• Iraq war was to shake up middle east...

Barry, cyberman This link demonstrates that planners in the US were well aware of the dificulties that the US faced in Iran, Iraq and the ME (actually the persian Gulf) in general in 1997: The report was published in 1997  so some of the numbers are dated (by 2004 US oil imports from Persian Gulf had risen to 20% of total US consumption -from the 10% in 1997 -for example)  but the report seems prescient. 

These are the key reccomendations: (My comments in brackets)

No doubt Barry will reply that as I cannot prove that George Bush actually read the report it had nothing to do with any-thing. (That seems to be his latest defence). To pretend that oil and geo-political considerations had nothing to do with the US invasion of Iraq is self delusion of the highest order, bordering on pathalogical.

I agree that the oil supply could be protected by economic means - but and here is the probelm for the US- they cannot afford to pay for it, China and India and Europe can. Hence the desperate attempts by the US to take it by military means.

Dalek

Negroponte lays down the law. Now let's see "He stressed that it was essential that the Iraqi parliament pass outstanding legislation, including a new oil and gas law to reassure Sunnis that receipts will be shared equally between all 18 provinces and a de-Baathification law to allow some members of Saddam Hussein's regime back into government posts"

So the Saddam regime was all right after all - "welcome back Baathists all is forgiven! And While your coming back into power how about you lean on your old enemies to pass the oil laws for us. Oh did I mention oil?? Ah how silly I meant toil. Noo we don't care about the oil at all. "

Dalek

US warns Iraq to speed up political progress

Published: Sunday December 2, 2007

Petrodollar Warfare: Dollars, Euros and the Upcoming Iranian Oil Bourse

Similar to the Iraq war, military operations against Iran relate to the macroeconomics of ‘petrodollar recycling’ and the unpublicized but real challenge to U.S. dollar supremacy from the euro as an alternative oil transaction currency.

It is now obvious the invasion of Iraq had less to do with any threat from Saddam’s long-gone WMD program and certainly less to do to do with fighting International terrorism than it has to do with gaining strategic control over Iraq’s hydrocarbon reserves and in doing so maintain the U.S. dollar as the monopoly currency for the critical international oil market. Throughout 2004 information provided by former administration insiders revealed the Bush/Cheney administration entered into office with the intention of toppling Saddam Hussein.[1][2]

Candidly stated, ‘Operation Iraqi Freedom’ was a war designed to install a pro-U.S. government in Iraq, establish multiple U.S military bases before the onset of global Peak Oil, and to reconvert Iraq back to petrodollars while hoping to thwart further OPEC momentum towards the euro as an alternative oil transaction currency (i.e. “petroeuro”).[3] However, subsequent geopolitical events have exposed neoconservative strategy as fundamentally flawed, with Iran moving towards a petroeuro system for international oil trades, while Russia evaluates this option with the European Union.

More to come in a minute or two...

Petrodollar Warfare

Oil, Iraq and the Future of the Dollar

William R. Clark

The invasion of Iraq may well be remembered as the first oil currency war. Far from being a response to 9-11 terrorism or Iraq's alleged weapons of mass destruction, Petrodollar Warfare argues that the invasion was precipitated by two converging phenomena: the imminent peak in global oil production, and the ascendance of the euro currency.

Energy analysts agree that world oil supplies are about to peak, after which there will be a steady decline in supplies of oil. Iraq, possessing the world's second largest oil reserves, was therefore already a target of U.S. geostrategic interests. Together with the fact that Iraq had switched its oil export currency to euros -- rather than U.S. dollars -- the Bush administration's unreported aim was to prevent further OPEC momentum in favor of the euro as an alternative oil transaction currency standard.

Petrodollar Warfare

Oil, Iraq and the Future of the Dollar

William R. Clark

The invasion of Iraq may well be remembered as the first oil currency war. Far from being a response to 9-11 terrorism or Iraq's alleged weapons of mass destruction, Petrodollar Warfare argues that the invasion was precipitated by two converging phenomena: the imminent peak in global oil production, and the ascendance of the euro currency.

Energy analysts agree that world oil supplies are about to peak, after which there will be a steady decline in supplies of oil. Iraq, possessing the world's second largest oil reserves, was therefore already a target of U.S. geostrategic interests. Together with the fact that Iraq had switched its oil export currency to euros -- rather than U.S. dollars -- the Bush administration's unreported aim was to prevent further OPEC momentum in favor of the euro as an alternative oil transaction currency standard.

Venezuela, Oil Producers Buy Euro as Dollar, Oil Fall

By Agnes Lovasz and Daniel Kruger

Dec. 18 (Bloomberg) -- Venezuelan leader Hugo Chavez is directing a growing share of the country's oil profits into euros as the dollar and crude prices fall.

The dollar, down 9.5 percent against the euro this year, may face more pressure in 2007 because Venezuela and oil producers from the United Arab Emirates to Indonesia plan to funnel more money into the single European currency.

``The U.S. dollar has suffered a long process of deterioration,'' Domingo Maza Zavala, one of seven board members at the central bank of Venezuela, said in a Dec. 14 interview. ``The diversification strategy started this year.''

Banco Central de Venezuela has slashed the percentage of its $35.9 billion worth of reserves invested in dollars and gold to 80 percent from 95 percent a year ago, said Maza Zavala. The country, the world's fifth-largest oil supplier, has boosted its euro holdings to 15 percent, from less than 5 percent in the same period.

The dollar has slumped against the European currency in 2006 as growth in the euro region outpaced the U.S. for the first time in five years. The dollar today fell against the euro to $1.3094 as of 6:55 a.m. in New York. The U.S. currency is little changed versus the yen this year, and currently trading at 117.81 yen.

Indonesia Buys Euros

Bank Indonesia is boosting euro holdings, said Senior Deputy Governor Miranda S Goeltom in a Dec. 13 interview in Jakarta. Indonesia has $39.9 billion in reserves. Sultan Bin Nasser al- Suwaidi, the governor of the Central Bank of the UAE, last month said he was considering when to shift as much as 8 percent of the nation's $24.9 billion in reserves into euros.

The central banks are changing policy ``because the oil price has come down a long way and the U.S. dollar has been declining,'' said Michael Derks, chief markets strategist at Arch Financial Products LLP, a London-based hedge fund. ``The euro stands to benefit.''

The Organization of Petroleum Exporting Countries, which produces 40 percent of the world's crude oil, said at a Dec. 14 meeting in Abuja, Nigeria, that it would cut output by 500,000 barrels a day to boost prices. Crude oil for January delivery fell 36 cents, or 0.6 percent, to $63.07 a barrel in after-hours electronic trading on the New York Mercantile Exchange. Prices have fallen from a high of $78.40 in mid-July.

Crude is priced in dollars and the U.S. is the biggest consumer, importing around $400 million worth of the fuel a day in 2005, according to data from BP Plc, Europe's second-biggest oil company.

Oil Currency Geopolitics: Europe, China, Iran and the United States

Understanding these underlying issues of global oil production and oil transaction currency is critical if one wishes to understand recent events in Iraq — and current U.S. antagonism towards Iran.  Although completely censored by the five U.S. media conglomerates, in mid-2003 Iran broke from traditional and began accepting euros as payment for it oil exports from its E.U. and Asian customers.

Once the petrodollar recycling system begins to erode via the emergence of a broad-based petroeuro transaction exchange, the Federal Reserve will no longer be able to effortlessly expand its debt-financing via issuance of Treasury bills, and the dollar’s international demand/liquidity value will begin to fall. This will ultimately force the U.S. to significantly change its current tax, debt, trade, and energy policies, all of which are severely unbalanced. 

Saddam Hussein attempted a similar bold step back in 2000, and it remains a quasi-state secret within American society that the major U.S. petroleum conglomerates continued to purchase about 65% of Iraqi’s oil exports from 2001 to early 2003 – but with euros – not dollars.  As I hypothesized in 2002, this was unacceptable, and Saddam’s decision was ultimately met with a devastating reaction from the U.S. government via a “shock and awe” campaign   Upon toppling Iraq, the Bush administration immediately dismantled the Oil-For-Food program and quietly re-converted Iraq’s oil transaction currency back to the U.S. dollar – which had the rather adverse effect of wiping out 13% of Iraq’s oil export profits due to the euro’s higher valuation to the dollar in mid-2003.   While Iraq was given no choice about using U.S. dollars for its oil sales, Iran is about to commit a far greater “offense” than Iraq’s switch to euros.

The ugly truth of the matter is that if China ever becomes sufficiently perturbed by our current antagonistic naval activities (i.e. Summer Pulse ’04) , they could afford to stop buying billions of our debt every month, or if really upset by a US aerial attack on their principle oil export partner (Iran), they could afford to show their displeasure by suddenly unloading perhaps $300 billion of their surplus dollars.  The immediate effect would create a global dollar crisis, if not a dollar crash, likely forcing Russia and OPEC to abandon the dollar for a monopoly “petroeuro” oil pricing and transaction currency.  A punitive, collective switch, would ultimately render the US Navy in a similar state to the once mighty Soviet Fleet – rusting in port due to a collapsed economy. 

China threatens 'nuclear option' of dollar sales

By Ambrose Evans-Pritchard

Last Updated: 8:39pm BST 10/08/2007

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.

Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.

He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.

"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.

The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".

She said foreign control over 44pc of the US national debt had left America acutely vulnerable.

Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.

"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.

A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.

The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.

Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".

Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.

A longer quote from Clarks Story...

Petrodollar Warfare & The Euro

During an important speech in April 2002, Mr. Javad Yarjani, an OPEC executive, described three pivotal events that would facilitate an OPEC transition to euros. He stated this would be based on (1) if and when Norway's Brent crude is re-dominated in euros, (2) if and when the U.K. adopts the euro, and (3) whether or not the euro gains parity valuation relative to the dollar, and the EU's proposed expansion plans were successful. Notably, both of the later two criteria have transpired: the euro's valuation has been above the dollar since late 2002, and the euro-based E.U. enlarged in May 2004 from 12 to 22 countries. Despite recent "no" votes by French and Dutch voters regarding a common E.U. Constitution, from a macroeconomic perspective, these domestic disagreements do no reduce the euro currency's trajectory in the global financial markets – and from Russia and OPEC's perspective – do not adversely impact momentum towards a petroeuro. In the meantime, the U.K. remains uncomfortably juxtaposed between the financial interests of the U.S. banking nexus (New York/Washington) and the E.U. financial centers (Paris/Frankfurt).

 The most recent news reports indicate the oil bourse will start trading on March 20, 2006, coinciding with the Iranian New Year. The implementation of the proposed Iranian oil Bourse – if successful in utilizing the euro as its oil transaction currency standard – essentially negates the previous two criteria as described by Mr. Yarjani regarding the solidification of a petroeuro system for international oil trades. It should also be noted that throughout 2003-2004 both Russia and China significantly increased their central bank holdings of the euro, which appears to be a coordinated move to facilitate the anticipated ascendance of the euro as a second World Reserve Currency.  China's announcement in July 2005 that is was re-valuing the yuan/RNB was not nearly as important as its decision to divorce itself form a U.S. dollar peg by moving towards a "basket of currencies" – likely to include the yen, euro, and dollar. Additionally, the Chinese re-valuation immediately lowered their monthly imported "oil bill" by 2%, given that oil trades are still priced in dollars, but it is unclear how much longer this monopoly arrangement will last.

Furthermore, the geopolitical stakes for the Bush administration were raised dramatically on October 28, 2004, when Iran and China signed a huge oil and gas trade agreement (valued between $70 - $100 billion dollars.)  It should also be noted that China currently receives 13% of its oil imports from Iran. In the aftermath of the Iraq invasion, the U.S.-administered Coalition Provisional Authority (CPA) nullified previous oil lease contracts from 1997-2002 that France, Russia, China and other nations had established under the Saddam regime. The nullification of these contracts worth a reported $1.1 trillion created political tensions between the U.S and the European Union, Russia and China. The Chinese government may fear the same fate awaits their oil investments in Iran if the U.S. were able to attack and topple the Tehran government. Despite U.S. desires to enforce petrodollar hegemony, the geopolitical risks of an attack on Iran's nuclear facilities would surely create a serious crisis between Washington and Beijing.

It is increasingly clear that a confrontation and possible war with Iran may transpire during the second Bush term. Clearly, there are numerous tactical risks regarding neoconservative strategy towards Iran. First, unlike Iraq, Iran has a robust military capability. Secondly, a repeat of any "Shock and Awe" tactics is not advisable given that Iran has installed sophisticated anti-ship missiles on the Island of Abu Musa, and therefore controls the critical Strait of Hormuz – where all of the Persian Gulf bound oil tankers must pass. The immediate question for Americans? Will the neoconservatives attempt to intervene covertly and/or overtly in Iran during 2005 or 2006 in a desperate effort to prevent the initiation of euro-denominated international crude oil sales? Commentators in India are quite correct in their assessment that a U.S. intervention in Iran is likely to prove disastrous for the United States, making matters much worse regarding international terrorism, not to the mention potential effects on the U.S. economy.

…If it[U.S.] intervenes again, it is absolutely certain it will not be able to improve the situation…There is a better way, as the constructive engagement of Libya's Colonel Muammar Gaddafi has shown...Iran is obviously a more complex case than Libya, because power resides in the clergy, and Iran has not been entirely transparent about its nuclear programme, but the sensible way is to take it gently, and nudge it to moderation. Regime change will only worsen global Islamist terror, and in any case, Saudi Arabia is a fitter case for democratic intervention, if at all.

A successful Iranian bourse will solidify the petroeuro as an alternative oil transaction currency, and thereby end the petrodollar's hegemonic status as the monopoly oil currency. Therefore, a graduated approach is needed to avoid precipitous U.S. economic dislocations. Multilateral compromise with the EU and OPEC regarding oil currency is certainly preferable to an 'Operation Iranian Freedom,' or perhaps another CIA-backed coup such as operation "Ajax" from 1953. Despite the impressive power of the U.S. military, and the ability of our intelligence agencies to facilitate 'interventions,' it would be perilous and possibly ruinous for the U.S. to intervene in Iran given the dire situation in Iraq. The Monterey Institute of International Studies warned of the possible consequences of a preemptive attack on Iran's nuclear facilities:

An attack on Iranian nuclear facilities…could have various adverse effects on U.S. interests in the Middle East and the world. Most important, in the absence of evidence of an Iranian illegal nuclear program, an attack on Iran's nuclear facilities by the U.S. or Israel would be likely to strengthen Iran's international stature and reduce the threat of international sanctions against Iran.

Synopsis:

It is not yet clear if a U.S. military expedition will occur in a desperate attempt to maintain petrodollar supremacy. Regardless of the recent National Intelligence Estimate that down-played Iran's potential nuclear weapons program, it appears increasingly likely the Bush administration may use the specter of nuclear weapon proliferation as a pretext for an intervention, similar to the fears invoked in the previous WMD campaign regarding Iraq. If recent stories are correct regarding Cheney's plan to possibly use a another 9/11 terrorist attack as the pretext or casus belli for a U.S. aerial attack against Iran, this would confirm the Bush administration is prepared to undertake a desperate military strategy to thwart Iran's nuclear ambitions, while simultaneously attempting to prevent the Iranian oil Bourse from initiating a euro-based system for oil trades.

However, as members of the U.N. Security Council; China, Russia and E.U. nations such as France and Germany would likely veto any U.S.-sponsored U.N. Security Resolution calling the use of force without solid proof of Iranian culpability in a major terrorist attack. A unilateral U.S. military strike on Iran would isolate the U.S. government in the eyes of the world community, and it is conceivable that such an overt action could provoke other industrialized nations to strategically abandon the dollar en masse. Indeed, such an event would create pressure for OPEC or Russia to move towards a petroeuro system in an effort to cripple the U.S. economy and its global military presence. I refer to this in my book as the "rogue nation hypothesis."

While central bankers throughout the world community would be extremely reluctant to 'dump the dollar,' the reasons for any such drastic reaction are likely straightforward from their perspective – the global community is dependent on the oil and gas energy supplies found in the Persian Gulf. Hence, industrialized nations would likely move in tandem on the currency exchange markets in an effort to thwart the neoconservatives from pursuing their desperate strategy of dominating the world's largest hydrocarbon energy supply. Any such efforts that resulted in a dollar currency crisis would be undertaken – not to cripple the U.S. dollar and economy as punishment towards the American people per se – but rather to thwart further unilateral warfare and its potentially destructive effects on the critical oil production and shipping infrastructure in the Persian Gulf. Barring a U.S. attack, it appears imminent that Iran's euro-denominated oil bourse will open in March 2006. Logically, the most appropriate U.S. strategy is compromise with the E.U. and OPEC towards a dual-currency system for international oil trades.

Of all the enemies to public liberty war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes...known instruments for bringing the many under the domination of the few…No nation could preserve its freedom in the midst of continual warfare. 

Before the war to liberate the Peoples' of Iraq directly, and the peoples of the region indirectly was launched, I expressed my view that despite the good that such a war was that I could not see how the U.S. ruling elite would avoid “bankrupting” their state in the long term!  Similar to Britain, after WW2 as an example.  The war was unavoidable as the old policies had led to disaster on 9/11 - with the prospect that things could get a lot worse, but just because it was the best thing to do did not mean that all the other problems of running the last superpower would disappear. 

The costs of the war have been massive and also after Hurricane Katrina and then the sub-prime market crash the U.S. ruling class are in quite a state.  The cost of oil importation is up, and their currency has fallen in value and they have had to raise interest rates to continue the flow of international credit.  The U.S. has for years been the world's largest debtor-state.

However we are being told by sheltercrow that they launched this war to stop the shift to Euros that is nevertheless proceeding apace despite the war, or arguably, even faster because of it!  Hmm. 

The only way to square this is to claim that they didn’t know that there would have to be vast expenses involved; and that free and fair elections would have to be held; and that the independent Iraqi politicians that would form the government would act in the interests of the new Iraqi ruling class and the country broadly speaking.  Yet even I knew that so that’s not a very realistic thought.

Still this defense against the Euro theory has the great advantage of allowing the believer to continue to hold the view that Bush and his Neocon advisors are truly stupid. 

Patrickm states that the US economy is in such turmoil that they have to raise interest rates to ensure the incoming flow of international credit. After I had regained my composure I opened the business section of the Guardian Unlimited. (current edition)

Its headlines scream "US Central Bank Slashes Interest Rates." It goes on to state that  the Fed Funds rate has been reduced to 4.75% how can these finance guys get it so wrong?

No-one has been able to produce evidence to support the assertion that the US invaded Iraq, primarily or to a significant extent, in order to defeat moves to replace the dollar with the Euro as a trading currency.

Sheltercrow, your lengthy reprints do not provide evidence to substantiate the assertion but tend to repeat the claim or speculate about what has been happening since the invasion and what might happen in the near future.

I'll be on holiday from the site again, in order to do stuff in a more focused and constructive way that will hopefully reach a wider audience.

Barry

Actually Steve I don't know. 


I do know that as debt expands risk increases.  Currencies fluctuate against a background of confidence in the stability of that currency; thus the currency of some African countries, are now worthless junk and struggle is high on the agenda for those peoples!  I suppose that would be the case when your house is being demolished and you are being driven back into the bush as is the case in Zimbabwe!  In the US they are being foreclosed on rather than demolished and the Government had to step in and impose interest rate restrictions on the ‘free market’. 

All this seems like pushing a piece of string to straighten it; a problem just breaks out somewhere else.  Interest rates fall and the US $ falls.  US$ falls and US exports become more competitive.  Imports become more expensive and inflation rises.  If you are buying US $s and they are falling in value then you are loosing money on the deal.  How could buyers the day before great share market crashes get it so wrong?  The speculative part of finance capital often gets it wrong.

I have no wish to try to point score on this.  I don't know what “they” ought to do.  I would much rather try to investigate this dilemma.  It would seem that there is no clear way forward such that Steve can mock; ‘… Fed Funds rate has been reduced to 4.75% how can these finance guys get it so wrong?’ and leave it at that, as the obvious reply to what appears as currently a mistake in my position.  If that ‘mistake’ (where current practice appears to refute generally accepted theory) were not present it seems I would be being scolded and mocked about the error that would be apparent from another direction.

All the conflicting problems and the conventional tools used to address these problems is what makes the US ruling elite’s position so difficult.  We appear to be moving once more into interesting times on the global scale.

Steve have you accepted the Euro oil argument?  Or do you now believe that the Middle East is being shaken up and that this shakeup was the intention from the start?

Patrickm thanks for the invitation to address the topic of this thread but I try to stay away from issues on which I am ignorant. All I was trying to do was to point out that you had it wrong on US interests rates.

I also think that you have it wrong on the USA being "bankrupted" by the war.

As a ratio to GDP Bush G W has ramped up debt just as Regan did. If you will remember Clinton B reversed this trend. There may be a case for Clinton H to reverse the ratio of debt to GDP that the next President will inherit.

If your going to claim that the USA faces "bankruptcy" you will need to define bankruptcy and state why the war is going to be that expensive. (I seem to remember Rummy claiming that the war would be self financing)

The sub prime problem cant be system threatening based on the fact that its home loans to the poor. If there's a credit squeeze the poor my loose their homes but do you really expect any banks to fall over?

Back to my main point. Just provide me with some evidence that the USA is on the verge of bankruptcy and we will have something to discuss.

I don’t see how these vast expenses, which are primarily paid for by the vast population, have a negative return or interest for the ruling elites. Their decision or compulsion to push this country to war is not only a defense, among others, of their interest in the supremacy of the petrodollar but also a huge cash cow for themselves derived from the transfer of those vast sums to themselves as income and profit.

It appears quite simple to me.