I never totally understood policy makers fixation for oil and thus gave insufficient credence to it as a central part of overall strategic thinking. Yet it all hangs together.
The bad news is that this is all coming to an end and quickly. This means that we are facing a massive transition in the global economic system over which no one has any serious control. A huge amount of US currency will be released from commodity trading generally and will circulate globally looking for earning assets.
More critically the oil producers will suffer a massive loss of income. Their economies will need to be restructured from the bottom up and i do not think anyone knows how to do this. Russia still has not got that one properly solved yet and neither has the USA..
As we have learned from the previous articles in this series, the petrodollar system that was created in the 1970’s has served America well, both economically and politically. What began as a way to drive more demand for the U.S. dollar in the wake of a move away from the international gold standard in 1971, has provided benefits that few could have ever imagined including the solidification of the U.S. dollar as the global currency of choice. This was important, especially following a temporary loss of dollar credibility after President Nixon’s decision to close the gold window.
- Foreign nations would begin sending a flood of U.S. dollars back to the United States in exchange for the new currency needed for oil.
- The Federal Reserve would lose their ability to print more dollars to solve America’s economic problems.
- The Treasury Secretary and the Federal Reserve Chairman would meet to determine the best course of action.
- That action would involve an immediate and dramatic increase in interest rates to reduce America’s money supply.
- Hyperinflation would ensue temporarily while the interest rates took time to take full effect.
- All oil-related prices, including gas prices, would reach outrageous levels.
- Washington would soon realize that the total amount of money in the system would have to be dramatically slashed even further, leading to an even higher increase in interest rates.
- The clueless American public would demand answers. Those on the left would blame the right. The right would blame the left. And both political parties would seek to blame the Federal Reserve.
- People with adjustable rate debts would be crushed and massive layoffs would occur as businesses suffered from the high interest rates.
- Asset prices across the board would plummet in value.
- Amid the financial carnage, an economic recovery eventually would begin to take place. But this new American economy would be tremendously smaller due to a drastically reduced money supply.
In 1973, in the wake of U.S. military involvement in the Vietnam War, Washington began turning its attention to another region of the globe: the Persian Gulf. The Yom Kippur War gripped the oil-rich area. After the ensuing ‘oil shock’ of 1973, President Richard Nixon warned U.S. citizens “that American military intervention to protect vital oil supplies” in the region was a strong possibility. This speech marked the first official and formal commitment to deploy U.S. troops to the Middle East for the explicit reason of protecting America’s oil interests.
Beating the Iraq War Drums – Before 9/11
On September 11, 2001, America’s relations with the Middle East would be altered forever.
The tragic events of that day still live on in the memory of every American. The dreadful carnage in New York City, Washington D.C., and Shanksville, Pennsylvania was heart-rending to the billions around the world who watched the terror unfold before their eyes on live television.
The Los Angeles Times reported that one year prior to the attacks of 9/11, the U.S. began constructing Al Adid, a billion dollar military base in Qatar with a 15,000-foot runway, in April 2000. What was Washington’s stated justification for the new Al Adid base, and other similar ones in the Gulf region? Preparedness for renewed action against Iraq.
“The president in a very intimidating way left us, me and my staff, with the clear indication that he wanted us to come back with the word there was an Iraqi hand behind 9/11 because they had been planning to do something about Iraq from before the time they came into office. I think they had a plan from day one they wanted to do something about Iraq. While the World Trade Center was still smoldering, while they were still digging bodies out, people in the White House were thinking: ‘Ah! This gives us the opportunity we have been looking for to go after Iraq.'”
“Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.” (President George Washington)
“On September 24, 2000, Saddam Hussein allegedly “emerged from a meeting of his government and proclaimed that Iraq would soon transition its oil export transactions to the euro currency.”
“CNN ran a very short article on its website on October 30, 2000, but after this one-day news cycle, the issue of Iraq’s switch to a petroeuro essentially disappeared from all five of the corporate-owned media outlets.”
What’s “Our” Oil Doing Under “Their” Sand?
“The idea that the United States covets Iraqi oil fields is a wrong impression. I have a deep desire for peace. That’s what I have a desire for. And freedom for the Iraqi people. See, I don’t like a system where people are repressed through torture and murder in order to keep a dictator in place. It troubles me deeply. And so the Iraqi people must hear this loud and clear, that this country never has any intention to conquer anybody.”(U.S. President George W. Bush)
“This is not about oil; this is about a tyrant, a dictator, who is developing weapons of mass destruction to use against the Arab populations.”(U.S. Secretary of State Colin Powell)
“It’s not about oil and it’s not about religion.”(U.S. Secretary of Defense Donald Rumsfeld)
“I have heard that allegation (of oil motives) and I simply reject it.”(Coalition Provisional Authority Paul Bremer)
“It’s not about oil.”(General John Abizaid, Combatant Commander, Central Command)
“It was not about oil.”(Energy Secretary Spencer Abraham)
“It’s not about the oil.”(the Financial Times reported Richard Perle shouting at a parking attendant in frustration.)
“This is not about oil.”(Australian Treasurer Peter Costello)
“The only thing I can tell you is this war is not about oil.”(Former Secretary of State Lawrence Eagleburger)
“This is not about oil. This is about international peace and security.”(Jack Straw, British Foreign Secretary)
“This is not about oil. That was very clear. This is about America, and America’s position in the world, as the upholder of liberty for the oppressed.”(Utah Republican Senator Bob Bennett)
“There’s just nothing to it.”(White House spokesperson Ari Fleischer on the U.S. desire to access Iraqi oil fields.)
“This cannot be further from the truth. He is a threat to his neighbors. He’s a threat to American security interest. That is what the president has in mind.” She continued: “This is not about oil.”
“Let’s look at it simply. The most important difference between North Korea and Iraq is that economically, we just had no choice in Iraq. The country swims on a sea of oil.”
“We are a nation at war and in many [ways] the reasons for war are fights over energy sources, which is nonsensical when you consider that domestically we have the supplies ready to go.”
“My friends, I will have an energy policy which will eliminate our dependence on oil from the Middle East and will then prevent us from having ever to send our young men and women into conflict again in the Middle East.”
“I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil.”
“I have been a member of four (Presidential) administrations. And in every one of those administrations we had written as a national security policy that we would go to war to protect the national energy reserves of the Persian Gulf, if necessary.”
“Of course (the Iraq war) is about oil, we can’t deny that.”
“The critical oil and natural gas producing region that we fought so many wars to try and protect our economy from the adverse impact of losing that supply or having it available only at very high prices.”
Q: Do you think the U.S. or U.N. forces, should have moved into Baghdad?A: No.Q: Why not?A: Because if we’d gone to Baghdad we would have been all alone. There wouldn’t have been anybody else with us. There would have been a U.S. occupation of Iraq. None of the Arab forces that were willing to fight with us in Kuwait were willing to invade Iraq. Once you got to Iraq and took it over, took down Saddam Hussein’s government, then what are you going to put in its place? That’s a very volatile part of the world, and if you take down the central government of Iraq, you could very easily end up seeing pieces of Iraq fly off: part of it, the Syrians would like to have to the west, part of it — eastern Iraq — the Iranians would like to claim, they fought over it for eight years. In the north, you’ve got the Kurds, and if the Kurds spin loose and join with the Kurds in Turkey, then you threaten the territorial integrity of Turkey. It’s a quagmire if you go that far and try to take over Iraq. The other thing was casualties. Everyone was impressed with the fact we were able to do our job with as few casualties as we had. But for the 146 Americans killed in action, and for their families — it wasn’t a cheap war. And the question for the president, in terms of whether or not we went on to Baghdad, took additional casualties in an effort to get Saddam Hussein, was how many additional dead Americans is Saddam worth? Our judgment was, not very many, and I think we got it right.”
“The concern of my government is that the concessions agreed between Baghdad and numerous enterprises will be reneged upon, and that U.S. companies will enter to take the greatest share of those existing contracts. . . . Yes, if you could say it that way — an oil grab by Washington.”
“Russia, China, France have the highest stakes in the Iraqi oil industry. Once Saddam is out, everything becomes null and void, and there is no legal authority to enforce those claims.”
“Iraq on Thursday stepped back into the international oil market for the first time since the war, offering 10m barrels of oil from its storage tanks for sale to the highest bidder. For some international companies, it will be the first time in more than a year that they will do business directly with Iraq… The tender, for which bids are due by June 10, switches the transaction back to dollars – the international currency of oil sales – despite the greenback’s recent fall in value. Saddam Hussein in 2000 insisted Iraq’s oil be sold for euros, a political move, but one that improved Iraq’s recent earnings thanks to the rise in the value of the euro against the dollar.”
“People say we’re not fighting for oil. Of course, we are. They talk about America’s national interest. What the hell do you think they’re talking about? We’re not there for figs.”
“This system of the U.S. dollar acting as global reserve currency in oil trade keeps the demand for the dollar ‘artificially’ high. This enables the U.S. to carry out printing dollars at a price of next to nothing to fund increased military spending and consumer spending on imports. There is no theoretical limit to the amount of dollars that can be printed. As long as the U.S. has no serious challengers, and the other states have confidence in the U.S. dollar, the system functions.”