The Euro Effect - Part 3
By W. Clark
How would the Bush administration break-up the OPEC cartel's price controls in a post-Saddam Iraq? First, the newly installed regime (apparently a U.S. General) will convert Iraq back to the dollar standard. Next, with the U.S. military protecting the oil fields, the new ruling junta will undertake the necessary steps to rapidly increase production of Iraq oil -- well beyond OPEC's 2 million barrel per day quota.
Dr. Nayyer Ali offers a succinct analysis of how Iraq's underutilized oil reserves will not be a 'profit-maker' for the U.S. government, but it will serve as the crucial economic instrument to leverage and dissolve OPEC's price controls, thus fulfilling the long sought-after goal of the neo-conservatives to disband OPEC:
". . . Despite this vast pool of oil, Iraq has never produced at a level proportionate to the reserve base. Since the Gulf War, Iraq's production has been limited by sanctions and allowed sales under the oil for food program (by which Iraq has sold 60 billion dollars worth of oil over the last 5 years) and what else can be smuggled out. This amounts to less than 1 billion barrels per year. If Iraq were reintegrated into the world economy, it could allow massive investment in its oil sector and boost output to 2.5 billion barrels per year, or about 7 million barrels a day.
"Total world oil production is about 75 million barrels, and OPEC combined produces about 25 million barrels.
"What would be the consequences of this? There are two obvious things.
"First would be the collapse of OPEC, whose strategy of limiting production to maximize price will have finally reached its limit. An Iraq that can produce that much oil will want to do so, and will not allow OPEC to limit it to 2 million barrels per day. If Iraq busts its quota, then who in OPEC will give up 5 million barrels of production? No one could afford to, and OPEC would die. This would lead to the second major consequence, which is a collapse in the price of oil to the 10-dollar range per barrel. The world currently uses 25 billion barrels per year, so a 15-dollar drop will save oil-consuming nations 375 billion dollars in crude oil costs every year.
". . . The Iraq war is not a moneymaker. But it could be an OPEC breaker. That however is a long-term outcome that will require Iraq to be successfully reconstituted into a functioning state in which massive oil sector investment can take place." 
The American people are largely oblivious to the economic risks regarding President Bush's upcoming war. Not only is Japan's weakened economy at grave risk from a spike in oil prices, but additional risks relate to Iran and Venezuela as well, either of whom could move to the euros, thus providing further momentum for OPEC to act on their 'internal discussions' and switch to the euro as their new oil currency. The Bush administration believes that by toppling Saddam they will remove the juggernaut, thus allowing the US to control Iraqi's huge oil reserves, and finally break-up and dissolve the 10 remaining countries in OPEC.
This last issue is undoubtedly a significant gamble even in the best-case scenario of a quick and relatively painless war that topples Saddam and leaves Iraq's oil fields intact. Undoubtedly, the OPEC cartel could feel threatened by the goal of the neo-conservatives to break-up OPEC's price controls ($22-$28 per barrel). Perhaps the Bush administration's ambitious goal of flooding the oil market with Iraqi crude may work, but I have doubts. Will OPEC simply tolerate quota-busting Iraqi oil production, thus delivering to them a lesson in self-inflicted hara-kiri (suicide)?
Contrarily, OPEC could meet in Vienna and in an act of self-preservation re-denominate the oil currency to the euro. Such a decision would mark the end of U.S. dollar hegemony, and thus the end of our precarious economic superpower status. Again, I offer the astute analysis of my expert friend regarding the colossal gamble this administration is about to undertake:
"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 for now and the foreseeable future.
"That such a course hasn't been pursued to date bears more relation to the fact that other Westernized, highly developed nations haven't any interest to undergo the great disruptions which would follow -- but it could assuredly take place in the event that the consensus view coalesces of the United States as any sort of 'rogue' nation. In other words, if the dangers of American global hegemony are ever perceived as a greater liability than the dangers of toppling the international order (or, alternately, if an 'every man for himself' crisis as discussed above spirals out of control and forces their hand). The Bush administration and the neo-conservative movement has set out on a multiple-front course to ensure that this cannot take place, in brief by a graduated assertion of military hegemony atop the existent economic hegemony.
Regrettably, under this administration we have returned to massive deficit spending, and the lack of strong SEC enforcement has further eroded investor confidence. Indeed, the flawed economic and tax policies and of the Bush administration may be exacerbating the weakness of the dollar, if not outright accelerating some countries to diversify their central bank reserve funds with euros as an alternative to the dollar. From a foreign policy perspective, the terminations of numerous international treaties and disdain for international cooperation via the U.N. and NATO have angered even our closest allies.
Synopsis: My personal perspective, like it or not.
It would appear that any attempt by OPEC member states in the Middle East or Latin America to transition to the euro as their oil transaction currency standard shall be met with either overt U.S. military actions or covert U.S. intelligence agency interventions. Under the guise of the perpetual 'war on terror' the Bush administration is manipulating the American people about the unspoken but very real macroeconomic reasons for this upcoming war with Iraq. This war in Iraq will not be based on any threat from Saddam's old WMD program, or from terrorism. This war will be over the global currency of oil.
Sadly, the U.S. has become largely ignorant and complacent. Too many of us are willing to be ruled by fear and lies, rather than by persuasion and truth. Will we allow our government to initiate the dangerous 'pre-emptive doctrine' by waging an unpopular war in Iraq, while we refuse to acknowledge that Saddam does not pose an imminent threat to the United States?
Furthermore, we seem unable to address the structural weakness of our economy due to massive debt manipulation, unaffordable 2001 tax cuts, record levels of trade deficits, corporate accounting abuses, unsustainable credit expansion, near zero personal savings, record personal indebtedness, and our dependence and over consumption of Middle Eastern oil.
Regardless of whatever Dr. Blix finds or doesn't find in Iraq regarding WMD, it appears that President Bush is determined to pursue his 'pre-emptive' imperialist war to secure a large portion of the earth's remaining hydrocarbons, and then use Iraq's underutilized oil to destroy the OPEC cartel. Will this gamble work?
That remains to be seen. However, it is quite plausible that our nation may suffer not only from increased Al-Qaeda sponsored terrorism, but economic retribution from the international community or OPEC members as well. Will we sit idle and watch CNN, as our government becomes an international pariah by discarding international law as it wages a unilateral war in Iraq? How can we effectively thwart the threat of international Al Qaeda terrorism if we alienate so many of our allies? We must ask ourselves this fundamental question: Is it morally defensible to deploy our brave but naïve young soldiers around the globe to enforce U.S. dollar hegemony for global oil transactions via the barrels of their guns?
Will we allow imperialist conquest of the Middle East to feed our excessive oil consumption, while ignoring the duplicitous overthrowing of a democratically elected government in Latin America? Is it acceptable for a U.S. President to threaten military force upon OPEC nation state(s) because of their sovereign choice of currency regarding their oil exports?
Paradoxically, these belligerent policies may bring about the dire outcome this administration hopes to prevent -- an OPEC currency switch to euros. Thus, remaining silent is not only misguided, but false patriotism. We must not stand silent and watch our country become a 'rogue' superpower, relying on brute force, thereby forcing the developed nations or OPEC to abandon the dollar standard -- and with the mere stroke of a pen -- slay the U.S. Empire.
This need not be our fate. When will we demand that our government begin the long and difficult journey towards energy conservation, the development of renewable energy sources, and sustained balanced budgets to allow real deficit reduction?
When will we repeal the unaffordable 2001 tax cuts to create a balanced budget, enforce corporate accounting laws, and substantially reinvest in our manufacturing and export sectors to gradually but earnestly move our economy from a trade account deficit position back into a trade account surplus position? Undoubtedly, we must make these and many more structural changes to our economy if we are to restore and maintain our international "safe harbor investment status.
Equally important, we must bear in mind the wisdom of founding fathers like Thomas Jefferson's who insisted that a free press is vital, as it is our best, and often the only mechanism to protect democracy. The American people are not aware of the issues discussed in this essay because the U.S. mass media has been reduced to a handful of consumption/entertainment and profit-oriented conglomerates that filter the flow of information within the U.S.
Sadly, part of today's dilemma lays within these U.S. media conglomerates that have failed in their responsibilities to inform the People. Our Congress must enact reforms, as this is a legitimate threat to our democracy. The Internet should not be our only source of real, unfiltered news.
Furthermore, it would seem imperative that our government begins discussions with the E.U. to reform the global monetary system. We must adopt our economy to accommodate the inevitable competition from the euro as an alternative international reserve currency. I concur with those enlightened economists who recommend that we create a dollar-euro exchange band with reserve status parity, and a dual-OPEC oil transaction standard.
However, the Bush administration's entrenched political ideology appears quite incompatible with these necessary economic reforms. Ultimately We must demand a new administration. We need responsible leaders who are willing to return to balanced budgets, conservative fiscal policies, and to our traditions of engaging in multilateral foreign policies while seeking broad international cooperation.
It has been said that all wars are fought over resources or ideology/religion. It appears that the Bush administration may soon add 'oil currency war' as a third paradigm. I fear that the world community will not tolerate a U.S. Empire that uses its military power to conquer sovereign nations who decide to sell their oil products in euros instead of dollars. Likewise, if President Bush pursues an essentially unilateral war against Iraq, I doubt the historians will be kind to him or his administration. Their agenda is clear to the world community, but when will U.S. patriots become cognizant of their modus operandi?
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