Euros As Their Oil Transaction Currency Standard example essay topic

Although completely unreported by the U.S. media and government, the answer to the Iraq enigma is simple yet shocking -- it is in large part an oil currency war. One of the core reasons for this upcoming war is this administration's goal of preventing further Organization of the Petroleum Exporting Countries (OPEC) momentum towards the euro as an oil transaction currency standard. However, in order to pre-empty OPEC, they need to gain geo-strategic control of Iraq along with its 2nd largest proven oil reserves. The second coalescing factor that is driving the Iraq war is the quiet acknowledgement by respected oil geologists and possibly this administration is the impending phenomenon known as Global 'Peak Oil.

' This is projected to occur around 2010, with Iraq and Saudi Arabia being the final two nations to reach peak oil production. The issue of Peak Oil has been added to the scope of this essay, along with the macroeconomics of 'petrodollar recycling' and the unpublicized but genuine challenge to U.S. dollar hegemony from the euro as an alternative oil transaction currency. The author advocates graduated reform of the global monetary system including a dollar / euro currency 'trading band' with reserve status parity, a dual OPEC oil transaction standard, and multilateral treaties via the UN regarding energy reform. Such reforms could potentially reduce future oil currency and oil warfare. The essay ends with a reflection and critique of current US economic and foreign policies. What happens in the 2004 US elections will have a large impact on the 21st century.

Revisited -- The Real Reasons for the Upcoming War With Iraq: A Macroeconomic and Geo strategic Analysis of the Unspoken Truth 'If a nation expects to be ignorant and free, it expects what never was and never will be... The People cannot be safe without information. When the press is free, and every man is able to read, all is safe. ' Those words by Thomas Jefferson embody the unfortunate state of affairs that have beset our nation. As our government prepares to go to war with Iraq, our country seems unable to answer even the most basic questions about this upcoming conflict.

First, why is there a lack of a broad international coalition for toppling Saddam? If Iraq's old weapons of mass destruction (WMD) program truly possessed the threat level that President Bush has repeatedly purported, why are our historic allies not joining a coalition to militarily disarm Saddam? Secondly, despite over 400 unfettered U. N inspections, there has been no evidence reported that Iraq has reconstituted its WMD program. Indeed, the Bush administration's claims about Iraq's WMD capability appear demonstrably false. [1] [2] Third, and despite President Bush's repeated claims, the CIA has not found any links between Saddam Hussein and Al Qaeda.

To the contrary, some intelligence analysts believe it is more likely Al Qaeda might acquire an unsecured former Soviet Union Weapon (s) of Mass Destruction, or potentially from sympathizers within a destabilized Pakistan. Moreover, immediately following Congress's vote on the Iraq Resolution, we suddenly became informed of North Korea's nuclear program violations. Kim Jong Il is processing uranium in order to produce nuclear weapons this year. (It should be noted that just after coming into office President Bush was informed in January 2001 of North Korea's suspected nuclear program). Despite the obvious contradictions, President Bush has not provided a rationale answer as to why Saddam's seemingly dormant WMD program possesses a more imminent threat that North Korea's active nuclear weapons program. Millions of people in the U.S. and around the world are asking the simple question: 'Why attack Iraq now?' Well, behind all the propaganda is a simple truth -- one of the core drivers for toppling Saddam is actually the euro currency, the -- .

Although apparently suppressed in the U.S. media, one of the answers to the Iraq enigma is simple yet shocking. The upcoming war in Iraq war is mostly about how the CIA, the Federal Reserve and the Bush / Cheney administration view hydrocarbons at the geo-strategic level, and the unspoken but overarching macroeconomic threats to the U.S. dollar from the euro. The Real Reasons for this upcoming war is this administration's goal of preventing further OPEC momentum towards the euro as an oil transaction currency standard, and to secure control of Iraq's oil before the onset of Peak Oil (predicted to occur around 2010). This essay will discuss the macroeconomics of the 'petrodollar' and the unpublicized but real threat to U.S. economic hegemony from the euro as an alternative oil transaction currency.

The following is how an individual very well versed in the nuances of macroeconomics alluded to the unspoken truth about this upcoming war with Iraq: 'The Federal Reserve's greatest nightmare is that OPEC will switch its international transactions from a dollar standard to a euro standard. Iraq actually made this switch in Nov. 2000 (when the euro was worth around 82 cents), and has actually made off like a bandit considering the dollar's steady depreciation against the euro. (Note: the dollar declined 17% against the euro in 2002.) 'The real reason the Bush administration wants a puppet government in Iraq -- or more importantly, the reason why the corporate-military-industrial network conglomerate wants a puppet government in Iraq -- is so that it will revert back to a dollar standard and stay that way. ' (While also hoping to veto any wider OPEC momentum towards the euro, especially from Iran -- the 2nd largest OPEC producer who is actively discussing a switch to euros for its oil exports). ' Although a collective switch by OPEC would be extremely unlikely barring a major panic on the U.S. dollar, it would appear that a gradual transition is quite plausible.

Furthermore, despite Saudi Arabia being our 'client state,' the Saudi regime appears increasingly weak / threatened from massive civil unrest. Some analysts believe civil unrest might unfold in Saudi Arabia, Iran and other Gulf states in the aftermath of an unpopular U.S. invasion and occupation of Iraq [3]. Undoubtedly, the Bush administration is acutely aware of these risks. Hence, the neo-conservative framework entails a large and permanent military presence in the Persian Gulf region in a post-Saddam era, just in case we need to surround and control Saudi's large Gha war oil fields in the event of a Saudi coup by an anti-western group. But first back to Iraq. 'Saddam sealed his fate when he decided to switch to the euro in late 2000 (and later converted his $10 billion reserve fund at the U.N. to euros) -- at that point, another manufactured Gulf War become inevitable under Bush II.

Only the most extreme circumstances could possibly stop that now and I strongly doubt anything can -- short of Saddam getting replaced with a pliant regime. 'Big Picture Perspective: Everything else aside from the reserve currency and the Saudi / Iran oil issues (i.e. domestic political issues and international criticism) is peripheral and of marginal consequence to this administration. Further, the dollar-euro threat is powerful enough that they will rather risk much of the economic backlash in the short-term to stave off the long-term dollar crash of an OPEC transaction standard change from dollars to euros. All of this fits into the broader Great Game that encompasses Russia, India, China. ' This information about Iraq's oil currency is not discussed by the U.S. media or the Bush administration as the truth could potentially curtail both investor and consumer confidence, reduce consumer borrowing / spending, create political pressure to form a new energy policy that slowly weans us off Middle-Eastern oil, and of course stop our march towards a war with Iraq. This quasi 'state secret' is addressed in a Radio Free Europe article that discussed Saddam's switch for his oil sales from dollars to the euros, to be effective November 6, 2000: 'Baghdad's switch from the dollar to the euro for oil trading is intended to rebuke Washington's hard-line on sanctions and encourage Europeans to challenge it.

But the political message will cost Iraq millions in lost revenue. RFE / RL correspondent Charles Reck nagel looks at what Baghdad will gain and lose, and the impact of the decision to go with the European currency. ' [4] At the time of the switch many analysts were surprised that Saddam was willing to give up approximately $270 million in oil revenue for what appeared to be a political statement. However, contrary to one of the main points of this November 2000 article, the steady depreciation of the dollar versus the euro since late 2001 means that Iraq has profited handsomely from the switch in their reserve and transaction currencies. Indeed, The Observer surprisingly divulged these facts in a recent article entitled: 'Iraq nets handsome profit by dumping dollar for euro,' (February 16, 2003).

'A bizarre political statement by Saddam Hussein has earned Iraq a windfall of hundreds of millions of euros. In October 2000 Iraq insisted upon dumping the US Dollar -- 'the currency of the enemy' -- for the more multilateral euro. ' [5] Although Iraq's oil currency switch appears to be completely censored by the U.S. media conglomerates, this UK article illustrates that the euro has gained almost 25% against the dollar since late 2001, which also applies to the $10 billion in Iraq's U.N. 'oil for food' reserve fund that was previously held in dollars has also gained that same percent value since the switch. It was reported in 2003 that Iraq's UN reserve fund had swelled from $10 billion dollars to 26 billion euros.

According to a former government analyst, the following scenario would occur if OPEC made an unlikely, but sudden (collective) switch to euros, as opposed to a gradual transition. 'Otherwise, the effect of an OPEC switch to the euro would be that oil-consuming nations would have to flush dollars out of their (central bank) reserve funds and replace these with euros. The dollar would crash anywhere from 20-40% in value and the consequences would be those one could expect from any currency collapse and massive inflation (think Argentina currency crisis, for example). You'd have foreign funds stream out of the U.S. stock markets and dollar denominated assets, there'd surely be a run on the banks much like the 1930's, the current account deficit would become unserviceable, the budget deficit would go into default, and so on. Your basic 3rd world economic crisis scenario. 'The United States economy is intimately tied to the dollar's role as reserve currency.

This doesn't mean that the U.S. couldn't function otherwise, but that the transition would have to be gradual to avoid such dislocations (and the ultimate result of this would probably be the U.S. and the E.U. switching roles in the global economy). ' Although the above scenario is unlikely, and most assuredly undesirable, under certain economic conditions it is plausible. In fact, one of the conditions that could create such an environment is a near unilateral U.S. led war in the Middle East. For example, a large spike in oil prices could create huge problems for the imperiled Japanese banking system, the world's largest holder of U.S. dollar reserves. Unfortunately the current Bush administration has chosen a military option instead of a multilateral conference on monetary reform to resolve these issues. In the aftermath of toppling Saddam it is clear the U.S. will keep a large and permanent military force in the Persian Gulf.

Indeed, there is no talk of an 'exit strategy,' as the military will be needed to protect the newly installed regime, and to send a message to other OPEC producers that they too might receive 'regime change' if they convert their oil payments to euros. An interesting yet again under reported story from last year relates to another OPEC 'Axis of Evil' country, Iran, who is vacillating on pricing their oil export in the euro currency. 'Iran's proposal to receive payments for crude oil sales to Europe in euros instead of U.S. dollars is based primarily on economics, Iranian and industry sources said. 'But politics are still likely to be a factor in any decision, they said, as Iran uses the opportunity to hit back at the U.S. government, which recently labeled it part of an 'axis of evil. ' 'The proposal, which is now being reviewed by the Central Bank of Iran, is likely to be approved if presented to the country's parliament, a parliamentary representative said. 'There is a very good chance MPs will agree to this idea... now that the euro is stronger, it is more logical,' the parliamentary representative said.

' [6] Moreover, and perhaps most telling, during 2002 the majority of reserve funds in Iran's central bank were shifted to euros. It appears imminent they intend to switch oil pay me nuts to euros. 'More than half of [Iran] the country's assets in the Forex Reserve Fund have been converted to euro, a member of the Parliament Development Commission, Mohammad Abasspour announced. He noted that higher parity rate of euro against the US dollar will give the Asian countries, particularly oil exporters, a chance to usher in a new chapter in ties with European Union's member countries.

'He said that the United States dominates other countries through its currency, noting that given the superiority of the dollar against other hard currencies, the US monopolizes global trade. The lawmaker expressed hope that the competition between euro and dollar would eliminate the monopoly in global trade. ' [7] After toppling Saddam, this administration may decide that Iran's disloyalty to the dollar qualifies them as the next target in the 'war on terror. ' Iran's interest in switching to the euro as their currency for oil exports is well documented. Perhaps U.S. operations against Iran will be mostly covert, but this MSNBC article alludes to ultimate objectives of the neo-conservatives. 'While still wrangling over how to overthrow Iraq's Saddam Hussein, the Bush administration is already looking for other targets.

President Bush has called for the ouster of Palestinian leader Yasir Arafat. Now some in the administration -- and allies at D.C. think tanks -- are eyeing Iran and even Saudi Arabia. As one senior British official put it: 'Everyone wants to go to Baghdad. Real men want to go to Tehran. ' ' [8] Aside from the geopolitical risks regarding Saudi Arabia and Iran, another risk factor is actually Japan. Perhaps the biggest gamble in a protracted Iraq war may be Japan's weak economy.

[9] If the war creates prolonged oil high prices ($45 per barrel over several months), or a short but massive oil price spike ($80 to $100 per barrel), some analysts believe Japan's fragile economy would collapse. Japan is quite hypersensitive to oil prices, and if its banks default, the collapse of the second largest economy would set in motion a sequence of events that could prove quite damaging to the U.S. economy. There is little doubt the Iraq war plan is designed to be a quick victory, with the U.S. military securing Iraq's vital oil fields at the very onset of hostilities. Nonetheless, other risks might arise if the Iraq war goes poorly or becomes prolonged.

It is possible that civil unrest may unfold in Iran, Saudi Arabia or other OPEC members in the Middle East. Such events could foster the very situation this administration is trying to prevent: another OPEC member switching to euros as their oil transaction currency standard. Incidentally, the final 'Axis of Evil' country, North Korea, recently decided to officially drop the dollar and begin using euros for trade, effective Dec. 7, 2002. [10] Unlike the OPEC-producers, North Korea's switch will have negligible economic impact, but it illustrates the geopolitical fallout of President Bush's harsh rhetoric. Much more troubling is North Korea's recent action following the oil embargo of their country. They are in dire need of oil and food; and in an act of desperation they have re-activated their pre-1994 nuclear program.

The re-processing uranium fuel rods appear to be taking place, and it appears their strategy is to prompt negotiations with the U.S. regarding food and oil. The CIA estimates that North Korea could produce 4-6 nuclear weapons by the second half of 2003. Ironically, this crisis over North Korea's nuclear program further confirms the fraudulent premise for which this war with Saddam was entirely contrived. During the 1990's the world viewed the U.S. as a rather self-absorbed but essentially benevolent superpower. Military actions in Iraq (1990-91 & 1998), Serbia and Kosovo (1999) were undertaken with NATO cooperation and UN involvement, thereby affording these operations with a sufficient level of international legitimacy.

President Clinton also worked to reduce tensions in Northern Ireland and attempted to negotiate a resolution to the Israeli-Palestinian conflict. With the exception of the Middle East, our superpower status was viewed as mostly benign. Our trade imbalances were tolerated, and balanced fiscal policies provided confidence. However, in both the pre and post 9/11 intervals, the 'America first' policies of the Bush administration, with its unwillingness to honor International Treaties, along with their aggressive militarization of foreign policy has significantly damaged our reputation abroad. Following 9/11, it appears that President Bush's 'warmongering rhetoric' has created global tensions -- as we are now viewed as a belligerent superpower willing to apply unilateral military force without U.N. approval. Moreover, this administrations failure to actively engage in negotiations regarding the Israeli / Palestinian conflict is unfortunate.

Lamentably, the tremendous amount of international sympathy we witnessed in the immediate aftermath of the September 11th tragedy has been replaced with fear and anger at our government. This administration's bellicosity has changed the worldview, and 'anti-Americanism' is proliferating even among our closest allies. [11] Equally alarming, and completely unreported in the US media, are significant monetary shifts in the reserve funds of foreign governments away from the dollar with movements towards the euro. [12] [13] [14] It appears the world community may lack faith in the Bush administration's flawed economic policies, and along with OPEC, seem poised to respond with economic retribution if the U.S. government is regarded as an uncontrollable and dangerous superpower. Despite the absence of media coverage, the plausibility of slowly abandoning the dollar standard for the euro is real.

An article by Hazel Henderson outlines the dynamics and the potential outcomes: 'The most likely end to US hegemony may come about through a combination of high oil prices (brought about by US foreign policies toward the Middle East) and deeper devaluation of the US dollar (expected by many economists). Some elements of this scenario: US global over-reach in the 'war on terrorism' already leading to deficits as far as the eye can see -- combined with historically-high US trade deficits -- lead to a further run on the dollar. This and the stock market doldrums make the US less attractive to the world's capital. More developing countries follow the lead of Venezuela and China in diversifying their currency reserves away from dollars and balanced with euros. Such a shift in dollar-euro holdings in Latin America and Asia could keep the dollar and euro close to parity.

OPEC could act on some of its internal discussions and decide (after concerted buying of euros in the open market) to announce at a future meeting in Vienna that OPEC's oil will be re-denominated in euros, or even a new oil-backed currency of their own. A US attack on Iraq sends oil to 40 (euros) per barrel. The Bush Administration's efforts to control the domestic political agenda backfires. Damage over the intelligence failures prior to 9/11 and warnings of imminent new terrorist attacks precipitate a further stock market slide. All efforts by Democrats and the 57% of the US public to shift energy policy toward renewable's, efficiency, standards, higher gas taxes, etc. are blocked by the Bush Administration and its fossils fuel industry supporters. Thus, the USA remains vulnerable to energy supply and price shocks.

The EU recognizes its own economic and political power as the euro rises further and becomes the world's other reserve currency. The G-8 pegs the euro and dollar into a trading band -- removing these two powerful currencies from speculators trading screens (a 'win-win' for everyone! ). Tony Blair persuades Brits of this larger reason for the UK to join the euro.

Developing countries lacking dollars or 'hard' currencies follow Venezuela's lead and begin bartering their undervalued commodities directly with each other in computerized swaps and counter trade deals. President Chavez has inked 13 such country barter deals on its oil, e. g., with Cuba in exchange for Cuban health paramedics who are setting up clinics in rural Venezuelan villages. The result of this scenario? The USA could no longer run its huge current account trade deficits or continue to wage open-ended global war on terrorism or evil.

The USA ceases pursuing unilateralist policies. A new US administration begins to return to its multilateralist tradition, ceases its obstruction and rejoins the UN and pursues more realistic international cooperation. ' [15] As for the events currently taking place in Venezuela, items #2 and #7 on the above list may allude to why the Bush administration quickly endorsed the failed military-led coup of Hugo Chavez in April 2002. Although the coup collapsed after 2 days with Chavez being restored to power, various reports suggest the CIA and a rather embarrassed Bush administration approved and may have been actively involved with the civilian / military coup plotters. 'George W. Bush's administration was the failed coup's primary loser, underscoring its bankrupt hemispheric policy. Now it is slowly filtering out that in recent months White House officials met with key coup figures, including Carmona.

Although the administration insists that it explicitly objected to any extra-constitutional action to remove Chavez, comments by senior U.S. officials did little to convey this... 'The CIA's role in a 1971 Chilean strike could have served as the working model for generating economic and social instability in order to topple Chavez. In the truckers's trike of that year, the agency secretly orchestrated and financed the artificial prolongation of a contrived work stoppage in order to economically asphyxiate the leftist Salvador Allende government. 'This scenario would have had CIA operatives acting in liaison with the Venezuelan military, as well as with opposition business and labor leaders, to convert a relatively minor afternoon-long work stoppage by senior management into a nearly successful coup de gr^ace. ' [16] Interestingly, according to an article by Michael Ruppert, Venezuelan's ambassador Francisco Mi eres-Lopez apparently floated the idea of switching to the euro approximately one year before the failed coup attempt. Furthermore, there is some evidence that the U.S. is still active in its attempts to overthrow the democratically elected Chavez administration.

In December 2002 a Uruguayan government official exposed the ongoing covert CIA operations in Venezuela: 'Uruguayan EP-FA congressman Jose Nayardi says he has information that far-reaching plan have been put into place by the CIA and other North American intelligence agencies to overthrow Venezuelan President Hugo Chavez Frias within the next 72 hours... Nayardi says he has received copies of top-secret communications between the Bush administration in Washington and the government of Uruguay requesting the latter's cooperation to support white collar executives and trade union activists to 'break down levels of intransigence within the Chavez Frias administration. ' ' [17] Venezuela is the fourth largest producer of oil, and the corporate elites whose political power runs unfettered in the Bush / Cheney oligarchy appear interested in privatizing Venezuela's oil industry. Furthermore, the establishment might be concerned that Chavez's 'barter deals' with 12 Latin American countries and Cuba are effectively cutting the U.S. dollar out of the vital oil transaction currency cycle. Commodities are being traded among these countries in exchange for Venezuela's oil, thereby reducing reliance on fiat dollars. If these unique oil transactions proliferate, they could create more devaluation pressure on the dollar by removing it from its crucial 'petro-recycling' role.

Continuing attempts to remove Hugo Chavez appear likely. The U.S. economy has acquired significant structural imbalances, including our record-high $503 billion trade account deficit (5% of GDP), a $6.9 trillion dollar deficit (60% of GDP), and the recent return to annual budget deficits in the hundreds of billions. These imbalances are exacerbated by the Bush administration's ideologically driven tax and budget policies, which are creating enormous deficits for the rest of this decade. These factors would significantly devalue the currency of any other nation under the 'rules of economics.

' Why is the dollar still the predominant currency despite these structural imbalances, and why does it appear immune from our twin deficits? While many Americans assume the strength of the U.S. dollar merely rests on our economic output (GDP), the ruling elites understand that the dollar's strength is founded on two fundamentally unique advantages relative to all other hard currencies. The reality is that the 'safe harbor's status of the U.S. dollar since 1945 rests on it being the international reserve currency. Thus it has assumed the role of sole currency for global oil transactions.