Oil,  Dollars, Euros And Dead Iraqi's

By Nick Beams

US strategic concerns

Control of Middle Eastern oil resources has always been a matter of strategic concern to the United States. In his famous speech of 1947 when he initiated the Cold War and enunciated the doctrine that now goes under his name, US President Truman referred to the Middle East with its “great natural resources” as among the considerations that motivated the fight against “communism.”

In 1974-75, in the midst of the OPEC oil price hikes and the threat of extended oil embargoes, the US administration discussed the possibility of undertaking military action against oil-producing states.

With the fall of the Shah of Iran in 1979, who was installed in a CIA-backed coup against the nationalist Mossadegh government in 1953, the US became increasingly concerned about threats to its interests in the region. Accordingly, in his January 1980 State of the Union address, President Carter warned: “An attempt by an outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.” This new policy, known as the Carter doctrine, he explained was necessitated by the “overwhelming dependence of Western nations on vital oil supplies from the Middle East.”

In testimony to the Senate Armed Services Committee in 1990, following the Iraqi invasion of Kuwait, defence secretary (now vice-president) Cheney set out the issues involved in the US-led war. “Iraq controlled 10 percent of the world’s reserves prior to the invasion of Kuwait. Once Saddam Hussein took Kuwait, he doubled that to approximately 20 percent of the world’s known oil reserves ... Once he acquired Kuwait ... he was clearly in a position to dictate the future of worldwide energy policy, and that gave him a stranglehold on our economy and on that of most of the other nations of the world as well.”

Within days of the Iraqi occupation of Kuwait, an even more blunt assessment was delivered by a “senior American official” (believed to be Secretary of State James Baker) in a comment to the New York Times: “We are talking about oil. Got it? Oil, vital American interests.”

In the period since the Gulf War, those interests have become more, not less, important as the figures on the dependence of the US economy on oil imports reveals. And the question of which corporations control the flow of oil is of vital significance, both from an economic and political standpoint.

As the American academic Michael T. Klare (author of the book Resource Wars) points out in a recent article [See Foreign Policy in Focus at], one of the key objectives of the present US administration flows from the analysis made by Cheney in 1990. “[W]hoever controls the flow of Persian Gulf oil has a ‘stranglehold’ not only on our economy but also ‘on that of most of that of the other nations of the world as well.’ This is a powerful image, and perfectly describes the administration’s thinking about the Gulf area, except in reverse: by serving as the dominant power in the Gulf, WE maintain a ‘stranglehold’ over the economies of other nations.”

How important the maintenance of this dominance has become has been thrown into sharp relief by the recent conflicts between the US and “old Europe”—in particular France and Germany—in the recent period.

As Klare emphasises, control over Persian Gulf oil is also “consistent with the administration’s declared goal of attaining permanent military superiority over all other nations” and the need, set out in the administration’s statements on national security policy, to “prevent any rival from ever reaching the point where it could compete with the United States on something resembling equal standing.”

Oil and the US dollar

In addition to the geo-political interests that operated at the time of the first Gulf War and whose importance has increased, not diminished in the intervening period, there is a powerful new reason why the US needs to ensure a “stranglehold” grip on Persian Gulf oil resources.

Various media commentators try to deny the connection between oil and the US war drive. They always insist that in the final analysis it does not matter who controls these resources since they still have to be sold on the world market where supplies will be available to the US and other purchasers.

Even assuming that the oil market operates in the way suggested (ignoring the question of boycotts, production restrictions to lift prices and other such measures) there is still another issue to be addressed—in what currency the oil contracts will be paid? And this is a question which is acquiring extreme importance for the long-term financial and economic stability of the United States.

When the Gulf War was launched in 1990, an historic transformation had recently taken place in the financial position of the US. For the first time since it became the pre-eminent capitalist power in 1914, the US had become an indebted nation. In the decade and a half since then, it has become the most indebted nation in history.

On the latest estimates, US debts to the rest of the world total more than $2.7 trillion, equivalent to more than one quarter of gross domestic product. To finance this debt, the US requires an inflow of around $2 billion per day from the rest of the world. One of the main reasons the US is able to attract such a massive inflow (amounting to around two-thirds of the international surpluses generated in the world economy) is the role played by the dollar as the central international reserve currency. It has been estimated that by the late 1990s more than four-fifths of all foreign exchange transactions and half of world exports were denominated in dollars, with dollars accounting for about two-thirds of all official currency reserves.

But the establishment of the euro by the European Union means that a potential rival has emerged on the international economic scene. At first, the continued rise of the dollar meant that the euro was not an attractive proposition. But the situation has changed with the collapse of the US share market bubble. Since the end of 2000, the dollar has fallen by more than 15 percent against the euro.

This is leading OPEC producers to consider whether, at some point in the future, it might be worth their while to shift from payments in dollars to euros. In a speech delivered in April last year, Javad Yarjani, head of OPEC’s Petroleum Market Analysis Department, noted that while in most OPEC countries would continue, in the short-term, to demand payment in dollars, OPEC “will not discount entirely the possibility of adopting euro pricing and payments in the future.”

A shift by OPEC to the euro would rapidly confront the US with an economic “nightmare scenario.” Major oil importers would need to transfer some of their funds from US dollars reserves—stocks, bonds and other assets—into euro reserves. This would see a sharp fall in the value of the dollar, possibly setting in motion a further withdrawal of funds as investors became nervous over the value of their dollar assets. Suddenly the burgeoning US debt, which at present plays little or no role in day-to-day financial calculations, would become a factor of considerable importance.

In other words, a switch in the financial basis of the oil export market, or a significant part of it, would have major consequences for the global financial position of the US, quite irrespective of whether oil was freely available or the price charged for it. However, if the US were in control of Iraqi supplies, either directly or through a puppet, it would be in a much better position to block any currency shift by the OPEC countries.

Consideration of the long-term strategic issues make clear why Washington is being driven to use military means to try to overcome the major economic problems confronting US capitalism.


See Also: The Real but Unspoken Reasons for the Iraq War

Behind the Invasion of Iraq

Oil, Currency and the War on Iraq



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