Saturday, February 18, 2006

Behind the Curtains

Petrodollars : Is it the real reason for Iraq War?



It is more than two years since the first shots were fired in Iraq, by the coalition forces led by US in its war against terrorism. Not a single WMD has been found till date, which was the reason for which the war was fought in the first place. Was it the race to control the world’s dwindling oil resources that triggered this war? Or was it the way oil is being traded in the world economy? Strategic experts all over the world believe that there is more to this than what meets the eye. Many argue convincingly that this war is all about the fight between Dollar and Euro, and which currency the rest of the world uses to buy oil. For starters, there are some basic terms which I would like to bring to the attention for better assimilation. It is common knowledge that USA has trade deficit with each of its trading partners running to trillions of dollars. In simple terms, it means USA does not sell enough goods as much as it buys goods and services from other nations. It also means that the dollars it is paying for the goods and services it buys, are merely printed fiat dollars without any backing. This dollar is used by nations to buy oil and thus the value infused dollar called the petrodollar is reinvested in the American markets and US financial instruments by these oil exporters, mainly Saudi Arabia. This petrodollar cycle is made possible by two important factors. Firstly, the dollar is the reserve currency for most of the world nations. The 1944 Bretton woods agreement that created the World Bank and IMF, it was made mandatory for all loans to be denominated in dollars. Hence, all repayments are also in dollars, making it necessary for nations to keep enough dollar reserves to service their debts. Secondly, dollar is the only currency accepted by OPEC and Non OPEC nations for oil trade as on date. This loyalty towards was ensured by several secret agreements between Saudi Arabia and Nixon regime in 1974 after walking out of gold standards, in exchange for protection of the kingdom by the US military might. Headed by Saudi Arabia, all other OPEC nations kindly obliged.This ensured that all nations (notably the industrial nations) needed dollars to buy oil to fuel their economy.


With this background, it is clear how US is having an economic free lunch where all it needs to do to be an economic superpower is to keep up this dollar hegemony by having friendly regimes in oil exporting states that continues to denominate oil trade in dollars. As long as oil could be bought using only dollars, all nations however big or small, would need dollars which only USA can print. Beyond all the façade of the strong economic credentials and higher GDP growth, US economy primarily depends upon how long and how well this petrodollar cycle is maintained. Any threat to this cycle would lead to devaluation of dollar and the collapse of the US economy and economies of countries like Japan, holding a huge reserve currency in dollars owing to its enormous trade surplus. All went well, until the sick man of world economy, Europe, woke up and created Euro. The Europeans lead by France and Germany, wanted a fair share of this economic free lunch which the US was enjoying solely all these years. With an ageing population and increasing labour costs that saw bulk of manufacturing and services shifting to China and India, Europe is finding increasingly difficult to service it welfare state economic model with high pension and social security obligations. Euro was floated primarily to rival dollar as the world’s reserve currency and efforts were on to make it possible for oil exporting countries to use petroeuros.


Amongst these developments, there was Mr Saddam Hussain, defeated militarily, crippled economically with a plethora of sanctions, waiting patiently for an opportunity to strike back at the empire where it would hurt them the most. And allowing Euros for trading oil was Saddam’s response to US’s unilateral foreign policies. In Nov 2000, Saddam’s Iraq became the first oil producing nation to denominate Euro as the currency standards for oil exports. Euro appreciated in value compared to dollars and as a result, Iraq’s kitty with the UN food for oil program swelled to more than 26 billion Euros from $ 10 billion. Things started taking more unpleasant turns for US with more oil exporting countries like Malaysia and Iran openly talking about a shift to Euro. North Korea, in a desperate attempt to increase its bargaining chip, restarted its nuclear program and also became the officially converted all its currency reserves to Euros. Thus it became a part of the Axis of Evil as termed by the US. Iran was to follow suit very soon, with open discussion to trade oil in Euros. From June 2003, all oil exports from Iran to Europeon and Asian countries were required to denominated in Euros, and experts believe that Iran also actually converted 40% of its currency reserves to Euros. And, no wonder it became the third nation to be a part of the Axis of Evil. Here is a chart as to how the major events in the oil trade, lead to the fluctuation of Euros.

Another country, which circumvented this oil trade in dollars in its own way, was Venezuela. Venezuelan President Chavez worked out a barter deal with 12 latin American countries and Cuba, cutting out this petrodollar cycle, directly buying goods and services in exchange for oil. Not surprisingly, CIA engineered a coup in April 2002, to throw away a democratically elected Govt to institute a friendly regime which would serve American interests. The coup failed and when the traitors were exposed, all hands pointed to US. Interestingly, the Bush administration did not deny the allegations. So much so, for the promotion of democracy rhetoric by the US.

There was a clear and present danger to US economic interests. Luckily for the US, Osama preempted a foolish move by carrying out the 9/11 WTC bombings giving the US a much needed façade to pursue their unilateral economic policies. This also created panic in the American tax payer, who would now think twice before questioning the Bush administration’s war against terrorism. It was after all his own security for which the US govt was fighting for, he would justify himself. I have read some conspiracy theories about this WTC bombings, which some believe were orchestrated by the US Govt itself, to convince the US public of the pervading security threat. Though I take these stories with a pinch of salt, it is still worth a read.

The US eventually attacked Iraq in response to the WTC bombings. Most of Europe, notably France and Germany, did not support the war, for in effect it would mean digging the grave for the petroeuro. But the message was loud and clear. The US will protect its economic interests, even if it means waging a war to instate friendly regimes. Invasion of Iraq and reconversion of its oil exports denomination to petrodollars from Euros was a warning to other OPEC nations thinking of making a shift to Euro. The whole nuclear imbroglio of Iran, seems to have an underlying economic reason as well. Beginning mid 2006, Iran has planned to start an oil bourse to compete with the London IPE or New York NYMEX, with Euros as denominated currency for trading oil. And I there are already news reports that US is planning to attack Iran for restarting its nuclear program apparently to prevent an Islamic nuclear bomb!! A strange coincidence once more?

Why is the world public and especially the American public least informed about these underlying economic reasons for this so called war against terrorism? For an interested reader like me, the facts are very much available in the internet. But why isn’t any kind of mainstream media, be it the print or the TV, has brought out these seemingly logical reasons for the said war? Petrodollars, oil trade and things like that are least talked about in the media. Yet , they seem to me as one of the most important factors for this war. Why is the common man kept in dark? Is the American media hand in glove with hegemonistic policies of the US Govt, which ofcourse are in the overall interest of the American tax payer, though in an utterly notorious way? Why is the Indian Govt supporting these policies of US, especially those relating to Iran? Is it because the irreversible process of globalization would hit a road block, if the dollar collapses? In this dirty world of politics and international relations, there are no friends and there are no enemies. There are only self interests. Each one of nations, strive to serve their own self interests, at all costs. Some are kingmakers, like the US. Some are mere pawns like most of the NATO, serving the US interests for protection against imaginary threats. Slowly but steadily, the whole world is getting sucked into a global conflict that it can ill afford. That’s the truth.

24 comments:

anand said...

Hello Karthik

I think that is a very sound and interesting analysis of one of the key facets of the Iraq war. This point has been well highlighted in the book “Petrodollar warfare” which is a very interesting read. I think the Iraq war almost like a perfect storm, was a coming together of several key interests. To even some of the key players involved at the highest levels of US government, the reasons for this war were varied and complex. Of course, not a single one of these reasons, were the “altruistic” ones presented to the public. This is the reason, I labeled the act of going to war as “murky” in one of my earlier comments.

I would add to the mix, the influence of the “doctrine of preemption”, based on a paper authored by Richard Perle and Paul Wolfowitz (Ex-Deputy Secretary of Defense, and now president of World Bank) in the early nineties. The gist of what they said was that the optimum course of action for the US government, to protect its energy, economic and geo-political interests was to take preemptive unilateral military action wherever necessary. They argued that this was the only mechanism, to maintain the “hyper” power status, which the US had achieved at the end of the cold war. (and also allow it to survive its “hyper-debtor” status....I would venture!)

This was also coupled with the idea floated by some foreign policy thinkers, that the act of establishing a US styled democracy in the middle-east would preserve US interests (both economic and military). The idea being that this would create a pro US, pro-dollar, anti-terrorist people. I truly believe that this flawed rationale actually convinced some very influential people in the US government.

Add to this a powerful corporate lobby, comprising of various companies who stood to gain several billion dollar contracts in post war services, reconstruction and security. By many estimates post war Iraq represents atleast a $200 billion dollar private industry. It is sad, but often the most crass motive, is also the most compelling one..money. It is no secret that many major figures in the current US administration had ties to these companies. I firmly believe that the WTC/WMD rationale had been discredited long before the decision to go to war was made. And although it may have influenced the support of the people, it was not the major reason for either the timing or the target.

The more complex question that you ask I think is why countries like India, support such policies. I can only venture a few guesses. Most economists still believe that the safety and stability of the world economy, and consequently the Indian economy lies in a hedge favoring the dollar. So I think, a large part of what you see may simply be the Indian government hedging its bets, but doing so with a more favorable bet towards the dollar. I would also add to this, the fact that to a very large extent today, the lucrative outsourcing and services industry in India depends on the position of the dollar as is. I guess another way of saying that is that India wants to cut itself a piece of the very large US consumer pie, before it altogether and inevitably disappears due to fast spiraling US trade deficits. It is as Balzac once said “If a debtor is big enough then he has power over his creditors; the fatal thing is to be a small debtor”

L>T said...

After reading through this post & not spending the time it would take to check out facts.

I'm shocked that I've never heard any of this, esp. not from the Bush opposing Democrats. Maybe I wasn't listening as I tend to turn off politics.

Also, what is shocking, is that it makes sense. & if true means I am very naive when it comes to politics.

As I think about it some more. I would like to share this post w/some other people & get their reaction Esp. Repuplican Bush supporters. May I link this post to my site?

The Soul Doctor said...

@ ANAND

Thanks for a detailed and nearly comprehensive analysis.


Of course, not a single one of these reasons, were the “altruistic” ones presented to the public.

What was the "free" media doing then and now? Even after three years of war, these behind the curtain issues never find any airtime!! Thats one of my regrets.

that the act of establishing a US styled democracy in the middle-east would preserve US interests

Nothing can be more wrong than this line of thought. How long and how much US can engineer coups or make regime changes? If vietnam is anything to go by, then it is a pity that they havent learnt from history.

The opponents of war are rightly moving their peices to make this whole thing appear or turn into a islam /west conflict. And they are succeeding. US must realise that when people fight for ideologies, they fight till the death. They may die, but not before causing grevious hurt to them.

India wants to cut itself a piece of the very large US consumer pie, before it altogether and inevitably disappears due to fast spiraling US trade deficits

I think it is all linked to the civilian nuclear technologies. Nuclear energy alone can solve india's thirst for power to fuel the growing economy. It comes with a cost. And iran has not been able to deliver the promised gas.

As far as the BPOs and booming service economy, I think the west is more dependent on our cheap and skilled labour than we are dependent on them to provide bussiness to us. DO you seriously think that has there been better alternative, the chunk of BPO pie wouldnt have gone to other nations?

Inherent advantages of an english speaking educated and intelligent indian far outwiegh the other alternatives. Thats why they are here.

Thanks for detailed comments for each of my blogs. I suggest you must start a blog on your own.You have great ideas and views.

The Soul Doctor said...

@ LT

Thanks for reading this article.

You may very well post a link to this article in your blog. Even I am keen to listen to the views of the american public, republicans or democrats.

As far checking facts are concerned, I spent a week reading several articles before I posted mine. I have given links too. I have sufficient reasons to believe that this petrodollar issue seems a major cause for the war, as against what has been presented to the public.

And I took the liberty of putting a link for your blog in mine!I hope you wouldnt mind.

L>T said...
This comment has been removed by a blog administrator.
anand said...

@ Karthik

Thanks for your response and kind words! I do think of starting my own blog sometimes, but can never seem to find the time or the belief that I have enough interesting things to say!!

I think you are right in stating that currently, there are no other nations contending for the BPO pie. But if the dollar were allowed to free fall, to truly reflect its value on account of the trade deficit, I think most US companies would lose the cost benefits they get from outsourcing. It is my opinion (and this is contrary to polular belief) that there are an increasing number of people in the old "industrial" towns in america who will be willing and able to pick up these services jobs, if health care costs were not an issue. This is especially true since a very large number of manufacturing jobs in industries such as automobiles have been lost. I think that if not for the significant cost advanatage that exists today, the US companies would have sufficient incentive including geopgraphical proximity to keep these jobs in the country. Besides, US corporations have often been willing to take a hit on quality of service if it helps their bottom line. So in this respect, it definitely is in India's interest to keep the dollar afloat, since majority of their BPO clients are not european, but american corporations.

I know this is the topic of a whole other discussion!!, but thought I'd throw it out nevertheless.

L>T said...

Sucessfully linked!

I like what you said about politics & international relations. That is, no friends, no enemies, just self interest.

Human nature, eh? If there is one right way for human kind, how would we know it?

The Soul Doctor said...

@ ANAND

Let us imagine a scenario where the dollar falls. Cost of imports would go up and since america is a net importing country, cost of living would be up unquestionably. They cant follow policies of tax cuts as they are doing now, inspite of a large trade deficit.Cost of living in US would be up.

At any rate, how much ever the old population volunteers to do the jobs, they cant match the present day cost effectiveness of indian or chinese labour. Would anyone be ready to do a job for 350$ a month (which an average call centre employee earns in india) in USA? I think it is next to impossible.

with the connectivity speeds reaching astronomical levels, and the internet changing the way of life, it seems improbabale that this BPO pie would shift back to US, when US corps who would be already looking to cut costs in case of an economic slowdown can get things done far cheaper.

On the contrary, they can enact laws to make it difficult for countries like india to get these contracts. That is a possibility and they will in all probabilities do that.

The Soul Doctor said...

@ LT

Thanks for putting up the link.

If there is one right way for human kind, how would we know it?

Good Question!!

J_G said...
This comment has been removed by a blog administrator.
J_G said...

How can anyone with just a little knowledge disagree that the War in Iraq is in part, about the free flow of oil to oil consuming nations such as Europe, China, India and of course the US. The industrialized and the developing nations need this flow of oil to grease the wheels of their economies. As far as petrodollars are concerned, that is another one of the ways that money, oil and wealth are distributed.

I don’t know if you have ever heard of the Tri-Lateral Commission but this is an organization that exists to set currency and world economic policy. They are part of the speculation about what the CFR (Council on Foreign Relations), World Bank and many other organizations do to set up, divide and distribute the world’s wealth to certain countries and individuals. We can guess or theorize about what these people have in mind but I guarantee finding the exact details will be as difficult as finding Saddam’s cache of WMDs.

You have done some research and have put together facts that are published for individuals like yourself that have a burning desire to know what is really going on. I went through this period in my life about 15 years ago and I became extremely paranoid. I joined organizations that were set up to feed me this kind of information to get me all worked up because I was angry about the way that my government was treating it’s own citizens. I perceived that they were doing some very underhanded things to take my rights away from me and I was ready to go to war with my own government remember a man named Timothy McVeigh?

I’m not telling you don’t go on with your questions and research. Try and find as many answers as you can. I still voice my opinions on my blog and I support many but not all of the policies of my government and this administration. I do so with the complete knowledge that I will never be given all the details or be fully informed because the exact details are privileged information and not for the masses. Sure I resent that, I think everything should be out on the table. I believe knowledge is power. Information on monetary policy should be public knowledge. I have found though that after years of watching to see if I am being followed home by some government assassin or black helicopters hovering over my house waiting for the signal to let the attack begin. I take a less intense approach to being fully informed.

Now I spend more time now trying to make my local community a better place to live. I get involved with local issues. I go to my church and spend my thoughts and efforts’ trying to be IN the world but not to be so much OF the world as my faith asks me to be. My advice is to never let your guard down, always try and be as informed as you can be. I rely on my faith Soul Doctor; my faith is my guide. I am a Christian of the Lutheran denomination. The world will do everything it can to deceive and confuse you. Protect yourself and your own just like the big shots do.


*Check out this abbreviated list of links to understand what I mean. Conspiracy is alive and well.
The John Birch Society
The Council on Foreign Relations
Trilateral Commission
The Bilderberg Conspiracy

The Soul Doctor said...

@ J_G

Thanks a ton for dropping in and putting down your valuable comments.

Firstly, I appreciate the fact that you are deeply religious and are doing something good for your local community. Thats the way it must be.

I dont disagree with you when you said that knowing what goes on behind the scenes, why things the way they are and trying to know the absolute, creates a sense of panic and disillusionment. But I think, bad governance and corruption to certain extent in beauracracy in not only monetary terms but also in policy decisions, is the price one pays for showing apathy towards public issues, politics and bigger issues, in a democracy. When we choose the people we rule, we must be aware and we must go out of our way to be aware of whats going on.

In a democracy like the US or India, these politicians are less culpable for following unilateral policilies that dont have the majority approval of the comman man, because after all we have elected them.

Now, you cannot say that you can do good for your community to a large extent when things are falling apart at the higher level. One must always see the bigger picture. I think you cant do much when the dollar collapses as result of US failing to make substantial military or political gains in Iraq or preventing the petroeuro as an alternate trading and reserve currency. Unemployment and inflation will loom large at you and your community, because of these flawed policies and approach, from which you have chosen to stay away. And flawed they are, because majority of the citizens just dont care enough to see to it that their government does the right thing.

So, in effect, even when you are doing what you can do to those things that fall in your sphere of action, you cannot shy away from the issues that falls in your sphere of influence or sphere of concern. And doing things for your community and voicing your concerns for bigger issues at higher levels are not mutually exclusive. They very well can and must go hand in hand.

I believe in the power of one. The power of me and my single vote. Somewhere down the line, I wish to stand up and be counted. That day may never come. But that wont put me down.

And isnt it be a pity if we have to wait for disasters like Iraq war or suppression of people by britishers, for witnessing the raise of great men like Mahatma Gandhi?

Thanks for the links. I am enlightened more.

anand said...

"If there is one right way for human kind, how would we know it?"

Well said LT!! That sort of set in motion another train of thought..which I thought I'd throw out, and see what you guys think.

In my opinion, our posts/comments/disccusions try to do two things 1) show that the common perception of important world events may be far from the truth 2) search for the other alternative and truer explanations for this event, and the geopolitical situation as a whole.

Some of the previous comments to this post lead me to venture the question...Is there really any such thing as "the objective truth" in geo-politics? Or is it always going to be perceptions and opinions on either side, influenced by ones own set of biases and national perceptions? At the politician level I doubt there is true objectivitiy, because as has been pointed out before there is just too much self-interest. Finally even if such an objective truth exisits can "ONE" individual ever discover and confirm it?

If the answer to any of the above questions is no, then isn't it better to follow a path akin to what J_G suggests?

J_G said...

Please, do not misinterpret my meaning. I would never suggest that situations cannot be changed by a determined individual of extraordinary resource. My overall meaning to my post is; Try and know what is going on to the best of your ability and use that information to take the proper steps to protect your family, friends, and yourself. If you are of the mind and are prepared to do battle with the powers that be, then gird yourself with the knowledge you will be opposed by a formidable enemy.

There are people in this world that have their dragon to slay and the conquerers of those battles go forth with audacity and abandon to their own safety and comfort.

L>T said...

Soul doctor, thanks for reading & commenting on my posts. I'll check out your 'religion link'.

the reason I am a humanist is I feel it is so important for all of mankind to concentrate on our humanness & try to understand it. To do good for humanitys sake & come to a understanding of this thing we call religion that divides us.

I get frosted when i hear someone say their GOD is the most high GOD & deny another who says the same. If there is such a thing, there can only be one. Philosophically, each has to be serving the same most high GOD.

& Those objective truths, anand.
ARRRGH! That stuff is frustrating to me.

Karthik S said...

"The US will protect its economic interests, even if it means waging a war to instate friendly regimes."

And who wouldn't ? Franco-German opposition to the war also had economics behind it not some kind of ethical reason. Let's face it. It's dog eat dog world all round. Let's not bring Nehru-vian idealism. Nehru died cause of it.

L>T said...

Sorry anand,
I meant to comment on 'objective truth' also. I think it's very hard for people to commit to finding objective truths. Most of us humans enjoy our own point of veiw more then the cold hard truth.
Truth is something we have to strive for. & it is very hard to ask someone to accept a truth that is not in their best interest.

karthik s,
could you explain in more detail? I looked up Jawaharlal Nehru,(i confess,didn't know a thing about him. Always assoc. him w/the jacket) very interesting reading, but did not enlighn me to your comment.

Prophet of Doom said...

outstanding peice of writing ... we need more thinkers like yourself to be policy-makers ...

Alka said...

"In this dirty world of politics and international relations, there are no friends and there are no enemies. There are only self interests. Each one of nations, strive to serve their own self interests, at all costs."
These lines sums up everything beautifully. That's why public should be aware of the misdeeds of their so called leaders. And the least said about the mainstream media the better. I was surprised to see a Rajya Sabha Transcript admitting that INTERPOL has issued a red corner alert for our esteemed Amity Business School owners. This Information is available to a mere mortal like me. But the MSM, which has such a vast resources to its command, can't dig it out.

The Soul Doctor said...

Hello Guys,

Thanks a ton for all your comments. I am a little busy for until 02 Mar. SHall get back to this discussion as soon as possible.

Excellent points of view I must say.

Karthik

Mona Mishra said...

well done, well argued....will come back to your blog for more...

The Soul Doctor said...

@ ANAND

You have thrown in a very pertinent question. I do agree with you that there is nothing called "objective truths" in politics. its all a matter of perception and to some extent organised propaganda.

But each political decision is made with a certain end in mind. Almost always, the real motive is not presented to the public. Or there may some subsidairy motives tagging behind the publicised ones.

And, it takes a real man to stand up for the truth and even when one decides to, I doubt, if one can uncover each and every behind the curtain scenes.

YET, I feel that as individual citizens, we must not denounce our right to know. AND it is our duty to question things going seemingly wrong. To what level our cries will be heard is another issue!!

@ J_G

If you are of the mind and are prepared to do battle with the powers that be, then gird yourself with the knowledge you will be opposed by a formidable enemy.

You have stated it very correctly. Fighting against a system is not easy. But for every million commoners who choose to remain passive and get inside their snail shells, there rises one Mahatma Ghandhi or Martin Luther King or possibly Goerge W Bush or osama(when history is crafted by victors) ;) who stands up and wishes to be be counted!!

The least these million other snails could do is come out of their shell when such a man arrives, if at all he does!!

The Soul Doctor said...

@ L_T


I get frosted when i hear someone say their GOD is the most high GOD & deny another who says the same. If there is such a thing, there can only be one.

There you go!! you ended up saying the same thing as others,even when you wanted to deny it. Only that you did not mention which is that ONE you are talking about.

Why cant there be more than one god? For once, let us try to think in that direction. If humans can peacefully coexist to some extent, cant gods live toghether too? :)

@ karthik S

Sure. I dont deny that soveriegn right to protect one's economic interests. All I am worried is about the facade they put up in doing such a thing.

@ Wacko

Long time Ram. How is life? Thanks for the compliments.

@ Alka

I am surprised by this information provided by your link. Anyways, I shall dig more before I form my opinion about this.

Even I am surprised that main stream media does not bring out the actual story in most cases. Or possibly they are PAID not to. The situation is no different around the world. The media is hand in glove with the powerful people, be it bussinessmen or politicians.

Thanks for dropping by!

@ Mona

THanks for stopping by. You are welcome anytime:)

L>T said...

You missed my point. I am agnostic & a secular Humanist, I don't subscribe to any God. It does not matter to me personally. My point was a philosohical one. There can only be ONE most high God & every religion lays claim to it. Religion is dividing mankind, not bringing him/her together.
Why can't religious mankind serve the one most highest god, together?

I tend to agree w/Nietzsche who said;
'There is not anough religion in the world to destroy the world's religions.'