[blue]

SHOCKING!

I'm writing a summary critique on this article for my International Relations final. Jump to your own conclusions.

The Invasion of Iraq: Dollar vs Euro
Re-denominating Iraqi oil in U.S. dollars, instead of the euro

By Sohan Sharma, Sue Tracy, & Surinder Kumar
Z Magazine, February 2004


What prompted the U.S. attack on Iraq, a country under sanctions for 12 years (1991-2003), struggling to obtain clean water and basic medicines? A little discussed factor responsible for the invasion was the desire to preserve “dollar imperialism” as this hegemony began to be challenged by the euro.

After World War II, most of Europe and Japan lay economically prostrate, their industries in shambles and production, in general, at a minimum level. The U.S. was the only major power to escape the destruction of war, its industries thriving with a high level of productivity. In addition, prior to and during WWII, due to extreme political and economic upheaval, a considerable amount of gold from European countries was transferred to the U.S. Thus, after WWII the U.S. had accumulated 80 percent of the world’s gold and 40 percent of the world’s production. At the founding of the World Bank (WB) and the International Monetary Fund (IMF) in 1944-45, U.S. predominance was absolute. A fixed exchange currency was established based on gold, the gold-dollar standard, wherein the value of the dollar was pegged to the price of gold—U.S. $35 per ounce of gold. Because gold was combined with U.S. bank notes, the dollar note and gold became equivalent, which then became the international reserve currency.

Initially, the U.S. had $30 billion in gold reserves. But the United States spent more than $500 billion on the Vietnam War alone, from 1967-1972. During these years, the U.S. had over 110 military bases across the globe, each costing hundreds of millions of dollars a year. These expenses were paid in paper dollars and the total number given out far exceeded the gold reserve of the U.S treasury. By then (1971-72), the U.S. Treasury was running out of gold and had only $10 billion in gold left. On August 17, 1971, Nixon suspended the U.S. dollar conversion into gold. Thus, the dollar was “floated” in the international monetary market.

Also in the early 1970s, U.S. oil production peaked and its energy resources began to deplete. Its own oil production could not keep pace with growing home consumption. Since then, U.S. demand for oil continually increased, and by 2002-2003 the U.S. imported approximately 60 percent of its oil—OPEC (primarily Saudi Arabia) being the main exporter. The U.S. sought to protect its dollar strength and hegemony by ensuring that Saudi Arabia price its oil only in dollars. To achieve this, the U.S. made a deal, some say a secret one, that it would protect the Saudi regime in exchange for their selling oil only in dollars.

Throughout the late 1950s and 1960s the Arab world was in ferment over an emerging Nasser brand of Arab nationalism and the Saudi monarchy began to fear for its own stability. In Iraq, the revolutionary officers corps had taken power with a socialist program. In Lybia, military officers with an Islamic socialist ideology took power in 1969 and closed the U.S. Wheelus Air base; in 1971, Libya nationalized the holdings of British Petroleum. There were proposals for uniting several Arab states—Syria, Egypt, and Libya. During 1963-1967, a civil war developed in Yemen between Republicans (anti-monarchy) and Royalist forces along almost the entire southern border of Saudi Arabia. Egyptian forces entered Yemen in support of republican forces, while the Saudis supported the royalist forces to shield its own monarchy. Eventually, the Saudi government—a medieval, Islamic fundamentalist, dynastic monarchy with absolute power—survived the nationalistic upheavals.

Saudi Arabia, the largest oil producer with the largest known oil reserves, is the leader of OPEC. It is the only member of the OPEC cartel that does not have an allotted production quota. It is the “swing producer,” i.e., it can increase or decrease oil production to bring oil draught or glut in the world market. This enables it more or less to determine prices.

Oil can be bought from OPEC only if you have dollars. Non-oil producing countries, such as most underdeveloped countries and Japan, first have to sell their goods to earn dollars with which they can purchase oil. If they cannot earn enough dollars, then they have to borrow dollars from the WB/IMF, which have to be paid back, with interest, in dollars. This creates a great demand for dollars outside the U.S. In contrast, the U.S. only has to print dollar bills in exchange for goods. Even for its own oil imports, the U.S. can print dollar bills without exporting or selling its goods. For instance, in 2003 the current U.S. account deficit and external debt has been running at more than $500 billion. Put in simple terms, the U.S. will receive $500 billion more in goods and services from other countries than it will provide them. The imported goods are paid by printing dollar bills, i.e., “fiat” dollars.

Fiat money or currency (usually paper money) is a type of currency whose only value is that a government made a “fiat” (decree) that the money is a legal method of exchange. Unlike commodity money, or representative money, it is not based in any other commodity such as gold or silver and is not covered by a special reserve. Fiat money is a promise to pay by the usurer and does not necessarily have any intrinsic value. Its value lies in the issuer’s financial means and creditworthiness.

Such fiat dollars are invested or deposited in U.S. banks or the U.S. Treasury by most non-oil producing, underdeveloped countries to protect their currencies and generate oil credit. Today foreigners hold 48 percent of the U.S. Treasury bond market and own 24 percent of the U.S. corporate bond market and 20 percent of all U.S. corporations. In total, foreigners hold $8 trillion of U.S. assets. Nevertheless, the foreign deposited dollars strengthen the U.S. dollar and give the United States enormous power to manipulate the world economy, set rules, and prevail in the international market.

Thus, the U.S. effectively controls the world oil-market as the dollar has become the “fiat” international trading currency. Today U.S. currency accounts for approximately two-thirds of all official exchange reserves. More than four-fifths of all foreign exchange transactions and half of all the world exports are denominated in dollars and U.S. currency accounts for about two-thirds of all official exchange reserves. The fact that billions of dollars worth of oil is priced in dollars ensures the world domination of the dollar. It allows the U.S. to act as the world’s central bank, printing currency acceptable everywhere. The dollar has become an oil-backed, not gold-backed, currency.

If OPEC oil could be sold in other currencies, e.g. the euro, then U.S. economic dominance—dollar imperialism or hegemony—would be seriously challenged. More and more oil importing countries would acquire the euro as their “reserve,” its value would increase, and a larger amount of trade would be transacted and denominated in euros. In such circumstances, the value of the dollar would most likely go down, some speculate between 20-40 percent.

In November 2000, Iraq began selling its oil in euros. Iraq’s oil for food account at the UN was also in euros and Iraq later converted its $10 billion reserve fund at the UN to euros. Several other oil producing countries have also agreed to sell oil in euros—Iran, Libya, Venezuela, Russia, Indonesia, and Malaysia (soon to join this group). In July 2003, China announced that it would switch part of its dollar reserves into the world’s emerging “reserve currency” (the euro).

On January 1, 1999, when 11 European countries formed a monetary union around this currency, Britain and Norway, the major oil producers, were absent. As the U.S. economy began to slow down during mid-2000, Western stock markets began to yield lower dividends. Investors from Gulf Cooperation Council nations lost over $800 million in the stock plunge. As investors sold U.S. assets and reinvested in Europe, which seemed to be better shielded from a recession, the euro began to gain ground against the dollar .

 

[blue]

After September 11, 2001, Islamic financiers began to repatriate their dollar investments—amounting to billions of dollars—to Arab banks, as they were worried about the possible seizure of their assets under the USA PATRIOT Act. Also, they feared their accounts might be frozen on the suspicion that such accounts fund Islamic terrorists. Iranian sources stated that their banking colleagues felt particularly hassled as Washington heated up its war of words and threats of military intervention. This encouraged Tehran to abandon the dollar payment for oil sales and switch to the euro. Iran also moved the majority of its reserve fund to the euro. (Iran is the latest target of the U.S., which has interfered by stirring up opposition forces, and making covert threats.)

OPEC member countries and the euro-zone have strong trade links, with more than 45 percent of total merchandize imports of OPEC member countries coming from the countries of the euro-zone, while OPEC members are the main suppliers of oil and crude oil products to Europe. The EU has a bigger share of global trade than the U.S. and, while the U.S. has a huge current account deficit, the EU has a more balanced external accounts position. The EU plans to enlarge in May 2004 with ten new members. It will have a population of 45 million; it will have an oil consuming-purchasing population 33 percent larger than the U.S., and over half of OPEC crude oil will be sold to the EU as of mid-2004. In order to reduce currency risks, Europeans will pressure OPEC to trade oil in euros. Countries such as Algeria, Iran, Iraq, and Russia—which export oil and natural gas to European countries and in turn import goods and services from them—will have an interest in reducing their currency risk and hence, pricing oil and gas in euros. Thus momentum is building toward at least the dual use of euro and dollar pricing.

The unprovoked “shock and awe” attack on Iraq was to serve several economic purposes: (1) Safeguard the U.S. economy by re-denominating Iraqi oil in U.S. dollars, instead of the euro, to try to lock the world back into dollar oil trading so the U.S. would remain the dominant world power—militarily and economically. (2) Send a clear message to other oil producers as to what will happen to them if they abandon the dollar matrix. (3) Place the second largest oil reserve under direct U.S. control. (4) Create a subject state where the U.S. can maintain a huge force to dominate the Middle East and its oil. (5) Create a severe setback to the European Union and its euro, the only trading block and currency strong enough to attack U.S. dominance of the world through trade. (6) Free its forces (ultimately) so that it can begin operations against those countries that are trying to disengage themselves from U.S. dollar imperialism—such as Venezuela, where the U.S. has supported the attempted overthrow of a democratic government by a junta more friendly to U.S. business/oil interests.

The U.S. also wants to create a new oil cartel in the Middle East and Africa to replace OPEC. To this end the U.S. has been pressuring Nigeria to withdraw from OPEC and its strict production quotas by dangling the prospects of generous U.S. aid. Instead the U.S. seeks to promote a “U.S.-Nigeria Alignment,” which would place Nigeria as the primary oil exporter to the U.S. Another move by the U.S. is to promote oil production in other African countries—Algeria, Libya, Egypt, and Angola, from where the U.S. imports a significant amount of oil—so that the oil control of OPEC is loosened, if not broken. Furthermore, the U.S. is pressuring non-OPEC producers to flood the oil market and retain denomination in dollars in an effort to weaken OPEC’s market control and challenge the leadership of any country switching oil denomination from the dollar to the euro.

To break up OPEC and control the world’s oil supply, it is also helpful to control Middle East and central Asiatic oil producing countries through which oil pipelines traverse. The first attack and occupation was of Afghanistan, October 2001, in itself a gas producing country, but primarily a country through which Central Asia and the Caspian Sea oil and gas will be shipped (piped) to energy-starved Pakistan and India. Afghanistan also provided an alternative to previously existing Russian pipelines. Simultaneously, the U.S. acquired military bases—19 of them—in the Central Asian countries of Uzbekistan, Tajikistan, Kyrgyz- stan, and Turkmenistan in the Caspian Basin, all of which are potential oil producers. After the invasion and occupation of Afghanistan and Iraq, the U.S. controlled the natural resources of these two countries and, once again, Iraq’s oil began to be traded in U.S. dollars. The UN’s oil for food production program was scrapped and the U.S. launched its Iraqi Assistance Fund in U.S. dollars. In December 2003, the U.S. (Pentagon) announced that it had barred French, German, and Russian oil and other companies from bidding on Iraq’s reconstruction.

How would a shift to the euro affect underdeveloped countries, most of which are either non-oil producing or do not produce enough for their home consumption and development? These countries have to import oil. One of the advantages that may accrue to them is that they are likely to earn more euros than dollars since much of their trade is with the European countries. On the other hand, a shift to euro will pose a similar dilemma for them as dollars. They will have to pay for oil in euros, have enough euros deposited-invested in EU treasuries, and borrow euros if they do not have enough for their oil purchases. If, as is projected, the dollar and euro are in a price band (that is, prices will stay within an agreed upon range), they may not have much of a bargaining position.

Oil for euros would be far more helpful if oil-importing underdeveloped countries could develop some form of barter arrangement for their goods to obtain oil from OPEC. Venezuela (Chavez) has presented a successful working model of this. Following Venezuela’s lead, several underdeveloped countries began bartering their undervalued commodities directly with each other in computerized swaps and counter trade deals, and commodities are now traded among these countries in exchange for Venezuela’s oil. President Chavez has linked 13 such barter deals on its oil; e.g., with Cuba in exchange for Cuban doctors and paramedics who are setting up clinics in shanty towns and rural areas. Such arrangements help underdeveloped countries save their hard currencies, lessening indebtedness to international bankers, the World Bank, and IMF, so that money thus saved can be used for internal development.

Fiver.

 

[kinghami3]

cliff notes?

 

[blue]

It's worth the read.

The US invaded Iraq to stabilize the dollar against the euro.

 

[DRB]

It's worth the read.

The US invaded Iraq to stabilize the dollar against the euro.

No that's not what your article is about. Its about the replacement of the dollar with the euro as the main currency of oil trading. I've posted on this before so forgive me if I'm repeating myself.

It misses the point in several places.

1. Venezeula has in fact made a number of transactions in euros. But nothing of significance because the vast majority of their output is destined for US markets and that's going to be the case for a number of years. For all of Chavez's blustering he has one outlet for his oil and that's the US. Neither China nor Europe have the capacity to refine any meaningful amounts of his oil. Nor do they want it. Both have enough supply from existing sources. He could cut oil off to the US but in the end it would hurt him more than it would the US.

2. The article makes a minor mention of the UK and Norway not being in the Euro (or the EU for that matter) but they miss the significance of that. They are the two biggest suppliers of oil to Europe. It is unlikely that either in the short or long term is to change to euros for selling their oil. Even transactions they undertake with countries within the EU is done in dollars.

3. Russia is the one country that would really benefit from trading in euros, at least at the time of the article when it was like 1.30 to euro. Now with the downward movement, not so much. The eratic movement of the euro is what leads to the next problem.

4. OPECs biggest concern of even messing with euros was stability. Over the last 2 years the euro has been all over the place and the finance ministers of the EU have shown little or no ability to control it. Compare that to the dollar where the FED with small moves in interest rates can move the dollar. The EU kept claiming it was trying to control the euro but nothing they did seemed to help. Greenspan makes a couple of statements and the Fed does what it had been doing and the euro drops 12% in 4 months in 2005. That scares OPEC has they know they will have to continue to trade oil in dollars as well which leads to number 5.

5. Trading in both creates a potential danger of internal arbitrage between the two billing currencies that would potentially disrupt the mechanism or at least bring additional costs because of currency hedging that would inevitably be introduced. With oil at the price it is now, those costs would not be insignificant.

6. China makes big noise in this area but its bluster.... unless they are going to unhitch the yuan from the dollar. A move they have resisted overwhelmingly and appear to be on that track for the near future.

In 2004, this looked good on paper. But reality quickly got in the way of these theories. In December of 2005 the Iranian Oil Minister was asked this very question of the switch from dollars to euros. "At present the trading of oil in dollars is the way forward. It makes no economic sense to change that mechanism to do so would be at our own peril."

 

[blue]

No that's not what your article is about. Its about the replacement of the dollar with the euro as the main currency of oil trading. I've posted on this before so forgive me if I'm repeating myself.

And the disaffection of the third world?

 

[DRB]

And the disaffection of the third world?

The replacement of the dollar with the euro as the main instrument of oil trading would be problematic for them as well, short and long term. The main one being that all IMF debt is demoninated in dollars, in actuallity most debt in third world countries is in dollars. If all of a sudden the dollar was further devalued (which is what would happen) against whatever currency then the amount of their debt just increased and not unsubstanially. Additionally do you think the US is going to be in a position to forgive this debt then?

I pulled this line because it jumped out at me

One of the advantages that may accrue to them is that they are likely to earn more euros than dollars since much of their trade is with the European countries.

Which countries would those be? It says underdeveloped nations. Pretty much all of South and Central America's main trading partner is the US. Better or worse, the US is the world's biggest consumer.

I love how the article recycles the Afghanstani pipeline. Exactly when is that getting built? Let's get all the hot buttons in to get folks all worked up.

I hope you take a critical eye of this article during your report instead of just blindly following along.

 

[MMike]

too many words!!!!!! Please compile this into a google streaming video documentary......let me know when you're done.

 

[bigdrop05]

Interesting indeed.

The BIGGER picture is always scary...Meaning deception..Like the war was about the poor people,but really about oil/money..
ooh,i believe it totally.Governments have thier own agenda !

 

[fluff]

Governments have thier own agenda !

People in government do, governments are just people and how many of them do you trust?

 

[DRB]

Interesting indeed.

The BIGGER picture is always scary...Meaning deception..Like the war was about the poor people,but really about oil/money..
ooh,i believe it totally.Governments have thier own agenda !

Here is another one

Most, if not all, criticisms of the Bush administration's motivation for launching a preemptive war on Iraq focus on a combination of the imperial world views of conservative politicians in power in Washington, D.C., and the corporate interests that drive the political agenda of the Bush administration. This study will provide a radically different political analysis of the Bush administration's motivation for going war, and of the explanations offered by his critics. This study provides an exopolitical analysis of the policy dimensions of an historic extraterrestrial presence that is pertinent to Iraq and a US led preemptive attack. It will be argued that competing clandestine government organizations are struggling through proxy means to take control of ancient extraterrestrial (ET) technology that exists in Iraq, in order to prepare for an impending series of events corresponding to the 'prophesied return' of an advanced race of ETs. The Columbia Space Shuttle may well have been a high profile victim of such a proxy war intended to send a message to US based clandestine organizations over the preemptive war against Iraq.

http://www.exopolitics.org/Study-Paper2.htm

where do you draw the line?

 

[N8 v2.0]

I demand we have a war for cheap oil!!!

 

[blue]

I hope you take a critical eye of this article during your report instead of just blindly following along.

But that requires work...and then I risk a crappy grade...hmmm...

 

[The Amish]

I demand we have a war for cheap oil!!!

at $3 a gallon its plainly clear that oil was what it was all about

 

[blue]

at $3 a gallon its plainly clear that oil was what it was all about

Bush and Co. really doesn't want to sell YOU cheap oil, dumbass.

 

[N8 v2.0]

Bush and Co. really doesn't want to sell YOU cheap oil, dumbass.

Of course not, they are trying to promote energy conservation thru high prices to save the planet from Algore.



:nuts:

 

[blue]

So question...how does the US Treasury distribute new money? The government doesn't buy goods/services/commodities with fiat dollars...so who does?

 

[blue]

Finished.

I totally shredded the last paragraph as having absolutely nothing to do with Euros v. Dollars. Proud of me DRB?

 

[ALEXIS_DH]

Of course not, they are trying to promote energy conservation thru high prices to save the planet from Algore.



:nuts:

dubya just cant loose, can´t he?

prices up "trying to save the planet by reducing consumption".

prices down "championing for the american people who need the oil to live and consume and show the terrorists we shall not change because of their sinful ways"

 

[N8 v2.0]

dubya just cant loose, can´t he?

prices up "trying to save the planet by reducing consumption".

prices down "championing for the american people who need the oil to live and consume and show the terrorists we shall not change because of their sinful ways"

Sux to be a liberal huh?

 

[fluff]

No that's not what your article is about. Its about the replacement of the dollar with the euro as the main currency of oil trading. I've posted on this before so forgive me if I'm repeating myself.

It misses the point in several places.

1. Venezeula has in fact made a number of transactions in euros. But nothing of significance because the vast majority of their output is destined for US markets and that's going to be the case for a number of years. For all of Chavez's blustering he has one outlet for his oil and that's the US. Neither China nor Europe have the capacity to refine any meaningful amounts of his oil. Nor do they want it. Both have enough supply from existing sources. He could cut oil off to the US but in the end it would hurt him more than it would the US.

2. The article makes a minor mention of the UK and Norway not being in the Euro (or the EU for that matter) but they miss the significance of that. They are the two biggest suppliers of oil to Europe. It is unlikely that either in the short or long term is to change to euros for selling their oil. Even transactions they undertake with countries within the EU is done in dollars.

3. Russia is the one country that would really benefit from trading in euros, at least at the time of the article when it was like 1.30 to euro. Now with the downward movement, not so much. The eratic movement of the euro is what leads to the next problem.

4. OPECs biggest concern of even messing with euros was stability. Over the last 2 years the euro has been all over the place and the finance ministers of the EU have shown little or no ability to control it. Compare that to the dollar where the FED with small moves in interest rates can move the dollar. The EU kept claiming it was trying to control the euro but nothing they did seemed to help. Greenspan makes a couple of statements and the Fed does what it had been doing and the euro drops 12% in 4 months in 2005. That scares OPEC has they know they will have to continue to trade oil in dollars as well which leads to number 5.

5. Trading in both creates a potential danger of internal arbitrage between the two billing currencies that would potentially disrupt the mechanism or at least bring additional costs because of currency hedging that would inevitably be introduced. With oil at the price it is now, those costs would not be insignificant.

6. China makes big noise in this area but its bluster.... unless they are going to unhitch the yuan from the dollar. A move they have resisted overwhelmingly and appear to be on that track for the near future.

In 2004, this looked good on paper. But reality quickly got in the way of these theories. In December of 2005 the Iranian Oil Minister was asked this very question of the switch from dollars to euros. "At present the trading of oil in dollars is the way forward. It makes no economic sense to change that mechanism to do so would be at our own peril."

These are all valid points but do they address the economic problem that the US would have should the dollar cease to be the defacto currency of international trade?

 

[DRB]

These are all valid points but do they address the economic problem that the US would have should the dollar cease to be the defacto currency of international trade?

So?

Anyway, I'm not writing that book today.

 

[The Amish]

just heard somethin about how uncle sam makes 68 cents a gallon in tax's here in NY. Tell me again whos benifiting. W maybe a little, a tax happy government, COMPLETLY

 

[syadasti]

just heard somethin about how uncle sam makes 68 cents a gallon in tax's here in NY. Tell me again whos benifiting. W maybe a little, a tax happy government, COMPLETLY

Then you saw this too maybe?

 

[fluff]

So?

The so is that whilst your arguments may be sound they do not address the core issue that the US may be so concerned about the dollar ceasing to be the defacto international trade currency (by way of being tied to oil) that it would be prepared to invade and destroy Iraq.