No, the Iran Oil Bourse is not a casus belli…
No, the Iran Oil Bourse is not a casus belli…
by F. William Engdahl
A number of writings have recently appeared with the thesis that the announced plans of the Teheran government to institute a Teheran Oil Bourse, perhaps as early as this month, is the real hidden reason behind the evident march to war on Iran from the Anglo-American powers. The thesis is in our opinion mistaken for many reasons, not the least, that war on Iran has been in planning since the 1990’s, as an integral part of the US Greater Middle East strategy.
More significantly, the Oil Bourse argument is a Red Herring that diverts attention from the real geopolitical grounds behind the march towards war which have been detailed on this website, including my piece, ‘Calculating the Risk of War in Iran’ which was posted on GlobalResearch.ca on January 29, 2006
In 1996, Richard Perle and Douglas Feith, two neo-conservatives later to play an important role in formulation of Bush Administration Pentagon policy in the Middle East, authored a paper for then-newly-elected Israeli Prime Minister, Benjamin Netanyahu. That advisory paper, ‘A Clean Break: a New Strategy for Securing the Realm,’ called on Netanyahu to make a ‘clean break from the peace process.’ They also called on Netanyahu to strengthen Israel’s defenses to better confront Syria and Iraq, and to go after Iran as the prop of Syria.
More than a year before President Bush declared Operation Shock and Awe against Iraq, he made his now infamous January 2002 State of the Union address to Congress in which he labelled Iran, along with Iraq and North Korea, as the ‘Axis of Evil’ trio. This was well before anyone in Teheran was even considering establishing an oil bourse to trade oil in various currencies.
The argument by those who believe that the Teheran Oil Bourse would be the casus belli, the trigger pushing Washington down the road to potential thermonuclear annihilation of Iran, seems to rest on the claim that by openly trading oil to other nations or buyers in Euros, Teheran would set into motion a chain of events in which nation after nation, buyer after buyer, would line up to buy oil no longer in US dollars but in Euros. That in turn, so goes the argument, would lead to a panic selling of dollars on world foreign exchange markets and a collapse of the role of the dollar as reserve currency, one of the ‘pillars of Empire.’ Basta! There goes the American Century down the tubes with the onset of the Teheran Oil Bourse…Reality is a little different.
Some background considerations
That argument fails to convince for a number of reasons. First, in the case of at least one of the Oil Bourse theory writers, their argument is based on a misunderstanding of the process which I described in my book, A Century of War, regarding the creation in 1974 of ‘petrodollar recycling’ in the wake of the orchestrated 400% OPEC oil price hike, a process with which then-US Secretary of State Henry Kissinger was deeply involved.
The dollar then did not become a ‘petrodollar’ although Kissinger spoke about the process of ‘recycling petrodollars.’ Instead what he referred to was the initiation of a new phase of US global hegemony in which the ‘petrodollar’ export earnings of OPEC oil lands would be recycled into the hands of the major New York and London banks and re-lent in form of dollar loans to oil deficit countries like Brazil or Argentina, creating what soon came to be known as he Latin American Debt Crisis.
The dollar at that time had been a fiat currency since August 1971 when President Richard Nixon first abrogated the Bretton Woods Treaty and refused to redeem US dollars held by foreign central banks for gold bullion. The dollar floated against other major currencies, falling more or less until it was revived by the turbo change of the 1973-4 oil price shock.
What the 1973 oil shock achieved for the sagging dollar was a sudden injection of global demand from nations confronted with 400% higher oil import bills. At that time, by postwar convention and convenience, as the dollar was the only reserve currency held around the world other than gold, oil was priced by all OPEC members in dollars as a practical exigency.
With the 400% price rise, nations such as France, Germany, Japan and other importers suddenly found reason to try to buy their oil directly in their own currencies—French Franc, German Deutschemarks or Japanese Yen—in order to lessen the pressure on their rapidly declining reserves of trade dollars. The US Treasury and Pentagon made certain that did not happen, partly with some Kissinger secret diplomacy, bullying threats, and a whopping big US military agreement with the key OPEC producer, Saudi Arabia. At that time it helped that the late Shah of Iran was seen in Washington to be a vassal of Kissinger.
The point was not that the dollar became a ‘petro’ currency. The point was that the reserve status of the dollar, now a paper currency, was bolstered by the 400% increase in world demand for dollars to buy oil. But that was only a part of the dollar story. In 1979, following the accession to power of the Ayatollah Khomeini in Iran, oil prices shot through the roof for the second time in six years. Yet, paradoxically, later that year the dollar began a precipitous free-fall, not rise. It was no ‘petrodollar.’
Foreign dollar holders began dumping their dollars as a protest to the foreign policies of the Jimmy Carter Administration. It was to deal with that dollar crisis that Carter was forced to bring in Paul Volcker to head the Federal Reserve in 1979. In October 1979 Volcker gave the dollar another turbo-charge by allowing interest rates in the US to rise some 300% in weeks, to well over 20%. That in turn forced global interest rates through the roof, triggered a global recession, mass unemployment and misery. It also ‘saved’ the dollar as sole reserve currency. The dollar was not a ‘petrodollar.’ It was the currency of issue of the greatest Superpower, a superpower determined to do what it needed to keep it that way.
The F-16 dollar backing
Since 1979 the US power establishment from Wall Street to Washington has maintained the status of the dollar as unchallenged global reserve currency. The role, however, is not a purely economic one. Reserve currency status is an adjunct of global power, of the US determination to dominate other nations and the global economic process. The US didn’t get reserve currency status by a democratic vote of world central banks, nor did the British Empire in the 19th Century. They fought wars for it.
For that reason, the status of the dollar as reserve currency depends on the status of the United States as the world’s unchallenged military superpower. In a sense, since August 1971 the dollar is no longer backed by gold. Instead, it is backed by F-16’s and MI Abrams battle tanks, operating in some 130 US bases around the world, defending liberty and the dollar.
A Euro challenge?
In order for the Euro to begin to challenge the reserve role of the US dollar a virtual revolution in policy would have to take place in Euroland. First the European Central Bank, the institutionalized, undemocratic institution created by the Maastricht Treaty in order to maintain the power of creditor banks in collecting their debts, would have to surrender power to elected legislators. It would then have to turn on the Euro printing presses and print Euros like there was no tomorrow. That is because the current size of the publicly-traded Euroland government bond market is still tiny in comparison with the huge US Treasury market.
As Michael Hudson explains in his brilliant and too-little studied work, ‘Super Imperialism,’ the peverse genius of the US global dollar hegemony was the realization, in the months after August 1971, that US power under a fiat dollar system was directly tied to the creation of dollar debt. The debt and US trade deficit was not the ‘problem,’ they realized. It was the ‘solution.’… …
El Cid:
I agree entirely with Goff’s comments and I too have grown tired of the tendency of many leftists to find one big thing that when “it” happens suddenly everything will change. If it’s a bad thing then when “it” happens supposedly things will suddenly get so bad that the long awaited revolution will happen (or at least “it” is so scary that presumably the listener / reader will jump right into your line). If it’s a good thing, then when “it” happens everyone will finally see that we are right and then together we new revolutionaries will pop out on to the streets, right all the wrongs quickly, and boom, our work is done. Unfortunately I think that a tremendous amount of work and organizing will be required, a lot of confusing advances as well as retrogrades will be faced, and if there is a sudden breakthrough it will be something which will be surprising but not entirely unanticipated.
7 May 2006, 1:25 pmPaul Waite:
I have begun reading Super Imperialism by Michael Hudson and find it interesting. I only have a small comment with regard to a statement made in the preface to the second edition. It certainly doesn’t affect the premise of his thesis or the outcome of his research, but I thought it worth mentioning. In the preface, Michael states “Since 1971(the removal of the u.s. dollar from the gold standard in August of that year)it has freed the u.s. economy from having to do what American diplomats insist that other debtor countries do when they run payments deficits: impose austerity to restore balance in its international payments. The United States alone has been free to pursue domestic expansion and foreign diplomacy with hardly a worry about the balance-of-payments consequences. Imposing austerity on debtor countries, America as the world’s largest debtor economy acts uniquely without financial constraint.” Although this is true, the idea that the u.s. is not imposing austerity measures domestically I don’t believe is totally true. It may have been true in the 70′s, but for the last 25+ years there have been numerous austerity measures directly and indirectly imposed on the american people(the workers and middle class, who make up the majority). The holding back of wages, increases in the costs of higher education, the cuts in spending for public education and various other programs, the increased cost of health care, the elimination of welfare as we know it, the attempt by the bush administration to privatize social security(and I am sure we have not heard the last of that yet, although it may be a while before some politician proposes a similar bill with a new twist), the breaking of unions, the increase in utility bills and the increase in fuel, etc. I know these austerity measures aren’t significantly reducing the domestic budget deficit and certainly is not reducing the foreign budget deficit, nor perhaps are they really intended to do so and are aimed at reducing taxes on the corporations and the rich to improve profits of the corporations and incomes of the rich by siphoning off money from the bottom 80% of the population. Nevertheless, austerity measures are being imposed domestically.
8 May 2006, 1:13 amStan:
Very good points. Hudson originally released this book in 1973 (?), and only updated the preface, the conclusions, and edited in a few new facts that supported his general theses… that being that (1) the POLITICAL aspect of maintiaining the international power of the US state is a primary driving force (a departure from the Lenin, Hobson, Hilferding notion of Imperialism) and (2) that US strength is now predicated on a monetary-military system based NOT on the US’s creditor status, but on its debtor status.
There is little doubt that the most brutal aspects of “structural adjustment” related to the debt-leverage system employed against poorer countries is also creepingin on the US working class, starting with the most vulnerable — especially the privatization aspect of it, but more and more the imposition of more deeply regressive tax systems.
Hudson has the tendency to refer to the whole body politic without much reference to class polarities because he looks at this in its interstate form.
While it’s true that these measures are being taken, the qualitative difference he points to is that the money-form continues to circulate within the US with no debt-based constraints on its supply, unlike other naitons, where appropriated funds that are servicing external debt (and transforming entire national economies into export platforms to sell in the US to get more dollars) in a kind of zero sum game that blocks domestic investment/development.
My recommendation of Gowan’s book as a kind of companion piece is precisely because Gowan focuses on the 90s, the Asian meltdown, and prefigures the increasingly precarious household debt overhang in the US that is essentially financing the consumer bacchanalia in the US which is simultaneously essential for the entire global financial architecture and moving inexorably toward its break-point.
In one sneak peek, the Saudi recently experienced a tramatic dip in their stock market, after making huge investments (with the vigorous encouragement of their own government) , in US real estate — a bubble of fictional value inflated ultimately by US currency printing pressed running on autopilot-overdrive.
There’s a lot made of the dollar falling, as if that is going to freak out Buffett and Gates and Soros, who can shift investiments by the billions with a phone call. In reality, these devaluaiton can be quite strategic — liquidating fictional value and wiping out the pruchasing power sitting in foreign central bank reserves as US debt.
I very much appreciate Paul weighing in on this. Many regard this as an arcane conversation, which is exactly why many on the left are totally not paying attention. It’s not sexy enough. Imperial debt never is. But — as Hudson shows in his financial history — it led to the conflagration of World War II… and in time it will lead to another Century of unimaginable misery if the bull (no financial pun intended) is not taken by the horns by social movements.
8 May 2006, 9:00 amCharles Brown:
I got a copy of Michael Hudson’s _Superimperialism_ at the A-List. I comment to help dispel, perhaps, the notion that the topic is arcane. On the other hand, I often ask myself how understanding macro-economics, world finance translates to practice in the class struggle. But that doesn’t stop me from regularly reading Progressive Economist Network list and others.
I think that Hudson can claim to have been something of a prophet. I say that because the prominence of the U.S. trade debt has risen especially in the last twenty years. I don’t think it was so large at the time Hudson wrote his book, and it is central to his thesis, if I understand it. In other words, developments since he wrote the book have confirmed his prediction.
I call his thesis, “the-U.S.-has-the-world-on-a-string-sittin’-on-a-rainbow-got-the-string-tied-around-its-finger. I believe a basic idea is that the U.S. can borrow money from other countries by paying them in bonds ( debt notes); and then the creditors cannot collect their debts from the U.S. without undermining their own current economic benefits, because their position depends on U.S. economic strength. So, the U.S. can “borrow” and not pay back the debt.
Or do I misrepresent ?
8 May 2006, 3:10 pmStan:
Bingo! There are two ways this works… One, without the US as the world’s premier consumer base (predicated on printing enough dollars), the “virtuous circuit of capital” cannot be upheld in the current world system — where the global proletariat that valorizes that capital is now spread through the global South as capital seeks to escape its own laws, ie, the tendency of the rate of profit to fall and the changing organic composition of capital. Two, the richer countries and industrial powerhouses like China, have tremendous dollar-denominated value (owning US debt) in the CB Reserves, which they would wipe out if the sell the dollar precipitously short and cause a panicked free-fall… the financial equivalent of saying that the emperor has no clothes.
I think what it has to do with class struggle is gives us an accuurate contextual understanding of actulaly-existing capital (the social relation), which is required to wage an effective fight.
You and I don’t think it is arcane. We were part of this conversation for the last — what — seven or so years (since Crashlist, wasn’t it?). I hope we can convince others likewise.
8 May 2006, 4:37 pmJames M:
Arcane, according to Webster’s: “Known or knowable only to the initiate.”
It is arcane in the sense that what separates someone like me from an “initiate” is a grasp of the necessary fundamentals for understanding the system. What people like Soros or Bernanke do might as well be alchemy to me, and to most people. And I’m sure they like it that way.
Still, the comments above are helping make sense of it. I get the big picture to a certain extent. What I need a better sense of, though, is the more precise mechanics of, say, the U.S.-China trade-imbalance relationship that enables the artificial stability of the dollar … I’m sure what I could glean from that would be applicable to the larger world situation. I’ve read a fair amount on the subject but still don’t think I could explain it to someone if asked.
And while these topics may not be sexy, they are highly germane to social / human-rights movements. I don’t think you can argue from a fully-informed standpoint about the current immigration debate, for example, without understanding U.S. debt-leveraging against Latin America.
8 May 2006, 6:39 pmCharles Brown:
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11 May 2006, 2:52 pmmark harms:
The Oil Bourse is not a casus belli but it is certainly not a red herring either. It’s impact may not be immediate but if it sparks a trend then the US economy could be in big trouble. Russia is already moving in the same direction as Iran and if other nations start backing similar initiatives in oil and other other commodities than the US is in trouble. however the larger seismic affects will not be felt until there are alternatives to wall st and lombard st for investing petro currency. It was the recycling of dollars that boosted the uS economy in the 70s not just the initial payment for oil.
25 May 2006, 8:00 amIn the short term the dollar could be actually strengthened by political unrest, as its still seen as the safest haven. This leads to a worrying scenario where it is actually in Americas interests to destable the rest of the world, especially if means it can effectively fight wars and get other people to pay for them as Hudson pointed out with reference to vietnam. however you cannot back a currency with nothing but military might in th elong term, instability causes a reduced trade which lessens demands for dollars.