Posted on 09/30/2015 12:09:40 AM PDT by RC one
Since 1973 oil shock, US diplomacy is moved by the petrodollar system, creating artificial demand of greenback and fuelling global oil price in northward direction
On September 4, 2015, dead body of the 3-year old baby Aylin Kurdi on the sea shore of Turkey became viral in social media. Public got divided whether the man who photographed should have done it or not. However, very few were finding out the major culprit responsible for this killing. Some people on social media were found ill mouthing the smugglers who gave weak raft against much higher sum to his father for migrating from Turkey to Greece. However, nobody was able to find the reasons that led to the migration of the Kurdis from Syria to Turkey and finally to Greece. The Kurdis were forced to flee from Syria due to the ongoing proxy war in Syria and Iraq after the emergence of ISIS, an organisation, which we had reported as money making machine for the US in our previous issue(Read ‘Business of Terror’ in Dayafter dated September 1-15, 2015).
The petrodollar interest of the US, which has been impeding American administration to take any action against the wealthiest terrorist organisation, is one of the major reasons for proliferation of this proxy war in the region. The terrorist organisation has diluted the peace in Middle East countries creating havoc among the oil consuming nations. Such, a situation suits to the US administration as it helps creating increase in dollar demand in the global merchandise. Probably, it is one of the major reasons for other countries in the vicinity not been able to initiate military action against the ISIS and reinstate peace in the oil producing countries.
It’s not that Gulf countries are not aware of this. They are trying to come out of this crisis, but they are unable to garner global support in this regard. When Libya was going through internal crisis and the US administration was interfering for its petro dollar interest, Middle East countries led by the UAE tried to corner America by united Islamic countries protest, but King Salman of the UAE failed to take Pakistan with it. Hence, the entire gulf countries are forced to bleed further due to the petrodollar regime initiated by the American administration in early 1970s.
EARLY SEEDS
“The petrodollar system has been beneficial for the Americans both economically and politically. What began as a way to drive more demand for the US 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 greenback as the global currency of choice,” said Jerry Robinson, an oil and energy expert. This was important, especially following a temporary loss of dollar credibility after President Nixon’s decision to close the gold window.
This dollar for oil system enriched America, though at the cost of other nations because it helped Americans to create demand for their currency which was not backed by the American fundamentals. According to some projections, global oil demand is over 100 million barrels per day. And thanks to the petrodollar system, growing global demand for oil leads to an increase in US dollar demand. This artificial demand for US dollars has provided remarkable benefits for the US economy. It has also required the Federal Reserve to keep the dollar in plentiful supply.
“The dollar for oil system had a great impact on the American relations with other countries, especially in Middle East. Since the inception of petrodollar regime, American regime has been reacting to the world diplomacy by keeping its impact on the dollar for oil system,” said Jerry Robinson. Any global crisis is scrutinized in American power corridors in ‘good crisis’ — a crisis which can create dollar demand— and ‘bad crisis’ — a crisis that can dent the dollar demand.
OILING INSPECTOR RAJ
Since the dawn of the petroleum age, the geopolitical strategies concocted by developed nations have increasingly been centered on maintaining easy access to the world’s oil supplies. Only the truly naive could deny the obvious powerful economic and political incentives that are derived from access to cheap oil supplies.
And while most nations have a clear motivation to maintain easy access to the world’s cheapest oil supplies out of sheer economic necessity, as well as the political goodwill it engenders among the masses, this is certainly not the sole concern for the US. As you have discovered, the US has an additional unique incentive regarding the world’s oil. Namely, ensuring that all oil around the globe, both current supplies and future discoveries, remain priced in US dollars.
SHIFT IN DIPLOMACY
A simple examination of America’s foreign policy efforts in the wake of the ‘oil shock’ of 1973, and in the ensuing foundation of the petrodollar system in the mid 1970’s, makes it painstakingly clear to any casual political observer that a central goal of Washington has been to control global oil supplies, specifically in West Asia.
In 1973, in the wake of US 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 US 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 US troops to the Middle East for the explicit reason of protecting America’s oil interests.
On March 1, 1980, the US announced the creation of the Rapid Deployment Joint Task Force (RDJTF). The stated mission of the Rapid Deployment Force was as a deterrent (primarily against the Soviets) and to thus “help maintain regional stability and the Gulf oil-flow westward.”
On January 1, 1983, Carter’s Rapid Deployment Force morphed into a separate force known as the United States Central Command (USCENTCOM). USCENTCOM would be responsible for the Middle East and Central Asian regions.
GROWING MILITARY BASE
Since 1980, the US has feverishly built military bases all over Western Asia.
Understanding the petrodollar system will help us make sense of hundreds of US military bases stationed in over 130 countries. After all, maintaining an empire dependent upon a dollar for oil system is no cheap task and requires careful monitoring and oversight of the world’s oil supplies. Chief among the potential concerns for the petrodollar guardians are: threats of restrictions on oil supplies, new oil discoveries in potentially anti-Western oil fields, the nationalizing of a country’s oil supplies, and perhaps most importantly, devising permanent solutions to the problems presented by nations who dare challenge the current dollars for oil system.
As the primary guardian of the petrodollar, the US often finds its militaristic adventurism at odds with the goals of foreign nations who do not share the same enthusiasm for confronting sovereign nations over a system in which they share no real direct incentives.
Given these facts, let’s now explore how the petrodollar system has affected America’s foreign policy actions in the oil-rich region of Western Asia. We will begin with a look back at the events of America’s darkest hour.
IRAQ WAR
When Iraq was invading Quwait, global crude oil prices surged at an alarming level — a sign which was good for the artificial demand of greenback. At that time George W Bush Senior remained silent except some verbal services to the Quwait government. However, once the war was over and Iraq took over Quwaiti oil wells, the feared American regime attacked Iraq in the name of sovereignty and integrity of a democratic nation which had become hostage to Iraq.
In actual, the US government was trying to take control over the oil wells which had gone into the hands of Saddam Hussain — a leader who loved to be hated in America —in Iraq. Hussian could have over supplied the crude oil in the market leading to depreciation of the oil demand in global merchandise — a bad crisis from US perspective. When the US administration was attacking Iraq during the Gulf War in 1990, oil prices further went northward in the wake of demand-supply constraint.
IRAQ WAR PART-2
The tragic event of 9/11 still live on in the memory of every American. The dreadful carnage in New York City, Washington DC, and Shanksville, Pennsylvania was heart-rending to the billions around the world who watched the terror unfold before their eyes on live television.
Interestingly, just five hours after American Airlines Flight 77 crashed into the Pentagon, Secretary of Defense Donald Rumsfeld began ordering his staff to develop plans for a strike on Iraq — despite the fact that there was absolutely no evidence linking the country, or its leader Saddam Hussein, to the 9/11 attacks.
When reports later came in that three of the hijackers involved in the 9/11 attacks were connected to Al Qaeda, Rumsfeld reportedly became so determined to find a rationale for an attack on Iraq that “on 10 separate occasions he asked the CIA to find evidence linking Iraq to the terror attacks of Sept. 11.” The CIA repeatedly came back empty-handed.
On September 12, 2001, despite zero evidence against Iraq, Defense Secretary Rumsfeld proposed to President George W. Bush that Iraq should be “a principal target of the first round in the war against terrorism.” Bush, along with his other advisors, including Deputy Secretary of Defense Paul Wolfowitz, strongly supported the idea that Iraq should be included in their attack plans. Colin Powell, then Secretary of State, urged constraint however, stating that “public opinion has to be prepared before a move against Iraq is possible.”
In fairness, however, Washington had already been preparing for a new invasion of Iraq. 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.
Here’s a Pentagon document dated March 5, 2001, entitled Foreign Suitors for Iraqi Oil Field Contracts. It details how Iraq’s oil fields would be carved up and outsourced to Western oil companies two full years before the war. It would later be revealed that an invasion of Iraq was at the top of the Bush administration’s agenda only 10 days after his inauguration, which was a full eight months before 9/11.
OPPORTUNITY OF THREAT
In an explosive book entitled Against All Enemies by Bush’s former counterterrorism director, Richard A Clarke, the author recounts life inside the Bush Administration in the days immediately following the 9/11 attacks:
“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.”
On September 17, six short days after the 9/11 attacks, President George W. Bush named Osama Bin Laden as the “prime suspect” in the biggest terrorist act on American soil in history. Washington’s response was swift.
On October 7, 2001, Operation Enduring Freedom was launched. Thousands of US troops were sent into the mountainous regions of Afghanistan. Washington’s stated goal in this mission was clear, To capture Bin Laden, and to wipe out two groups intimately connected to him, Al Qaeda and the Taliban.
In the build-up to a separate war, U.S. officials began publicly claiming that Iraq, and its maniacal dictator Saddam Hussein, presented an entirely separate set of national security threats, despite the fact that no legitimate evidence linked Bin Laden to the country of Iraq.
IRAQ-PETRODOLLAR LINKS
But, the question remains to be answered, why Iraq? Why the rush to war with a country that so obviously had no connection with the events of 9/11? For this, we need to recall to recall the words of America’s own first national leader George Washington, “Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.”
William R. Clark was among those who questioned the status quo answers and Washington’s stated motives regarding the invasion of Iraq. In his book, Petrodollar Warfare, Clark claims that the 2003 U.S.-led invasion of Iraq was not based upon “violence or terrorism, but something very different, yet not altogether surprising – declining economic power and depleting hydrocarbons.”
According to research conducted by both Clark and Engdahl, “US-led invasion was inspired predominantly by Iraq’s public defiance of the petrodollar system.”
“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.”
Not long after this meeting, Saddam Hussein began preparing to make the switch from pricing his country’s oil exports in greenbacks to euro. As renegade and newsworthy as this action was on the part of Iraq, it was sparsely reported in the corporate-controlled media.
By 2002, Saddam had fully converted to a petroeuro — in essence, dumping the dollar.
On March 19, 2003, George W Bush Junior announced the commencement of a full scale invasion of Iraq.
According to Clark and Engdahl, Saddam’s bold threat to the petrodollar system had invited the full force and fury of the US military onto his front lawn.
OIL IS NOT WELL
The problem with the petrodollar system is the only way that it can be sustained is if the demand for the dollar and for US debt securities remains consistently strong. For if the artificial global dollar demand, made possible by the petrodollar system, were ever to crumble, foreign nations who had formerly found it beneficial to hold US dollars would suddenly find that they no longer needed the massive number that they were holding. This massive number of dollars, which would no longer be useful to foreign nations, would come rushing back to their place of origin, America. Obviously, an influx of dollars into the American economy would lead to massive inflationary pressures within our economic system.
It is important from the US perspective that the petrodollar system doesn’t collapse. IF it happens then foreign nations would begin sending a flood of US dollars back to America 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 realise 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.
This brief scenario is far from exhaustive and is probably very incomplete. But I provide it to help you understand the great economic damage that you and I, and our nation in general, would sustain if the petrodollar system were to collapse suddenly.
BEGINNING OF END
If Americans can understand the importance of continuity of petrodollar system, so does the global leadership, especially Chinese and Russians. In May 2014, when Russia and China sealed the ‘Holy Grail’ gas deal worth $400 billion, beginning of the petrodollar regime end. The deal is expected to solve nearly 25 percent of Chinese current natural gas demand. However, major concern for Americans from this deal is the currency that would be exchanged for this deal. Vladimir Putin has made it clear that it won’t receive dollar against the gas supplied to China. The former major of the disintegrated USSR is charging Chinese in Ruble.
It is well known that Chinese and Russians are working together against the Americans, and there are many countries that would be happy to join them in dethroning the US dollar as the world’s reserve currency. This historic gas deal between Russia and China is very bad news for the petrodollar. It’s also not a coincidence that Putin sealed the deal with China before the Australian, US, and Canadian liquefied natural gas (LNG) terminals are completed, because the deal is seriously negative for the much hyped LNG project.
CONDUSIVE GLOBAL CUES
This Sino-Russian step has support of the global cues where crude oil prices have been falling rapidly and have been below $50 per barrel. Irrespective of this fact, OPEC countries have been continuously harnessing more oil defying the US instructions. The OPEC countries, which are still under the shadows of Venezuela leader Hugo Chawez, who always ideated that oil exporting countries should dig out oil as per the demand of their citizens and maintain the demand-supply constraint in the global crude oil market. So that, artificial appreciation in greenback fuelled by global crude oil prices can be contained.
“Tight crude producers are aware that typical oil wells in shale plays decline 60 percent annually, and that losses can only be recouped by drilling new wells,” OPEC said in its monthly Oil Market Report in March 2015 and added, “As drilling subsides due to high costs and a potentially sustained low oil price, a drop in production can be expected to follow, possibly by late 2015.”
Adding salt to its injury, oil inventories have been rising continuously. At 448.9 million barrels, US crude oil inventories are at the highest level for this time of year in at least the last 80 years. Recent Iran nuclear deal can further dent the chances of oil price rise as it would allow Iran to export oil in global market as sanctions against it has been lifted. So, further oversupply of oil can’t be negated in coming days. A this juncture, a single blow of slowdown can dent the debt market of America leading to huge inflation and flow of dollar in its market as countries with its dollar reserves would start infusing it into the global merchandise to meet its import demands.
Pushing the talking points.
Pushing reality.
“Pure Bullshit!”
Pure fact. It’s all about the petrodollar.
Strange Logic , seems to me.
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