PROJECT
CENSORED - 2004
(#19)
U.S. Dollar vs. the Euro:
Another
Reason for the Invasion of Iraq
Sources:
THE SIERRA TIMES, February 9, 2003
Title: "The Real Reasons for the Upcoming War with Iraq"
Author: William Clark
FEASTA, January 2003
Title: "Oil, Currency, and the War on Iraq"
Author: Cóilín Nunan
THE NATION, September 23, 2002
Title: The End of Empire
Author: William Greider
Faculty Evaluators: Wingham Liddell Ph.D, Tony White
Ph.D , Phil Beard Ph.D.,Thom Lough Ph.D.
Student Researchers: Effren Trejo, Kathleen Glover,
Dylan Citrin-Cummins
______________________
President Richard Nixon removed U.S. currency
from the gold standard in 1971. Since then, the world's supply of
oil has been traded in U.S. fiat dollars, making the dollar the dominant
world reserve currency. Countries must provide the United States with
goods and services for dollars - which the United States can freely
print. To purchase energy and pay off any IMF debts, countries must
hold vast dollar reserves. The world is attached to a currency that
one country can produce at will. This means that - in addition to controlling
world trade - the United States is importing substantial quantities
of goods and services for very low relative costs.
The Euro has begun to emerge as a serious threat to dollar hegemony
and U.S. economic dominance. The dollar may prevail throughout the Western
Hemisphere, but the Euro and dollar are clashing in the former Soviet
Union, Central Asia, Sub-Saharan Africa, and the Middle East.
In November 2000, Iraq became the first OPEC nation to begin selling
its oil for Euros. Since then, the value of the Euro has increased 17%,
and the dollar has begun to decline. One important reason for the invasion
and installation of a U.S. dominated government in Iraq was to force
the country back to the dollar. Another reason for the invasion is to
dissuade further OPEC momentum toward the Euro, especially from Iran-
the second largest OPEC producer, who was actively discussing a switch
to Euros for its oil exports.
It is estimated that the dollar is currently overvalued by at least
40%, burdening the United States with a huge trade deficit. Conversely,
the euro-zone does not run huge deficits, uses higher interest rates,
and has an increasingly larger share of world trade. As the euro establishes
its durability and comes into wider use, the dollar will no longer be
the world’s only option. At that point, it would be easier for other
nations to exercise financial leverage against the United States without
damaging themselves or the global financial system as a whole.
Faced with waning international economic power, military superiority
is the United States’ only tool for world domination. Although, the
expense of this military control is unsustainable, says William Clark,
"one of the dirty little secrets of today's international order is that
the rest of the globe could topple the United States from its hegemonic
status whenever they so choose with a concerted abandonment of the dollar
standard. This is America's preeminent, inescapable Achilles Heel."
If American power is ever perceived globally as a greater liability
than the dangers of toppling the international order, the U.S. systems
of control can be eliminated and collapsed. When acting against world
opinion - as in Iraq - an international consensus could brand the United
States as a "rogue nation."
Updated By William Clark
Only time will tell what will happen in the aftermath of the Iraq war
and U.S. occupation, but I am hopeful my research will contribute to
the historical record and help others understand one of the important
but hidden macroeconomic reasons for why we conquered Iraq. The Bush/Cheney
administration probably believes that the occupation of Iraq and the
installation of a large and permanent U.S. military presence in the
Persian Gulf region will stop other OPEC producers from even considering
switching the denomination of their oil sales from dollars to Euros.
However, using the military to enforce dollar hegemony for oil transactions
strikes me as a rather unwieldy and inappropriate strategy. Regrettably,
President Bush and his neo-conservative advisors have exacerbated "anti-American"
sentiments by applying a military option in Iraq that is in essence
an economic problem. History may not look kindly upon their actions.
Despite the U.S. media reporting otherwise, the current wave of ‘global
anti-Americanism’ is not against the American people or against American
values - but against the hypocrisy of militant American Imperialism.
The foreign polices of the neoconservatives may be creating the regrettable
emergence of a possible European-Russian-Chinese alliance in an effort
to counter American Imperialism. It appears that the structural imbalances
in the U.S. economy, along with the Bush administration's flawed tax,
economic, and most principally their overtly imperialist foreign polices
could result in the dollar's reserve currency status and/or oil transaction
currency status being placed in jeopardy or at the very least significantly
diminished over the next 1-2 years. In the event that my hypothesis
materializes, the U.S. economy will require restructuring in some manner
to account for the reduction of either of these two pivotal advantages.
What is needed is a multilateral meeting of the G-7 nations to reform
the international monetary system. Given that future wars will become
more likely over oil and the currency of oil, the author advocates that
the global monetary system be reformed without delay. This would include
the dollar and euro being designated as equal international reserve
currencies, and placed within an exchange band along with a dual-OPEC
oil transaction currency standard. Additionally, the G-7 nations should
also explore a future third reserve currency option regarding a yen/yuan
bloc for East Asia. A compromise on the euro/oil issues via a multilateral
treaty with a gradual phase-in of a dual-OPEC transaction currency standard
could minimize economic dislocations within the U.S.
While these proposed multilateral reforms may lower our ability to
finance our current massive levels of debt and maintain a global military
presence, the benefits would include improving the quality of our lives
and that of our children by reducing animosity towards the U.S., while
we rebuild our alliances with the E.U. and world community. Creating
balanced domestic fiscal polices along with global monetary reform is
in the long-term national security interest of the United States, and
necessary for the Global economy. Hopefully these proposed monetary
reforms could mitigate future armed or economic warfare over oil, ultimately
fostering a more stable, safer, and prosperous global economy in the
21st century.
Update by Cóilín Nunan
At the time this article was written, the suggestion that Iraq’s move
to selling oil for euros had something to do with the US threatening
war against the country was just a theory. It still is a theory, but
a theory which subsequent US actions have done little to dispel: the
US has invaded Iraq, installed its own authority to rule the country
and as soon as Iraqi oil became available to sell on the world market,
it was announced that payment would be in dollars only (1).
But the story doesn’t end there: the US trade deficit is still widening
and the dollar falling. More and more oil exporters are talking openly
about selling their commodity for euros instead of greenbacks. While
Indonesia has only been considering it (2),
Malaysia’s Prime Minister Dr Mahathir has been strongly encouraging
his country’s oil industry to actually do it (3),
which has led the European Union’s Energy Commissioner, Loyola de Palacio,
to comment that she could see the euro replacing the dollar as the main
currency for oil pricing (4). Iran
meanwhile has been giving all the signs that it is about to switch to
the euro: it has been issuing eurobonds, converting its foreign exchange
reserves from dollars to euros and having warm trade negotiations with
the EU. According to one recent report it has even started selling its
oil to Europe for euros and encouraging Asian customers to pay in euros
too (5). Should US talk of ‘regime
change’ in Iran not be seen in the light of these facts? The media largely
appear to think not since there has been little discussion of the dollar-euro
connection with the ‘war on terror’. What discussion there has been
may well be expanded upon in the future as neither the threat to the
dollar and the US economy or the US threat to world peace are likely
to go away any time soon.
_____________
1.
Carola Hoyos and Kevin Morrison, ‘Iraq returns to international oil
market’, Financial Times, June 5 2003
2. Kazi
Mahmood, ‘Economic Shift Could Hurt U.S.-British Interests In Asia’,
March 30 2003
3. Shahanaaz
Habib, ‘Use euro for oil prices, says Dr M’, The Star, June 16 2003
4. Reuters,
‘EU says oil could one day be priced in euros’, June 16 2003
5. C. Shivkumar,
‘Iran offers oil to Asian union on easier terms’, June 16 2003
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