since you clicked..means you must want to see how deep this thing goes. i pasted the text, but i would suggest reading this directly from the site on the link below, because it contains valuable links and reference points that cant be captured with a standard cut and paste job.
BUSH'S DEEP REASONS FOR WAR ON IRAQ: OIL, PETRODOLLARS, AND THE OPEC EURO QUESTION
As the United States made preparations for war with Iraq, White House Press Secretary Ari Fleischer, on 2/6/03, again denied to US journalists that the projected war had "anything to do with oil." <1> He echoed Defense Minister Donald Rumsfeld, who on 11/14/02 told CBS News that "It has nothing to do with oil, literally nothing to do with oil."
Speaking to British MPs, Prime Minister Tony Blair was just as explicit: "Let me deal with the conspiracy theory idea that this is somehow to do with oil. There is no way whatever if oil were the issue that it would not be infinitely simpler to cut a deal with Saddam...." (London Times 1/15/03)
Nor did Bush's State of the Union Message, or Colin Powell's address to the United Nations Security Council, once mention the word "oil." Instead the talk was (in the president's words) of "Iraq's illegal weapons programs, its attempts to hide those weapons from inspectors, and its links to terrorist groups."
However our leaders are not being candid with us. Oil has been a major US concern about Iraq in internal and unpublicized documents, since the start of this Administration, and indeed earlier. As Michael Renner has written in Foreign Policy in Focus, February 14, 2003, "Washington's War on Iraq is the Lynchpin to Controlling Persian Gulf Oil."
But the need to dominate oil from Iraq is also deeply intertwined with the defense of the dollar. Its current strength is supported by OPEC's requirement (secured by a secret agreement between the US and Saudi Arabia) that all OPEC oil sales be denominated in dollars. This requirement is currently threatened by the desire of some OPEC countries to allow OPEC oil sales to be paid in euros.
The Internally Stated US Goal of Securing the Flow of Oil from the Middle East
As early as April 1997, a report from the James A. Baker Institute of Public Policy at Rice University addressed the problem of "energy security" for the United States, and noted that the US was increasingly threatened by oil shortages in the face of the inability of oil supplies to keep up with world demand. In particular the report addressed "The Threat of Iraq and Iran" to the free flow of oil out of the Middle East. It concluded that Saddam Hussein was still a threat to Middle Eastern security and still had the military capability to exercise force beyond Iraq's borders.
The Bush Administration returned to this theme as soon as it took office in 2001, by adopting, some say commissioning, a second report from the same Institute. (This Task Force Report was co-sponsored by the Council on Foreign Relations in New York, another group historically concerned about US access to overseas oil resources.)
As reported by the Scotland Sunday Herald (10/6/02),
"President Bush's Cabinet agreed in April 2001 that `Iraq remains a destabilising influence to the flow of oil to international markets from the Middle East' and because this is an unacceptable risk to the US `military intervention' is necessary.
"Vice-president Dick Cheney, who chairs the White House Energy Policy Development Group, commissioned a report on `energy security' from the Baker Institute for Public Policy, a think-tank set up by James Baker, the former US secretary of state under George Bush Snr.
"The report, Strategic Energy Policy Challenges For The 21st Century, concludes: `The United States remains a prisoner of its energy dilemma. Iraq remains a de-stabilising influence to ... the flow of oil to international markets from the Middle East. Saddam Hussein has also demonstrated a willingness to threaten to use the oil weapon and to use his own export programme to manipulate oil markets. Therefore the US should conduct an immediate policy review toward Iraq including military, energy, economic and political/ diplomatic assessments. `The United States should then develop an integrated strategy with key allies in Europe and Asia, and with key countries in the Middle East, to restate goals with respect to Iraqi policy and to restore a cohesive coalition of key allies.'
"Baker who delivered the recommendations to Cheney, the former chief executive of Texas oil firm Halliburton, was advised by Kenneth Lay, the disgraced former chief executive of Enron, the US energy giant which went bankrupt after carrying out massive accountancy fraud."
The Unstated US Goals of Increasing the Flow of Oil from the Middle East, and US Dominance of the Area
Behind the acknowledged concern about the "free flow" of Persian Gulf oil are other motives. Following the recommendations of the Task Force Report, the Bush administration wishes to increase international (which may well turn out to mean US) investment in the under-developed Iraq oilfields. On 1/16/03 the Wall Street Journal reported that officials from the White House, State Department, and Department of Defense have been meeting informally with executives from Halliburton, Schlumberger, ExxonMobil, ChevronTexaco and ConocoPhillips to plan the post-war expansion of oil production from Iraq (whose oilfields were largely held by US companies prior to their nationalization). The Journal story has since been denied by Administration officials; but, as the Guardian noted on 1/27/03, "It stretches credulity somewhat to imagine that the subject has never been broached." <2>
It is worth pointing out that Saddam Hussein already has offered exploratory concessions (which remained inactive because of the UN sanctions) to France, China, Russia, Brazil, Italy, and Malaysia. If Saddam is replaced by a new client regime, it seems likely that these concessions will be superseded, although there are reports that the US has offered France, Russia and China a share of post-war Iraqi oil, as an inducement to get their support in the Security Council. <3> Last September former CIA Chief Woolsey threatened in the Washington Post (9/15/02) that the price for participation by France and Russia in the post-war Iraq oil bonanza should be their support for "regime change." <4> It would not take much of such menacing talk from official sources to turn the Bush campaign against Iraq into a campaign against Europe (see Postscript).
Iraq's proven oil reserves are 113 billion barrels, the second largest in the world after Saudi Arabia, and eleven percent of the world's total. The total reserves could be 200 million barrels or more, all of it relatively easy and cheap to extract. Thus increasing Iraqi oil production will diminish the market pressure on oil-importing countries like the US. It will also weaken the power of OPEC to influence oil markets by decisions to restrict output. Indeed, were Iraqi oil production to expand to near its capacity, the quotas established by OPEC would cease to be honored in today's market. <5>
But the US is not just interested in oil from Iraq, it is concerned to maintain political dominance over all the oil-producing countries of the region. Secretary of State Colin Powell gave a glimpse of US intentions when he told the Senate Foreign Relations Committee on February 6 that success in the Iraq war "could fundamentally reshape that region in a powerful, positive way that will enhance U.S. interests." In conceding that it will be necessary to station US troops in occupied Iraq for the foreseeable future, the US is serving notice to Iran and to Saudi Arabia (both of which were once secure bases for US troops but are so no longer) that the US will reassert its presence as the dominant military power in the region.
The Unstated US Goal of Preserving Dollar Hegemony Over the Global Oil Market
Dominance of Middle Eastern oil will mean in effect maintaining dollar hegemony over the world oil economy. Given its present strategies, the US is constrained to demand no less. As I explain in this extract from my book, Drugs, Oil, and War, the present value of the US dollar, unjustified on purely economic grounds, is maintained by political arrangements, one of the chief of which is to ensure that all OPEC oil purchases will continue to be denominated in US dollars. (This commitment of OPEC to dollar oil sales was secured in the 1970s by a secret agreement between the US and Saudi Arabia, before the two countries began to drift apart over Israel and other issues.)
The chief reason why dollars are more than pieces of green paper is that countries all over the world need them for purchases, principally of oil. This requires them in addition to maintain dollar reserves to protect their own currency; and these reserves, when invested, help maintain the current high levels of the US securities markets.
As Henry Liu has written vividly in the online Asian Times (4/11/02),
"World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy. The world's interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies. To prevent speculative and manipulative attacks on their currencies, the world's central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world's central banks to acquire and hold more dollar reserves, making it stronger. 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 recycling of petro-dollars is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973.
"By definition, dollar reserves must be invested in US assets, creating a capital-accounts surplus for the US economy. Even after a year of sharp correction, US stock valuation is still at a 25-year high and trading at a 56 percent premium compared with emerging markets."
But central bankers around the world do not expect either the US dollar or the US stock markets to sustain their current levels. As William Greider in The Nation (9/23/02) has pointed out:
"US economy's net foreign indebtedness--the accumulation of two decades of running larger and larger trade deficits--will reach nearly 25 percent of US GDP this year, or roughly $2.5 trillion. Fifteen years ago, it was zero. Before America's net balance of foreign assets turned negative, in 1988, the United States was a creditor nation itself, investing and lending vast capital to others, always more than it borrowed. Now the trend line looks most alarming. If the deficits persist around the current level of $400 billion a year or grow larger, the total US indebtedness should reach $3.5 trillion in three years or so. Within a decade, it would total 50 percent of GDP."
There is also a major potential threat to the overpriced dollar in Japan's unresolved deflationary crisis. As observers like Lawrence A. Joyce have commented, the dollar would take a major pummeling if the Japanese government (as seems quite possible) were suddenly required to fulfil its legal obligations to bail out failed Japanese banks (which could easily happen if a sustained scarcity of oil were to keep oil prices at $40 a barrel or higher):
"There is only one place where the Japanese government can get enough money to bail out its banking system: The Japanese government owns about 15% of our U.S. Treasury securities. And it would have to start selling them if it found itself facing a major banking crisis.
"That would send the already ailing dollar down even further. And the initiation of a sale of our Treasury securities by Japan, of course, would immediately trigger a worldwide stampede to do the same before the securities become worth only a fraction of what they were purchased for. At the same time, interest rates in the U.S. would immediately go through the roof."
Washington is of course aware of these problems, and believes that overwhelming military strength and the will to use it supply the answer, persuading or forcing other countries to support the dollar at its artificial level as the key to their own security. In an article entitled "Asia: the Military-Market Link," and published by the U.S. Naval Institute in January 2002, Professor Thomas Barnett of the US Naval War College, wrote: "We trade little pieces of paper (our currency, in the form of a trade deficit) for Asia's amazing array of products and services. We are smart enough to know this is a patently unfair deal unless we offer something of great value along with those little pieces of paper. That product is a strong US Pacific Fleet, which squares the transaction nicely."
There is some merit to this argument with respect to friendly countries like Japan, whose defense costs have been lowered by the US presence in Asia. But of course the Islamic countries of the world are less likely to appreciate the "great value" of a threatening US presence. Instead they are more likely to follow the example of Malaysian Prime Minister Mahathir Mohamad, and turn to the Islamic gold dinar as a way to diminish dollar hegemony in world markets and increase the power of Islamic nations to challenge US policies.
The United States has at present little reason to fear a challenge to the dollar from Malaysia. But Malaysia is an Islamic country; and the US has every reason to fear a similar challenge from the Islamic nations in OPEC, were they to force OPEC to cease OPEC oil sales in dollars, and denominate them instead in euros.
The Unstated US Goal of Preserving Dollar Hegemony Against Competition from the Euro
As noted in a recent article by W. Clark, "The Real But Unspoken Reasons for the Iraq War", the OPEC underpinning for the US dollar has shown signs of erosion in recent years. Iraq was one of the first OPEC countries, in 2000, to convert its reserves from dollars to euros. At the time a commentator for Radio Free Europe/Radio Liberty predicted that Saddam's political act "will cost Iraq millions in lost revenue." In fact Iraq has profited handsomely from the 17 percent gain in the value of the euro against the dollar in that time.
Other countries have gradually been climbing on to the euro bandwagon. An article in the Iran Financial News, 8/25/02, revealed that more than half of Iran's Forex Reserve Fund assets had been converted from dollars to euros. In 2002 China began diversifying its currency reserves away from dollars into euros. According to Business Week (2/17/03) Russia's Central Bank in the past year has doubled its euro holdings to 20 percent of its $48 billion foreign exchange reserves. And for a very good reason, according to its First Deputy Chairman Oleg Vyugin: "Returns on dollar instruments are very low now. Other currency instruments pay more."
Business Week continues:
`The story is the same across the globe. Money traders say that institutions as diverse as Bank of Canada, People's Bank of China, and Central Bank of Taiwan are giving more weight to the European currency. By the end of this year, they predict, the euro could account for 20% of global foreign currency reserves, which today amount to a cool $2.4 trillion. Little more than a year ago, the euro made up just 10%. "No one is saying that the euro's going to replace the dollar as the premier reserve currency," says Michael Klawitter, a currency strategist at WestLB Research in London. "But it will increase in importance for many central banks."...
`The shift to the euro has big implications for the foreign exchange markets and the U.S. and European economies. Currency specialists say the yawning U.S. current account deficit, now at 5%, is bound to drive the dollar down further, and the euro still higher, over the next two to four years. Although the greenback may stage a short-term recovery once the looming war with Iraq is over, predictions are that it will then continue its downward trend, and that central banks will play their part in the descent. "Even if central banks increase their euro holdings by just a few percent, it will have a major impact in the markets," says Klawitter. "We're talking many billions of dollars."'
If not deterred, OPEC could follow suit. Libya has been urging for some time that oil be priced in euros rather than dollars. Javad Yarjani, an Iranian senior OPEC official, told a European Union seminar in April 2002 that, despite the problems raised by such a conversion, "I believe that OPEC will not discount entirely the possibility of adopting euro pricing and payments in the future."
Meanwhile Hugo Chavez has been taking Venezuelan oil out of the petrodollar economy by bartering oil directly for commodities from thirteen other third world countries. Although this has not yet qualified Venezuela for official membership in Bush's "axis of evil," the heavy hand of the Bush Administration in the recent coup attempt against Chavez was only too obvious. (See Observer, 4/21/02, for details about the roles of US officials Elliot Abrams, Otto Reich, and John Negroponte.) <5>
Conclusion: How Should the US Be Addressing These Real Problems?
To conclude, the Bush administration is not threatening Iraq out of pique or whim. The recent policies of both parties have indeed made the US vulnerable to foreign oil and petrodollar pressures. But hopefully decent Americans will protest the notion that it is appropriate to rain missiles and bombs upon civilians of another country, who have had little or nothing to do with this crisis of America's own making.
Some in addition will continue to explore avenues whereby America's oil and financial vulnerabilities can be diminished without continuing down the road to Armageddon. These problems are serious, but economists have put forward proposals for diminishing them peacefully and multilaterally. With respect to oil, Ralph Nader has just written, "The demand is simple: Stop this war before it starts and immediately establish a sane national energy security strategy." In fact one key ingredient of such a strategy, restriction of demand, can be found in saner parts of the Baker Institute reports that the Bush administration has so far chosen to ignore.
But an energy strategy for the United States must be addressed in the larger context of an economic and financial restructuring of global institutions and currency flows. With respect to the more esoteric financial problems of the dollar, the economist and futurist Hazel Henderson has written that "My recommendations for reforming current international institutions, revitalizing the UN and expanding civic society are summarized in Beyond Globalization (1999). A more balanced world order must center on reforming global finance, taxing currency exchange and reducing the dollar's unsustainable role as the world's de facto reserve currency (which is destructive for all countries -- even the US itself). I favor a global reserve currency regime based on the parity of the US dollar and the euro. The fundamentals in the USA and the EU suggest that the G-8 has an opportunity to peg the dollar and the euro into a trading band. This, together with the new issue of SDR's . proposed by all the IMF country members, promoted by George Soros and opposed only by the USA, would lend to more stable currency markets."
Without endorsing these specific proposals, I wish to second two rather obvious principles:
1) The problems of global financial instability must be addressed. As George Soros, famed as the man who broke the British pound in 1992, wrote later in the Financial Times,” "To argue that financial markets in general, and international lending in particular, need to be regulated is likely to outrage the financial community. Yet the evidence for just that is overwhelming."
2) A multilateral approach to these core problems is the only way to proceed. The US is strong enough to dominate the world militarily. Economically it is in decline, less and less competitive, and increasingly in debt. The Bush peoples' intention appears to be to override economic realities with military ones, as if there were no risk of economic retribution. They should be mindful of Britain's humiliating retreat from Suez in 1956, a retreat forced on it by the United States as a condition for propping up the failing British pound.
America's influence in the world has up to now been based largely on good will generated by its willingness to resolve matters multilaterally. This legacy of good will is being squandered recklessly, as US officials insult European leaders and steer NATO towards irreconcilable disagreement.
The assumption seems to be that America does not need Europe and can afford to break up an entente that has endured since World War II. The risks of such arrogance are explored in a separate Postscript.
<1> Ari Fleischer Press Briefing of February 6, 2003:
Q Since you speak for the President, we have no access to him, can you categorically deny that the United States will take over the oil fields when we win this war? Which is apparently obvious and you're on your way and I don't think you doubt your victory. Oil -- is it about oil?
MR. FLEISCHER: Helen, as I've told you many times, if this had anything to do with oil, the position of the United States would be to lift the sanctions so the oil could flow. This is not about that. This is about saving lives by protecting the American people....
Q There are reports that we've divided up the oil already, divvied it up with the Russians and French and so forth. Isn't that true?....
MR. FLEISCHER: No, there's no truth to that, that we would divide up the oil fields.
(Concerning Mr. Fleischer's second answer, see the next two footnotes -- PDS.)
For an exhaustive rebuttal of a similar statement by Ari Fleischer on 10/30/02, see Larry Chin, "The Deep Politics of Regime Removal in Iraq", onlinejournal.com.
<2> An extremely interesting news item last October in Alexander's oilandgas.com revealed that the US was planning not only for the post-war exploitation of Iraq's oil reserves, but for Iraq's relationship to OPEC as well:
"30-10-02 The US State Department has pushed back its planned meeting with Iraqi opposition leaders on exploiting Iraq's oil and gas reserves after a US military offensive removes Saddam Hussein from power to early December. According to a source at the State Department, all the desired participants are not yet available.
"The Bush administration wants to have a working group of 12 to 20 people focused on Iraqi oil and gas to be able to recommend to an interim government ways of restoring the petroleum sector following a military attack in order to increase oil exports to partially pay for a possible US military occupation government -- further fuelling the view that controlling Iraqi oil is at the heart of the Bush campaign to replace Hussein with a more compliant regime. (Emphasis added -- PDS)....
"According to the source, the working group will not only prepare recommendations for the rehabilitation of the Iraqi petroleum sector post-Hussein, but will address questions regarding the country's continued membership in OPEC and whether it should be allowed to produce as much as possible or be limited by an OPEC quota, and it will consider whether to honour contracts made between the Hussein government and foreign oil companies, including the $ 3.5 bn project to be carried out by Russian interests to redevelop Iraq's oilfields, which, along with numerous other development projects, has been thwarted by United Nations sanctions.
<3> "Oil firms wait as Iraq crisis unfolds" by Robert Collier, San Francisco Chronicle,9/29/02:
`Iraqi opposition leaders suggest that unless France, Russia and China support the U.S. line in the Security Council, their oil companies may find themselves blacklisted.
`"We will examine all the contracts that Saddam Hussein has made, and we will cancel all those that are not in the interest of the Iraqi people and will reopen bidding on them," said Faisal Qaragholi, operations officer of the Iraqi National Congress, the opposition coalition based in London that plays a central role in the American anti-Hussein strategy.
`Ahmed Chalabi, the INC leader, has gone even further, proposing the creation of consortium of American companies to develop Iraq's oil fields.'
<4> As the Asia Times reported on 10/21/02,
`The war of positioning for a possible post-Saddam Iraqi environment is getting more ruthless by the minute. American oil conglomerates are openly courting representatives of the Iraqi National Congress (INC), the umbrella opposition. The darling of Exxon Mobil and Chevron Texaco is Ahmed Chalabi, US vice President Dick Cheney's pal and major contender for the title of Iraq's number one opposition figure. Chalabi, the INC leader, has already stressed on the record that he favors the creation of a "US-led consortium to develop Iraqi oil fields. American companies will have a big shot at Iraqi oil."
`To widespread doubts about how a pro-American post-Saddam government would respect contracts signed with non-American oil giants, the INC has reassured all players - mostly Russian and European - that the new post-Saddam administration will honor all its PSAs.
`The Future of Iraq Group, a State Department task force, officially is not talking about oil - which sounds like a joke. And there's also no official confirmation that oil has been a key issue in the current hardcore Security Council negotiations between the US and Britain, on one side, and France, Russia and China on the other. But it is obviously not by historical accident that oil companies from these five permanent Security Council members are all positioning themselves for the post-Saddam environment.
`People like former CIA supremo James Woolsey are not even disguising Washington's plan to turn Iraq into an American protectorate with an Arab Hamid Karzai al-la Afghanistan eager to open the oil taps for American oil giants. Woolsey had been openly saying that if France and Russia contributed to "regime change", their oil companies would be able to "work together" with the new regime and with American companies. Otherwise, they would be left contemplating passing cargoes in the Gulf.'
<5> Note that the true issue here is not just access to Iraq oil, but control over it. As Michael Parenti reminds us, in 1998, when the UN allowed Iraq to increase its exports into an already over-supplied oil market, this was perceived as a threat to US interests:
`The San Francisco Chronicle (22 February 1998) headlined its story "IRAQ'S OIL POSES THREAT TO THE WEST." In fact, Iraqi crude poses no threat to "the West" only to Western oil investors. If Iraq were able to reenter the international oil market, the Chronicle reported, "it would devalue British North Sea oil, undermine American oil production and---much more important---it would destroy the huge profits which the United States stands to gain from its massive investment in Caucasian oil production, especially in Azerbaijan."'
<5> In August 2000 Chavez met with Saddam Hussein in Baghdad, the first dead of state to visit him since the 1991 Gulf War. Chavez told the press later that "We spoke at length on how to boost the role of OPEC." This was part of an extended Chavez tour to bolster OPEC unity against US-led pressure to lower oil prices, then at nearly $30 a barrel.