Wednesday, July 28, 2004
Everyone talks about the oil, but no one talks about the dollar. From John Chapman in the Guardian:
With 115bn barrels of oil reserves, and perhaps as much again in the 90% of the country not yet explored, Iraq has capacity second only to Saudi Arabia. The US, in contrast, is the world's largest net importer of oil. Last year the US Department of Energy forecast that imports will cover 70% of domestic demand by 2025.
By invading Iraq, Bush has taken over the Iraqi oil fields, and persuaded the UN to lift production limits imposed after the Kuwait war. Production may rise to 3m barrels a day by year end, about double 2002 levels. More oil should bring down Opec-led prices, and if Iraqi oil production rose to 6m barrels a day, Bush could even attack the Opec oil-pricing cartel.
Control over Iraqi oil should improve security of supplies to the US, and possibly the UK, with the development and exploration contracts between Saddam and China, France, India, Indonesia and Russia being set aside in favour of US and possibly British companies. And a US military presence in Iraq is an insurance policy against any extremists in Iran and Saudi Arabia.
Overseeing Iraqi oil supplies, and maybe soon supplies from other Gulf countries, would enable the US to use oil as power. In 1990, the then oil man, Dick Cheney, wrote that: "Whoever controls the flow of Persian Gulf oil has a stranglehold not only on our economy but also on the other countries of the world as well."
In the 70s, the US agreed with Saudi Arabia that Opec oil should be traded in dollars. American governments have since been able to print dollars to cover huge trading deficits, with the further benefit of those dollars being placed in the US money markets. In return, the US allowed the Opec countries to operate a production and pricing cartel.
Over the past 15 years, the overall US deficit with the rest of the world has risen to $2,700bn - an abuse of its privileged currency position. Although about 80% of foreign exchange and half of world trade is in dollars, the euro provides a realistic alternative. Euro countries also have a bigger share of world trade, and of trade with Opec countries, than the US.
In 1999, Iran mooted pricing its oil in euros, and in late 2000 Saddam made the switch for Iraqi oil. In early 2002 Bush placed Iran and Iraq in the axis of evil. If the other Opec countries had followed Saddam's move to euros, the consequences for Bush could have been huge. Worldwide switches out of the dollar, on top of the already huge deficit, would have led to a plummeting dollar, a runaway from US markets and dramatic upheavals in the US.