Petro-Dollars Part II: Could Iraq War Save US Economy?

[Andy]

Watched a TV programme the other ngiht about conspircay theories to do with the iraq war. After watching this i was still unsure as to what the term petro-dollar meant so had pengwuino look it up for me. He found this,

http://en.wikipedia.org/wiki/Petro-dollars

which contains this.

More recently, speculation has arisen that OPEC may switch from the US dollar to the Euro, inaugurating the Petroeuro. So far, OPEC has resisted this move although some OPEC members (such as Iran and Venezuela) have been pushing for a switch to the Euro. During Iraq's Oil-for-Food Programme, Saddam Hussein did switch to the Euro and some commentators claim this switch was another factor contributing to the 2003 Invasion of Iraq. As noted by Cóilín Nunan, "A move away from the dollar towards the euro could have a disastrous effect on the US economy" because the US's negative balance of trade is largely offset by its role as a reserve currency.

Now then I'm absolutely useless with economics but the other night the tv programme claimed that if the Oil was sold in euro's rather than the dollar then it could bankrupt America. That seems abit far-fetched to me but does that sound possible to anyone out there? And does it sound like Bush would go to war not to dfeat terrorism but to safe the US economy?

 

[Art]

Here's an excellent article that examines this whole issue.

BUSH'S DEEP REASONS FOR WAR ON IRAQ: OIL, PETRODOLLARS, AND THE OPEC EURO QUESTION The Unstated US Goal of Preserving Dollar Hegemony Over the Global Oil Market
Dominance of Middle Eastern oil will mean in effect maintaining dollar hegemony over the world oil economy. Given its present strategies, the US is constrained to demand no less. As I explain in this extract from my book, Drugs, Oil, and War (pp. 41-42, 53-54), the present value of the US dollar, unjustified on purely economic grounds, is maintained by political arrangements, one of the chief of which is to ensure that all OPEC oil purchases will continue to be denominated in US dollars. (This commitment of OPEC to dollar oil sales was secured in the 1970s by a secret agreement between the US and Saudi Arabia, before the two countries began to drift apart over Israel and other issues.) <8>
The chief reason why dollars are more than pieces of green paper is that countries all over the world need them for purchases, principally of oil. This requires them in addition to maintain dollar reserves to protect their own currency; and these reserves, when invested, help maintain the current high levels of the US securities markets.

http://ist-socrates.berkeley.edu/~pdscott/iraq.html The full article is well worth a read.

There are other sources of info on this topic available here

http://www.chinathetimes.com/phpBB2/viewtopic.php?t=53&highlight= such as this;

Ryan McGreal
Iran's danger to America is not its nuclear program but its plan to introduce a euro-based energy exchange.
Starting in 2006, Iran will start up an "oil bourse", or a stock exchange for trading energy, that will be based on the euro, not the US dollar. While this may seem innocuous, it will be a grave risk to continued American global hegemony.
Petrodollar Hegemony

 

[russ_watters]

Now then I'm absolutely useless with economics but the other night the tv programme claimed that if the Oil was sold in euro's rather than the dollar then it could bankrupt America. That seems abit far-fetched to me but does that sound possible to anyone out there? And does it sound like Bush would go to war not to dfeat terrorism but to safe the US economy?

Well, I think the threat posed is overblown, but since currency is basically a product sold by the US Treasury, the more dollars in circulation, the more money the US government gets. If oil were sold with Euros, it wuld mean less dollars being bought from the US. So it would have an impact - how big is a matter of considerable debate.

 

[Art]

Well, I think the threat posed is overblown, but since currency is basically a product sold by the US Treasury, the more dollars in circulation, the more money the US government gets. If oil were sold with Euros, it wuld mean less dollars being bought from the US. So it would have an impact - how big is a matter of considerable debate.

Can you show us a source which argues in this debate that the effect on the US economy would be anything less than catastrophic?

 

[edward]

Our problem with Iran, as with Iraq, is more about oil and oil economics than anything else. If we were truly concerned only about nuclear weapons we would have to start with North Korea. What the Iranians have proposed to start in March may possibly change the world oil markets, and declares war on the petro dollar.

In essence, Iran is about to commit a far greater "offense" than Saddam Hussein's conversion to the euro for Iraq's oil exports in the fall of 2000. Beginning in March 2006, the Tehran government has plans to begin competing with New York's NYMEX and London's IPE with respect to international oil trades – using a euro-based international oil-trading mechanism.[7] The proposed Iranian oil bourse signifies that without some sort of US intervention, the euro is going to establish a firm foothold in the international oil trade. Given U.S. debt levels and the stated neoconservative project of U.S. global domination, Tehran's objective constitutes an obvious encroachment on dollar supremacy in the crucial international oil market.

http://world.mediamonitors.net/content/view/full/17451

IMHO the FEDS response to the possibility of a petroEuro instead of a PetroDollar was to start hiding M3 starting in March. This will make it difficult for financial analysts to track or predict the inflation which will come about as we will be paying more dollars per barrel of oil.

Over the past two days, December 21st - when our first Hindenburg Omen (of whatever cluster is coming) - and Thursday December 22nd, the Federal Reserve has conducted one of the largest two-day Repo injections of money into the system since back in September 2001. On Wednesday they added $18.0 billion in reserves and on Thursday they added another $20.0 billion. Is this a coincidence, coming right as we get another Hindenburg Omen? Probably not. Is something high-risk going on behind the scenes here? Let's review some facts at the Fed. On November 10th, 2005, shortly after appointing Bernanke to replace Greenbackspan, the Fed mysteriously announced with little comment and no palatable justification that they will hide M-3 effective March 2006. M-3 has been the main staple of money supply measurement and transparent disclosure since the Fed was founded back in 1913. It is the key monetary aggregate that includes Fed Repo transactions, that mechanism whereby the Fed increases reserves. The date when M-3 will start being hidden also happens to be the exact month that Iran will declare economic war against the U.S. Dollar by trading its oil in Petro-Euros on its new bourse. But there is more. The Federal Reserve currently has three vacancies within the 19 top Regional Bank and Board of Governor spots. Why? Part of ongoing wholesale resignations.

http://forum.truthout.org/blog/?op=displaystory;sid=2005/12/23/125529/28

http://www.bloomberg.com/apps/news?pid=10000039&sid=abJD2CVu7kHk&refer=columnist_baum

 

[Andy]

Okay then, it would appear that the US economy will be badly affected by this so if this where to happen with how much force do you think the US governement will use to protect it's economy? Does anybody think that all this talk about Irans nuclear weapons research is just going to be an excuse to use nuclear weapons against them?

 

[alexandra]

Okay then, it would appear that the US economy will be badly affected by this so if this where to happen with how much force do you think the US governement will use to protect it's economy? Does anybody think that all this talk about Irans nuclear weapons research is just going to be an excuse to use nuclear weapons against them?

When US capital is threatened, conflict is bound to follow. The rhetoric in this CNN article (http://edition.cnn.com/2006/WORLD/meast/01/13/iran.nuclear/ ) suggests that they (the so-called 'international community') are gearing up for some drastic action right now, but I don't think nuclear weapons will be used against Iran - it's more likely to be a conventional military strike, and probably by Israel (as others have suggested). From what I've read, they're going to try for sanctions first - but sanctions take a while to be effective, so who knows? Another problem regarding the imposition of sanctions is that Russia and/or China may veto this proposal:

On Friday the British Foreign Office said all five permanent members of the U.N. Security Council, along with Germany, will meet Monday and Tuesday to discuss the nuclear standoff with Iran.

Senior officials from the EU-3 nations will attend the meeting along with representatives of the United States, China and Russia, the foreign office said in a written statement. All but Germany have veto power over any resolutions.

The meeting will focus on the language of a Security Council resolution that would not draw a Russian or Chinese veto, the statement said.

http://edition.cnn.com/2006/WORLD/meast/01/13/iran.nuclear/

But what I don't understand is if Iran is proposing to switch from US dollars to the Euro petrodollars, why is Merkel supporting Bush on this issue? Surely the switch to euros would favour the European Union? Does anyone have any ideas about what's going on here?

 

[Andy]

hmmm, it is very strange. I would have thought that the french and the germans would support the petro-euro so to have merkel come out and support bush on this issue doesn't quite fit. Unless she already knows that the US will not let Iran sell petro-euro's and she's just building bridges.

 

[alexandra]

hmmm, it is very strange. I would have thought that the french and the germans would support the petro-euro so to have merkel come out and support bush on this issue doesn't quite fit. Unless she already knows that the US will not let Iran sell petro-euro's and she's just building bridges.

This is my thought too, Andy - or perhaps there was some back-door dealing (or threatening?) done. Perhaps when we see how the actual vote pans out (who votes for what) we'll be in a better position to make a guess.

 

[Skyhunter]

Well, I think the threat posed is overblown, but since currency is basically a product sold by the US Treasury, the more dollars in circulation, the more money the US government gets. If oil were sold with Euros, it wuld mean less dollars being bought from the US. So it would have an impact - how big is a matter of considerable debate.

I for one qould be interested in seeing/hearing that debate. I have not heard anything at all positive about the prospects for the US economy if oil is traded in euros instead of dollars.

 

[Anttech]

I for one qould be interested in seeing/hearing that debate. I have not heard anything at all positive about the prospects for the US economy if oil is traded in euros instead of dollars.

The only good thing I can think of will be that the US will have to use up less paper to make dolars, and perhaps they could lay off some people at the printing press. Other than that, well it is not good

 

[SOS2008]

This is my thought too, Andy - or perhaps there was some back-door dealing (or threatening?) done. Perhaps when we see how the actual vote pans out (who votes for what) we'll be in a better position to make a guess.

Maybe they are more interested in diverting WWIII, because WWIII would be far more devastating for all.