deep economic trouble and knows it will get worse the day
America starts exploiting its take-over of Afghanistan by running a
pipeline southwards via Afghanistan from the giant southern Caspian
oil fields. Currently, that oil is piped northwards -- where Russia
has control.
Russia is in the process of ramping up oil production with the possibility
of trading some of it for euros and selling some to the US itself. Russia
already has enough problems with the fact that oil is traded in US dollars;
if the US has control of Iraqi oil, it could distort the market to Russia's
enormous disadvantage. In addition, Russia has interests in Iraqi oil;
an American take over could see them lost. Already on its knees, Russia
could be beggared before a mile of the Afghanistan pipeline is laid.
ANOTHER SOLUTION?
The scenario clarifies the seriousness of America's position and explains
its frantic drive for war. It also suggests that solutions other than
war are possible.
Could America agree to share the trading goodies by allowing Europe
to have a negotiated part of it? Not very likely, but it is just possible
Europe can stare down the USA and force such an outcome. Time will tell.
What about Europe taking the statesmanlike, humanitarian and long view,
and withdrawing, leaving the oil to the US, with appropriate safeguards
for ordinary Iraqis and democracy in Venezuela?
Europe might then be forced to adopt a smarter approach -- perhaps accelerating
the development of alternative energy technologies which would reduce
the EU's reliance on oil for energy and produce goods it could trade
for euros -- shifting the world trade balance.
Now that would be a very positive outcome for everyone.Geoffrey Heard
is a Melbourne, Australia,
writer on the environment, sustainability and human rights.
Copyright Geoffrey Heard, 2003. Anyone is free to circulate this document
provided it is complete and in its current form with attribution and
no payment is asked. It is prohibited to reproduce this document or
any part of it for commercial gain without the prior permission of the
author.
Colin Nunan: Oil, Currency and the War on Iraq
It will not come as news to anyone that the US dominates the world
economically and militarily. But the exact mechanisms by which American
hegemony has been established and maintained are perhaps less well
understood than they might be. One tool used to great effect has been
the dollar, but its efficacy has recently been under threat since
Europe introduced the euro.
The dollar is the de facto world reserve currency: the US currency
accounts for approximately two thirds of all official exchange reserves.
More than four-fifths of all foreign exchange transactions and half
of all world exports are denominated in dollars. In addition, all
IMF loans are denominated in dollars.
But the more dollars there are circulating outside the US, or invested
by foreign owners in American assets, the more the rest of the world
has had to provide the US with goods and services in exchange for
these dollars. The dollars cost the US next to nothing to produce,
so the fact that the world uses the currency in this way means that
the US is importing vast quantities of goods and services virtually
for free.
Since so many foreign-owned dollars are not spent on American goods
and services, the US is able to run a huge trade deficit year after
year without apparently any major economic consequences. The most
recently published figures, for example, show that in November of
last year US imports were worth 48% more than US exports. No other
country can run such a large trade deficit with impunity. The financial
media tell us the US is acting as the 'consumer of last resort' and
the implication is that we should be thankful, but a more enlightening
description of this state of affairs would be to say that it is getting
a massive interest-free loan from the rest of the world.
While the US' position may seem inviolable, one should remember
that the more you have, the more you have to lose. And recently there
have been signs of how, for the first time in a long time, the US
may be beginning to lose.
One of the stated economic objectives, and perhaps the primary objective,
when setting up the euro was to turn it into a reserve currency to
challenge the dollar so that Europe too could get something for nothing.
This however would be a disaster for the US. Not only would they
lose a large part of their annual subsidy of effectively free goods
and services, but countries switching to euro reserves from dollar
reserves would bring down the value of the US currency. Imports would
start to cost Americans a lot more and as increasing numbers of those
holding dollars began to spend them, the US would have to start paying
its debts by supplying in goods and services to foreign countries,
thus reducing American living standards. As countries and businesses
converted their dollar assets into euro assets, the US property and
stock market bubbles would, without doubt, burst. The Federal Reserve
would no longer be able to print more money to reflate the bubble,
as it is currently openly considering doing, because, without lots
of eager foreigners prepared to mop them up, a serious inflation would
result which, in turn, would make foreigners even more reluctant to
hold the US currency and thus heighten the crisis.
There is though one major obstacle to this happening: oil. Oil is
not just by far the most important commodity traded internationally,
it is the lifeblood of all modern industrialised economies. If you
don't have oil, you have to buy it. And if you want to buy oil on
the international markets, you usually have to have dollars. Until
recently all OPEC countries agreed to sell their oil for dollars only.
So long as this remained the case, the euro was unlikely to become
the major reserve currency: there is not a lot of point in stockpiling
euros if every time you need to buy oil you have to change them into
dollars. This arrangement also meant that the US effectively part-controlled
the entire world oil market: you could only buy oil if you had dollars,
and only one country had the right to print dollars - the US.
If on the other hand OPEC were to decide to accept euros only for
its oil (assuming for a moment it were allowed to make this decision),
then American economic dominance would be over. Not only would Europe
not need as many dollars anymore, but Japan which imports over 80%
of its oil from the Middle East would think it wise to convert a large
portion of its dollar assets to euro assets (Japan is the major subsidiser
of the US because it holds so many dollar investments). The US on
the other hand, being the world's largest oil importer would have,
to run a trade surplus to acquire euros. The conversion from trade
deficit to trade surplus would have to be achieved at a time when
its property and stock market prices were collapsing and its domestic
supplies of oil and gas were contracting. It would be a very painful
conversion.
The purely economic arguments for OPEC converting to the euro, at
least for a while, seem very strong. The Euro-zone does not run a
huge trade deficit nor is it heavily endebted to the rest of the world
like the US and interest rates in the Euro-zone are also significantly
higher. The Euro-zone has a larger share of world trade than the US
and is the Middle East's main trading partner. And nearly everything
you can buy for dollars you can also buy for euros - apart, of course,
from oil. Furthermore, if OPEC were to convert their dollar assets
to euro assets and then require payment for oil in Euros, their assets
would immediately increase in value, since oil importing countries
would be forced to also convert part of their assets, driving the
prices up. For OPEC, backing the euro would be a self-fulfilling prophesy.
They could then at some later date move to some other currency, perhaps
back to the dollar, and again make huge profits.
But of course it is not a purely economic decision.
So far only one OPEC country has dared switch to the euro: Iraq,
in November 20002. There is little doubt that this was a deliberate
attempt by Saddam to strike back at the US, but in economic terms
it has also turned out to have been a huge success: at the time of
Iraq's conversion the euro was worth around 83 US cents but it is
now worth over $1.05. There may however be other consequences to this
decision. One other OPEC country has been talking publicly about possible
conversion to the euro since 1999: Iran, a country which has since
been included in the George W. Bush's 'axis of evil'.
A third OPEC country which has recently fallen out with the US government
is Venezuela and it too has been showing disloyalty to the dollar.
Under Hugo Chavez's rule, Venezuela has established barter deals for
trading its oil with 12 Latin American countries as well as Cuba.
This means that the US is missing out on its usual subsidy and might
help explain the American wish to see the back of Chavez. At the OPEC
summit in September 2000, Chavez delivered to the OPEC heads of state
the report of the 'Interrnational Seminar on the Future of Energy',
a conference called by Chavez earlier that year to examine the future
supplies of both fossil and renewable energies. One of the two key
recommendations of the report was that 'OPEC take advantage of high-tech
electronic barter and bi-lateral exchanges of its oil with its developing
country customers, i.e. OPEC should avoid using both the dollar and
the euro for many transactions.
And last April, a senior OPEC representative gave a public speech
in Spain during Spain's presidency of the EU during which he made
clear that though OPEC had as yet no plans to make oil available for
euros, it was an option that was being considered and which could
well be of economic benefit to many OPEC countries, particularly those
of the Middle East6.
As oil production is now in decline in most oil producing countries,
the importance of the remaining large oil producers, particularly
those of the Middle East, is going to grow and grow in years to come.
Iraq, whose oil production has been severely curtailed by sanctions,
is one of a very small number of countries which can help ease this
looming oil shortage. Europe, like most of the rest of the world,
wishes to see a peaceful resolution of the current US-Iraqi tensions
and a gradual lifting of the sanctions - this would certainly serve
its interests best. But as Iraqi oil is denominated in euros, allowing
it to become more widely available at present could loosen the dollar
stranglehold and possibly do more damage than good to US economic
health. All of this is bad news for the US economy and the dollar.
The fear for Washington will be that not only will the future price
of oil not be right, but the currency might not be right either. Which
perhaps helps explain why the US is increasingly turning to its second
major tool for dominating world affairs: military force.
REFERENCES
Anon., 'Trade Deficit Surges to a Record High', Reuters, (January
17, 2003), http://www.centredaily.com/mld/centredaily/news/4970891.htm.
Recknagel, Charles, 'Iraq: Baghdad Moves to Euro', Radio Free Europe
(November 1, 2000), http://www.rferl.org/nca/features/2000/11/01112000160846.asp.
Anon., 'A Look At The World's Economy', CBS Worldwide Inc., (December
22, 2000), http://www.cbsnews.com/stories/2000/12/22/2000/main259203.shtml.
Anon., 'Iran may switch to euro for crude sale payments', Alexander
Oil and Gas, (September 5, 2002), http://www.gasandoil.com/goc/news/ntm23638.htm.
Hazel Henderson, 'Globocop v. Venezuela's Chavez: Oil, Globalization
and Competing Visions of Development', InterPress Service, (April
2002), http://www.hazelhenderson.com/Globocop%20v.%20Chavez.htm.
Javad Yarjani, 'The Choice of Currency for the Denomination of the
Oil Bill', (April 14, 2002), http://www.opec.org/NewsInfo/Speeches/sp2002/spAraqueSpainApr14.htm.
The Association for the Study of Peak Oil, Newsletter 26, (February
2003), http://www.asponews.org.
Iraqi oil, if extracted optimally, under the most favorable circumstances,
will only postpone the world fossil fuels reckoning by a few years.
There is a persistent buzz on the internet -- strangely absent in
the other media -- that the war is also about the threat of oil-exporting
nations converting their transactions to being euro-based rather than
in dollars as has been the standard for decades. Saddam Hussein was
in the process of doing just this. It seems abstruse, perhaps, but
with the dollar losing value against the euro, dollar-denominated
oil sales tend more and more to subsidize American users and penalize
non-Americans, who have to get dollars to buy oil. They get dollars
by selling us manufactured goods. But the dollars they get are worth
less and less every month.
The reason the dollar loses value is because we import much more
stuff (including products and oil) than we export. Our global trade
account is wildly out of balance, and has been for years. The only
thing compensating for it has been the belief -- despite apparent
trends -- that the US is still the world's most stable society and
therefore the best place to park surplus wealth -- which is done in
dollar-denominated investment instruments like stocks. So exported
dollars have steadily returned here from abroad, propping up our credibility.
The slow-motion crash of the stock markets has made foreigners think
twice about parking their wealth in the US. Meanwhile, we've outsourced
our manufacturing capacity to Mexico and Asia so that the American
economy has come to be based soley on the creation of suburban sprawl,
financed on credit, which is to say hallucinated money. Suburban sprawl
is a meta-machine for consumption of resources. It produces nothing
of value in and of itself. The world is onto this.
The US economy is therefore in the process of losing its legitimacy.
As this occurs, the world will not want to assign the dollar the role
as its reserve currency -- i.e. the unit of money presumed to be backed
by the strongest society, nor will they want to use the dollar as
the basis for oil sales. As more foreign investment is withdrawn from
the US and put into euros or possibly even Chinese yuan, the value
of the dollar is apt to fall sharply.
By the way, I would not interpret the recent "war rally"
in the stock markets as having any significance. The markets, like
the world, are onto the true nature of the US economy -- that's why
they have been declining steadily since 2000. They are only going
through a temporary delirium based on the end of uncertainty about
whether war would actually happen.
So, getting back to the internet buzz, the idea was that if the
US could get Iraqi oil back onto dollar-denominated transactions,
it could halt the world trend against the dollar and postpone the
erosion of economic legitimacy. This is said to account for the hostile
attitude of France and Germany (the euro's chief backers) toward the
Iraq adventure. Europe would benefit hugely from oil sales denominated
in their own currency.
Assuming that this theory has something to it, I doubt that the
US can halt the trend away from the dollar in any case. OPEC may decide
to shift all their oil trade to the euro no matter what the US is
able to achieve in the way of controlling Iraq.
And, course, the US is doing absolutely nothing to address our phony-baloney
sprawl economy. In fact, the notion that we are entitled to this manner
of living is very much conflated (on purpose) with our stated reasons
for going to war. And if there is anything evil about our Iraq adventure,
it is that. I don't blame George W. Bush for many of things my friends
do -- being a shill for big business, etc. -- but I do blame him for
failing to understand that our bad living habits are liable to kill
our country as readily as any gang of Jihadistas.
