Monday, October 04, 2004

The bogus war on terror and the real reserve currency war.


If the US's efforts against the war on terror seem inadequate or misplaced it is because there is no war on terror. The real war is not only about securing US oil supplies, but also about who gets to be the reserve currency. This is a war the US may not be able to win.


Following on from the New Statesman article I pointed to the other day, I am coming across more and more stories about countries who may be planning to drop the dollar as their oil trading currency. As the New Statesman put it:

...Rejection of the dollar is increasingly being used as an act of political aggression, and nowhere more acutely than in oil-producing countries. The trailblazer was none other than Saddam Hussein who, in 2000, announced that Iraq would henceforth make all its oil trades in euros, a decision that conspiracy theorists - and not a few eminent Middle Eastern experts - say triggered the US invasion.

The article explains that this would have a devastating effect on the US Economy at a time when it is very vulnerable.

Venezuela, another country that has been on the receiving end of US political interference, mooted the idea of switching its oil deals to the Euro in March 2001. Russia has been considering it too.

A Feb 2004 article at EU Business says:

"With all this talking, the euro makes slowly and surreptitiously its way in the price fixing mechanism," an analyst at the Dresdner-Kleinwort-Wasserstein brokerage firm in London said.

"What's more, Russia, one of OPEC's competitors, has been threatening for several months now to switch its oil market to euros", the source said.

The question has now built into a behind-the-scenes battle of minds at OPEC, which groups Algeria, Kuwait, Indonesia, Iran, Iraq, Qatar, Libya, Nigeria Saudi Arabia, the United Arab Emirates and Venezuela.

Post-war Iraq remains outside of the cartel's quota system, which has currently fixed the group's output at 24.5 million barrels per day.

Saudi Oil Minister Ali al-Nouaimi, whose country is considered the cartel's heavyweight, OPEC Secretary General Purnomo Yusgiantoro of Indonesia and Algerian Energy Minister Chakib Khelil have ruled out switching to the euro.

Their OPEC partners, however, are not as categorical.

"If the dollar/euro value remains the same in 2004 as in 2003, prices will climb to unrealistic levels," said Hojjatollah Ghanimifard, acting deputy for international affairs at the National Iranian Oil Company.

A trader at the Rothschild bank in London added: "Trading in petrol involves enormous sums of money. If the dollar loses its role as a currency of reference, the United States, the world's largest oil importer, will no longer be able to have outside countries finance its abyssal trade deficit."

Vladimir Putin intervened when a Russian Oil Company was about to do a deal with an American company in 2003 - Times Online reported (September 04):

...languishing in a Russian jail where he has been for nearly a year is Mikhail Khodorkovsky. This time last year, Mr Khodorkovsky was the richest man in Russia, working as the chief executive of Yukos, the country’s biggest oil company, preparing it for a mooted takeover by ExxonMobil or another American company....

Mr Khodorkovsky, (is) seen as being punished for daring to challenge President Putin politically...

...Already Mr Putin is taking direct command of Russia’s oil output. Last week he reassured other European leaders that all Russia’s (ostensibly privately owned) oil companies "without exception" would "continue to increase the extraction of oil and they will increase their deliveries to the global market". Germany’s Chancellor Gerhard Schroder thanked President Putin for the promise, saying: "Otherwise we would certainly have worries that the world economy could suffer."


In January 2003
(two months before the invasion) Russia who opposed the US invasion of Iraq, had struck an oil deal with Saddam Hussein.

In October 2003 Russia had talks with Germany. Global Policy Online reported:

President Vladimir Putin said Thursday Russia could switch its trade in oil from dollars to euros, a move that could have far-reaching repercussions for the global balance of power -- potentially hurting the U.S. dollar and economy and providing a massive boost to the euro zone. "We do not rule out that it is possible. That would be interesting for our European partners," Putin said at a joint news conference with German Chancellor Gerhard Schroeder in the Urals town of Yekaterinburg, where the two leaders conducted two-day talks. "But this does not depend solely on us. We do not want to hurt prices on the market," he said. "Putin's putting a big card on the table," said Youssef Ibrahim, managing director of the Strategic Energy Investment Group in Dubai and a member of the U.S. Council on Foreign Relations, an influential body of leading world thinkers thought to help set the United States' foreign policy agenda. "In the context of what is happening worldwide, this statement is very important," he said.

Putin's words come in the wake of a protracted drive by the EU to attract more countries' trade and currency reserves into euros, in a bid to chip away at U.S. hegemony over the global economy and money supply. A move by Russia, as the world's second largest oil exporter, to trade oil in euros, could provoke a chain reaction among other oil producers currently mulling a switch and would further boost the euro's gradually growing share of global currency reserves. That would be a huge boon to the euro zone economy and potentially catastrophic for the United States. Dollar-based global oil trade now gives the United States carte blanche to print dollars without sparking inflation -- to fund huge expenses on wars, military build-ups, and consumer spending, as well as cut taxes and run up huge trade deficits.

Almost two-thirds of the world's currency reserves are kept in dollars, since oil importers pay in dollars and oil exporters keep their reserves in the currency they are paid in. This effectively provides the U.S. economy with an interest-free loan, as these dollars can be invested back into the U.S. economy with zero currency risk. If a Russian move to the euro were to prompt other oil producers to do the same, it could be a "catastrophe" for the United States, Ibrahim said. "There are already a number of countries within OPEC that would prefer to trade in euros." Iran, the world's No. 5 oil exporter, has also openly mulled a move into euros.


Perhaps things have got to the point where Bush's out of control spending has become a bigger liability to the countries that are floating the US economy than the danger of incurring US wrath. At the same time the EU has overtaken the US in GDP:

The European Union has grown to become the third-largest governing institution in the world. Though its land mass is half the size of the continental United States, its $10.5-trillion (U.S.) gross domestic product now eclipses the U.S. GDP, making it the world's largest economy. The EU is already the world's leading exporter and largest internal trading market. Sixty-one of the 140 biggest companies on the Global Fortune 500 rankings are European; only 50 are U.S. companies.
The EU seems to be trying to gain currency ascendancy by negotiation and the US is trying to retain it by force. If the Euro becomes the reserve currency, Europe would inherit the economic safety net that the US currently enjoys and the US economy would crash. This would be compounded by the fact that Europe would have done so without the considerable expense the US's militaristic stance is incurring. The Middle East could be seen as both the scapegoat for and the battleground of a covert struggle between the two.

Is this a no win situation for the US? They are stuck in a downward spiral wherein the more aggressively they attempt to retain their currency advantage, the more money they spend, the bigger the deficit gets, the more of a liability they become to countries floating the US Economy giving them more incentive to drop the dollar. By not adopting the Euro, Blair might be backing the wrong horse.

It has been suggested (I am reserving judgement) that the US and the UK were behind the massacre in Beslan in an attempt to destabilise Putin. VHeadline reports:

The group that massacred 170 children and 130 adults in Beslan led by CIA operative Shamil Basayev, took their orders from abroad ... there is no question this is an extension of Anglo-American foreign policy to dismember Russia as we predicted 12 years ago.

Russia has retaliated by demanding that Akhmad Zakayew, now being given sanctuary in London and Ilyas Akhmadov now residing in the US, be turned over to Russia for planning and conducting the Beslan massacre.

In fact, Ilyas Akhmadov has political asylum in the US and receives a Reagan-Fascell monthly stipend, medical insurance and an office, from which he engages in political circles and informs the media.

The Fascell Foundation is funded by Congress through the US State Department. Their actions show they not only want to dismember Russia but they want to use the instability they have caused to access oil in the Caspian region and in the process control Georgia and Azerbaijan ... if you remember in the late 1980s, the revolt against the Soviet Union began in Azerbaijan.

Thus, we believe the UK and US want to drive Russia out of the Caspian and Caucasus regions effectively neutering the country. The Beslan event has driven a wedge between Ossetians, Ingushis and Chechens, which will set the Caucasus aflame.

The article goes on to suggest that the US and the UK:

are very fearful as a retaliatory measure that Russia will accept euros for their oil ... which Saddam Hussein did and for that and other reasons he was deposed. This, of course, would destroy the dollar as a reserve currency.

Once Russia moves to the euro, and we believe they will after Beslan, Iran, Venezuela and Indonesia will follow.

China has been increasing its oil deals with South American countries including Venezuela. Russia has also been in talks with China:

over the potential £17 billion disposal of Yuganskneftegaz – a division of the previously privatised Yukos which accounts for 60 per cent of its oil production.
The more oil producing countries diversify their trading partners the less eggs they need to have in the US currency basket.

In this light Bush's hostility towards foreign powers can be seen in a context bigger than mere global disapproval of US militarism.

Oil producing countries began openly discussing the possibility of adopting the Euro after Bush and his US oil company cronies took power, but before 9/11. Conspiracy theorists might suggest that 9/11 has provided the Bush regime with a number of convenient justifications.

They include the justification for aggression towards oil producing countries that were or might be intending to switch to the Euro. It justified US aggression towards Afghanistan, where the US have done what they set out to do: Install
Hamid Karzai a former top adviser to Unocal and revive the CentGas pipeline construction project thus securing Afghan oil supplies for the US. Osama bin Laden was merely an excuse to do this and, at least for the time being the mission has been accomplished, hence the withdrawl of US troops and their reassignment to Iraq. A green party article in 2002 noted that:

Karzai worked with Zalmay Khalilzad on the pipeline deal. Khalilzad is now President Bush's Special National Security Assistant and presidential Special Envoy for Afghanistan. The Bush White House does not mention Karzai's and Khalilzad's ties to Unocal and the pipeline. Greens also note that Enron conducted the feasability study for the pipeline, and that Halliburton, at which Vice President Cheney served as CEO, will be a major benefactor from the pipeline deal.

In December 2003 Bush appointed James Baker as his personal envoy in Iraq. Baker's law firm also represents BP's oil interests in Afghanistan. International Action Organisation commented:

This appointment is especially interesting given Baker's oil interests: Baker is Senior partner at Baker Botts LLP, which is heavily invested in Middle East oil (View More Information ), and he sits on the US-Azerbaijan Chamber of Commerce (Azerbaijan & the Caspian Sea are estimated to be the largest untapped oil supplies outside of the Middle East). With Iraq in his pocket, Baker III will be in a position to influence over 70% of the world's oil supplies.

America is the world's biggest oil junkie consuming 25% of the world's annual supplies whilst representing only 4% of the world's population. Its own supplies are dwindling and would run out within the next 15 years if the US had to rely solely on them. This habit has been at the expense of other countries because of the dollar being the reserve currency. This is now under threat. Without this advantage the US could not afford to support its consumption. Like any junkie America needs to become the dealer if it wants to support its habit. It is no coincidence that the countries considering the Euro are the same countries that are on the receiving end of US aggression. In seeking a militaristic solution to the problem the neocons may have sounded the death knell for the US economy.




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