Tuesday, December 19, 2006

The War in Iraq: It's All About the Dollar

Some clips to ponder:
If this measure is implemented it could have very grave consequences for the American economy. As early as September 2005 Aljazeera published an article on its website that Iran was about to begin pricing its oil in euros. According this article just about everyone would benefit, except the United States. For at least fifty years about 70 % of all currency reserves were in American dollars. This made the dollar the strongest currency on earth. Central banks need to have important reserves in dollars because up until now oil, the most important commodity of the world, is mostly priced in dollars. Since the irresponsible policies of the current American administration have allowed America's national debt to rise to crippling heights, its ailing economy became mostly dependent upon the high demand for its currency. Or, to put it simply, the dollar may no longer be exchangeable for gold but it can be exchanged for oil. Since the demand for oil increases steadily and the price of oil also increases, the dollar is a safe bet. Until now, that is.


The adoption of the euro for oil transactions will provide the European currency with a reserve status that will benefit the Europeans at the expense of the Americans. On September 2, 2005 the Global Politician quoted an expert stating "One of the Federal Reserve’s nightmares may begin to unfold when it appears that international buyers will have a choice of buying a barrel of oil for $60 on the NYMEX (New York Mercantile Exchange) and IPE (London’s International Petroleum Exchange) or purchase a barrel of oil for €45 to €50 via an alternative Iranian bourse." In this scenario an already-existent global trend of shifting foreign currency reserves from dollars to euros would accelerate, thus strengthening the euro and weakening the dollar on the international market. Imports would start to cost America so much more that its economy would not be able to cope anymore and the stock market bubble would burst.


But is it likely to happen? Well, it has happened before it seems. In 2000 Saddam Houssein demanded euros for Iraq's oil. At first he wasn't taken all to seriously but when it became clear that he meant business, political pressure was exerted to change his mind. Other oil producing countries began to voice their intent to accept payments in euros or yen. So, when Bush and his cabal of neocons invaded Iraq, why exactly were they doing this? Because of Saddam's long defunct pipe-dream of weapons of mass destruction? Was it about spreading democracy? Indignation about an inhuman regime? Or was it about defending the American dollar and sending a clear message to other countries that a superpower would not tolerate its super-currency flouted. Some have argued that Bush started the war to seize Iraq's oilfields. But why would he want to? Strangely enough: as long as the dollar is backed by oil, America can print as many dollars as it wants and... buy oil with them. Defending the dollar as the unique oil-currency is infinitely more important than seizing the oil itself. And look what happened: barely two months after the United States invaded Iraq, the Oil for Food Program was terminated and the Iraqi euro accounts were switched back to dollars. Global dollar supremacy was once again restored. That was the real mission that was accomplished.

That is also the reason neocons aren't too worried about the way the war in Iraq is going. As far as they are concerned it may drag on for another twenty years and cost tens of thousands of American lives as long as the supremacy of the dollar is maintained. For the neocons and their conspiracy for a New American Century this is the basis of all that they are trying to accomplish. This is what Krassimir Petrov in the Energy Bulletin has to say about it: "A nation-state taxes its own citizens, while an empire taxes other nation-states. The history of empires, from Greek and Roman, to Ottoman and British, teaches that the economic foundation of every single empire is the taxation of other nations. (...) Historically, imperial taxation has always been direct: the subject state handed over the economic goods directly to the empire. For the first time in history, in the twentieth century, America was able to tax the world indirectly, through inflation. It did not enforce the direct payment of taxes like all of its predecessor empires did, but distributed instead its own fiat currency, the U.S. Dollar, to other nations in exchange for goods with the intended consequence of inflating and devaluing those dollars and paying back later each dollar with less economic goods—the difference capturing the U.S. imperial tax."

The immediate question is whether the neocons will attempt to intervene in Iran in an effort to prevent the formation of a crude oil pricing mechanism in euros.
I've noted before the possibility of a war with Iran. Definitely at stake is the status of the US dollar as the reserve currency, as was the case with Iraq under Hussein at the turn of the century. Of course there are some problems with starting yet another war while the one in Iraq continues to fester. Getting a "coalition of the willing" could be a lot trickier this time around, as the author notes, and Iran is no slouch militarily unlike the case with Iraq. A nearly broken US military would find taking on Iran to be a gargantuan undertaking - one that would lead to even more spilled blood than has already been experienced. Iran could also more effectively cut off oil supplies which, given the sheer amount of dependence we have on oil to fuel whatever's left of our industries as well as shipping and agriculture, could easily precipitate a collapse of the US as we currently know it.

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