That's One Reason The U.S. Invaded Iraq, and Will Be One Of The Reasons The U.S. Will Attack Iran.
America’s War Against Europe
By PAUL HARRIS
Courtesy Of The North Star Compass
There are many reasons for George Bush’s single-minded drive towards Baghdad. In other articles I have written, I hinted that a not so obvious reason for the drive against Iraq is Bush’s war against Europe. In fact I feel that is the primary reason for the Iraqophobia.
Whenever a nation decides to go to war, there are plans made for who is going to win and who s going to lose; no one goes to war expecting to lose, but it isn’t always the obvious target of the aggression that is the real thrust behind the war. Sometimes, it isn’t a case of what you expect to win from a war, but rather a case of what you hope someone else loses; and it doesn’t have to be your stated enemy who you hope will sustain the losses.
In this case, Bush’s hoped-for victim is the European economy. It is now robust, and is likely to become much stronger in the easily foreseeable future. Britain’s entry into the European Union is inevitable; Scandinavia will join sooner rather than later. Already, even without these countries, there will be ten new member nations in May of 2004, which will swell the GDP of the EU to about $9.6 trillion with 450 million people as against the $10.5 trillion and 280 million people in the United States. This represents a formidable competing block for the USA, but the situation is significantly more complex than what is revealed just by those numbers, and much of this hinges on the future of Iraq.
Many others have written before, as I have, that this upcoming war is about oil. To be sure, there are other reasons, but oil is the single most impelling force. Not in the way you might expect, however. It isn’t so much that there are believed to be huge untapped oil reserves in Iraq, untapped due to only outdated technology due too the trade embargo of the West, it isn’t so much American desire to get their grubby hands on that oil; it is much more a question of whose grubby hands the Americans want to keep it out of.
What precipitated all this was not September 11, nor a sudden realization that Saddam was still a nasty guy, nor just the change in the leadership in the United States. What precipitated it was Iraq’s November 6, 2000 switch to the Euro currency as the currency for its oil transactions. At the time of that switch, it might have seemed daft that Iraq was giving up such a lot of oil revenue to make a political statement. But that political statement has been made and the steady depreciation of the Dollar against the Euro since then means that Iraq has derived good profits from switching its reserve and transaction currencies. The Euro has gained about 17 per cent against the dollar since that timer, which also applies to the $10 billion held in Iraq’s United Nations "oil for food" reserve fund.
So, the question arises, as it did for George Bush, what happens if OPEC makes a sudden switch to the Euro? In a nutshell, all hell breaks loose.
At the end of World War II, an agreement was reached at the Bretton Woods Conference which pegged the value of gold at $35 per ounce and that became the international standard against which currency was measured. But, in 1971 former President Richard Nixon took the dollar off the gold standard and ever since, the dollar has been the most important global monetary instrument, and only the United States can produce them. The dollar, now a flat currency, is at a 16-year trade-weighted high, despite record US current account deficits and the status of the US as the leading debtor nation. The US national debt as of April 4, 2002 was $6,021 trillion, against the GDP of $9 trillion.
Trade between nations has become a cycle in which the USA produces dollars while the rest of the world produces things that dollars can buy. Nations no longer trade to capture comparative advantage, but rather to capture needed dollars to service the dollar-dominated foreign debts and to accumulate dollar reserves in order to sustain the exchange value of their domestic currencies. In an effort to prevent speculative and potentially harmful attacks on their currencies, those nations’ central banks must acquire and hold dollar reserves in amounts corresponding to their own currencies in circulation. This created a built-in support for a strong dollar that in turn forces the worlds’ central banks to acquire and hold even more dollar reserves, thus making the dollar stronger still.
This phenomenon is known as "dollar hegemony", which is created by the geopolitically constructed peculiarity that critical commodities, most notable oil is denominated in dollars. Everyone accepts dollars because dollars can buy oil.
The reality is that the strength of the dollar since 1956 rests on being the international reserve currency for global oil transactions (i.e. petro-dollar). The US prints hundreds of billions of these flat petro-dollars, which are then used by nation states to purchase oil and energy from OPEC producers (except presently Iraq and, to some extent Venezuela). These petro-dollars are then recycled from OPEC back into the US via Treasury Bills or other dollar-dominated assets such as US stocks, real estate etc. The recycling of the petro-dollars is the price the US has extracted since 1974 from oil-producing countries for US tolerance of the oil-exporting cartel.
Dollar reserves must be invested in US assets that produced a capital-accounts surplus for the US economy. Despite the poor market performance during 2002, US stock evaluation is still at a 25-year high and trading at a 56 per cent premium compared with emerging markets. The US capital-account surplus finances the US trade deficit.
Since it is the USA that prints the petro-dollars, they control the flow of oil. Period! When oil is dominated in dollars through the US state action and the dollar is the only flat currency for trading in oil, an argument can be made that the US essentially owns the world’s oil for free.
So what happens if OPEC as a group decided to follow Iraq’ lead and suddenly begins trading oil on the Euro standard? Economic meltdown happens! Oil-consuming nations would have to flush dollars out of their central bank reserves and replace them with the Euros. The dollar would crash in value and consequences would be those one could expect from any currency collapse and massive inflation (think of Argentina for an easy example). Foreign funds would stream out of the US stock markets and dollar dominated assets; there would be a run on the banks much like the 1930’s; the current account deficit would go into default; and so on.
And that’s just in the United States. Japan would be particularly hard hit because of its total dependence on foreign oil and incredible sensitivity to the US dollar. If Japan’s economy tumbles, so does that of many countries, especially the United States in a crescendo of dominos.
There are some good reasons for the OPEC group to follow Iraq and begin to value its oil in Euros. There seems little doubt that they would relish the opportunity to make a political statement after years of having to kowtow to the USA, but there are solid economic reasons as well.
The mighty US dollar has reigned supreme in the world since 1945, and in the last few years has gained even more ground with the economic dominance of United States. By the late 1990’s, more than four-fifths of all foreign exchange transactions, and half of all world exports were dominated by dollars. In addition, the US currency accounts for about two thirds of all official exchange reserves. The world’s dependency on US dollars to pay for trade has seen countries, which are bound to the dollar reserves, which are disproportionately higher than America’s share of global output.
It is important to note that the Euro is not at any disadvantage versus the dollar, when one compares the relative sizes of the economies involved, especially given the ongoing EU enlargement plans. Moreover, the EU has a bigger share of global trade than the US, and while the US has a huge current account deficit, the EU has a more balanced external accounts position. One of the more compelling arguments for keeping oil pricing and payments in dollars has been that the US remains a large importer of oil, despite being a substantial producer itself. But the EU is an even larger importer of oil and petroleum products than the US itself, and represents for OPEC a more attractive market, closer and less domineering.
The point of Bush’s war against Iraq, therefore, is to secure control of those oil fields and revert their valuation to dollars, then to increase production exponentially, forcing prices to drop. Finally, the point of Bush’s war is to threaten significant action against any of the oil producers who would switch to the Euro.
In the long run, then, it is not really Saddam who is the target. It is the Euro and, therefore Europe (first of all Russia – Editor). There is no way that the United States will sit idly by and let those upstart Europeans take charge of their own fate and destiny, let alone of the world’s finances.
Of course, all of this depends on Bush’s insane plan not becoming the trigger for a Third World War, as it so readily might!
NOTE: The Following Video Was Not Part Of The Above Article, But Was Independently Included By Me.
Related Information At:
1. TheDossier
2. BUSH'S DEEP REASONS FOR WAR ON IRAQ: OIL, PETRODOLLARS, AND THE OPEC EURO QUESTION
3. IT'S NOT ABOUT OIL OR IRAQ: IT'S ABOUT THE U.S. AND EUROPE GOING HEAD-TO-HEAD ON WORLD ECONOMIC DOMINANCE
4. The Real Reasons for the Upcoming War with Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth
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