Washingtons oiligarchs

Nations go to war for a number of reasons, real or contrived. But the most common and the one most acceptable is whenever a nation feels its existence is threatened or leads its people to believe they are threatened. Did the USA feel threatened when it decided to attack Iraq?

It is difficult to believe that, given all the resources at their command, with a dozen Intelligence and assessment agencies that provide strategic foreign intelligence, a multi-billion dollar intelligence budget, with all its sophisticated intelligence gathering techniques that can read even car license plates from their satellites and after years of occupation and sanctions in Iraq, the Americans did not know that they would not find any WMDs in Iraq. Everybody knew that the dodgy dossier was in fact dodgy. There was no evidence about Iraqi connections with Al Qaeda and US and British administrations knew that this was so.

Yet Saddam had to be punished for something he did even before September 11, 2001. There were other pressures – the rise of the Euro as an alternative to the Dollar and the phenomenon of Peak Oil when the production of oil in Iraq and Saudi Arabia will reach its peak production and decline after that.

Tired of US pressures on him, Saddam had dumped the dollar --the currency of the enemy -- in October 2000 and switched his UN ‘oil for food’ fund of US $ 10 billion to the Euro. He would later profit handsomely from this switch as the reserve grew to 26 billion Euros in a couple of years. But Saddam had committed blasphemy and he had to be punished. The fear was that if OPEC also made a sudden switch to the euro, the US economy would collapse. Other countries could follow OPEC and some of them had begun to keep a part of their holdings in euros. One of the achievements of the invasion has been that Iraq has been brought back to the Dollar regime.

Clyde Prestowitz in his book “Rogue Nations” says that the biggest energy reserves in the world are in American cars, homes, factories and office buildings. Pestowitz argues that to create an equivalent of US $ 1 of GDP, Europeans with a population larger than that of USA, and a similar GDP, use about two thirds as much energy as the Americans. If America could become similarly energy efficient, it could do without oil imports from the Persian Gulf or from anywhere else. USA could save US $ 100 billion a year off the trade deficit, that much less money would be available to some of the Middle Eastern countries who use this money to fund terrorism and spread of radical Islam and also greatly reduce the need to deploy US forces in the Middle East.

It made strategic sense in the days of the Cold War to prevent the USSR from having any effective presence in the region which would have endangered Western access to the oil. After the Cold War was won, the others had to be stopped from getting too easy an access to this precious resource, i.e. China, Japan and India. The production and distribution had to controlled and monitored.

President Roosevelt and Abd el-Aziz Ibn Saud had worked it out soon after the Second World War and then Nixon refined it further, in 1974; when the US administration won assurances from the Saudis that they would price oil in US Dollars only and then invest their surplus oil proceeds in US Treasury bills. In return the USA would provide protection to the Saudi regime. This meant that Saudis were recycling a part of their money back into USA and using a part of (later) to finance jehad. The intervening periods on the Iranian Revolution (1979), the Iran-Iraq War and the Afghan jehad against the Soviet Union in the Eighties, meant continued and increasing presence of American troops in the Gulf and Saudi Arabia

Added to this, the Dollar had been the fiat currency; it was the world’s reserve currency, its safe harbour currency, for every one was in competition to earn dollars through export to the USA to earn enough to buy the oil. In effect, the USA with its more than 6 trillion dollar debt in a 9 trillion dollar economy was not really paying for any oil. Oil was denominated in dollars and the strength of the US dollar post war propelled the US economy to new heights and military supremacy.

But by the end of the 20th Century new developments were taking place to cause concern in Washington. The EU had succeeded in establishing the Euro and the world had begun to look at this as an alternative reserve currency. The EU economy was competing with the US economy in more ways than one and the threat to the dollar’s supremacy in international trade was a reality. Over half of the total crude oil produced in the Middle East was bought by the EU in 2004 who could insist at a later date on paying in Euros.

The other danger to the dollar’s supremacy was that OPEC was veering towards the idea of switching their holdings to petro-euros and not just petro-dollars. Other countries could follow OPEC and some had begun to keep a part of their holdings in Euros. Not only that, even the pricing could be in Euros. Imagine if the cost of oil had to be paid in Euros by Americans and with their annual trade deficit of $ 500 billion and growing, there would be a real crisis. Where would the money come from? This drift had to be stopped.

The second problem was that of Global Peak Oil. The world’s two largest producers of oil, Saudi Arabia and Iraq, which has 11% of the world’s total oil, would reach Peak Oil production by 2010. From then on, production would decline. Some geologists have suggested that Peak Oil year was as early as 2004 while others think it could be around 2008. The UK has no other oil reserves apart from its North Sea reserves that peaked in 2000 and a decline had set in after 2001. 95% of the world’s transportation system is dependent on depleting hydrocarbon reserves. This is a good enough reason why this resource is precious in the absence of an alternative. Thus, there was need to conserve consumption and at the same time to take geo-strategic control of Iraqi oil.

The real reason for the invasion thus was not WMD, not war against terror to make the world safer, nor getting rid of old friend Saddam Hussein, nor grafting democracy. The real reason was about the hegemony of the Dollar. It was about control and domination. It was about keeping the Euro and, later the Yuan/Yen, in check. It was about Empire. The First Oil Currency War of the 21st Century had begun.

Iran made a similar switch in 2002 by transferring a majority of its reserves into Euros and worse, also contemplated an Euro-based oil bourse. Iran had qualified to be a member of the Axis of Evil. But post Iraq, with credibility low, even the UK balking at any talk of attacking Iran, the USA has limited choices. A full-scale invasion ‘with feet on the ground’ seems to be out; attacks from the air would be the other option. Clandestine covert operations through the Baloch areas of Pakistan and partly through Afghanistan could be a possibility. Somehow Iran has to be disciplined -- and soon.

Source : Hindustan times 13th feb 2005