The Guardian February 26, 2003

Battle of the currencies
The real reasons for the war on Iraq

by W Clark

Despite over 300 unfettered UN inspections to date, there has been no 
evidence reported of a reconstituted Iraqi WMD program and despite Bush's 
rhetoric, the CIA has not found any links between Saddam Hussein and al 

Although completely suppressed in the US media, the answer to the Iraq 
enigma is simple yet shocking. The upcoming war in Iraq is mostly about how 
the US ruling class and the Bush oligarchy view hydrocarbons at the geo-
strategic level, and the overarching macroeconomic threats to the US dollar 
from the euro.

The Real Reason for this upcoming war is this administration's goal of 
preventing further OPEC momentum towards the euro as an oil transaction 
currency standard. In order to pre-empt OPEC they need to gain geo-
strategic control of Iraq along with its second largest proven oil 

The following is how an astute and anonymous friend alluded to the unspoken 
truth about this upcoming war with Iraq...

"The [US] 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 80 
cents), and has actually made off like a bandit considering the dollar's 
steady depreciation against the euro."

"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 UN to euros)  at 
that point, another manufactured Gulf War become inevitable under Bush II.

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.

The euro has gained roughly 17 per cent against the dollar in that time, 
which also applies to the $10 billion in Iraq's UN "oil for food" reserve 
fund that was previously held in dollars has also gained that same percent 
value since the switch.

Permanent military presence

"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." (It hopes to veto any 
wider OPEC momentum towards the euro, especially from Iran  the second 
largest OPEC producer who is actively discussing a switch to euros for its 
oil exports.)

Furthermore, despite Saudi Arabia being our "client state", the Saudi 
regime appears increasingly weak/ threatened from massive civil unrest. 
Some analysts believe a "Saudi Revolution" might be plausible in the 
aftermath of an unpopular US invasion of Iraq.

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 grab Saudi's oil fields in the event of a coup 
by an anti-western group.

Everything else aside from the reserve currency and the Saudi/Iran oil 
issues is peripheral and of marginal consequence to this administration.

Further, the dollar-euro threat is powerful enough that they'll 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.

What would happen if OPEC made a sudden switch to euros, as opposed to a 
gradual transition?

"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 US stock markets and dollar 
denominated assets, there'd surely be a run on the banks much like the 
1930s, the current account deficit would become unserviceable, the budget 
deficit would go into default, and so on. Your basic third world economic 
crisis scenario." (Radio Free Europe/RL correspondent Charles Recknagel)

In the aftermath of toppling Saddam it is clear the US will keep a large 
and permanent military force in the Persian Gulf. Indeed, there is no "exit 
strategy" in Iraq, as the military will be needed to protect the newly 
installed Iraqi regime, and perhaps send a message to other OPEC producers 
that they might receive "regime change" if they too move to euros for their 
oil exports.

"Axis of Evil"

Another under-reported story from this summer regarding the other OPEC 
"Axis of Evil" country and their interest in selling oil in euros is Iran.

"Iran's proposal to receive payments for crude oil sales to Europe in euros 
instead of US 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 US government, 
which recently labeled it part of an 'axis of evil'." (Gutman, Roy & Barry, 
John, Beyond Baghdad: Expanding Targeting List)

Moreover and perhaps most telling, during 2002 the majority of reserve 
funds in Iran's central bank have been shifted to euros. It appears 
imminent that Iran intends to switch to euros for their oil currency.

After toppling Saddam, this administration may decide that Iran is the next 
target in the "war on terror".

"While still wrangling over how to overthrow Iraq's Saddam Hussein, the 
Bush administration is already looking for other targets. As one senior 
British official put it: "Everyone wants to go to Baghdad. Real men want to 
go to Tehran."

Aside from these political 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.

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 would prove devastating to the US economy.

Indeed, Japan's fall in an Iraq war could create the economic dislocations 
that begin in the Pacific Rim but quickly spread to Europe and Russia. The 
Russian Government lacks the controls to thwart a disorderly run on the 
dollar, and such an event could ultimately force an OPEC switch to euros.

Incidentally, the final "Axis of Evil" country, North Korea, recently 
decided to officially drop the dollar and begin using euros for trade, 
effective December 7, 2002. Unlike the OPEC-producers, their switch will 
have negligible economic impact, but it illustrates the geopolitical 
fallout of the President Bush's harsh rhetoric.

Even more alarming, and completely unreported in the US media, are some 
monetary shifts in the reserve funds of foreign governments away from the 
dollar with movements towards the euro (China, Venezuela, some OPEC 
producers and last week Russia flushed some of their dollars for euros).

It appears that the world community may lack faith in the Bush 
administration's economic policies, and along with OPEC, seems poised to 
respond with economic retribution if the US government is regarded as an 
uncontrollable and dangerous superpower. The plausibility of abandoning the 
dollar standard for the euro is growing.

An interesting UK article outlines the dynamics and the potential outcomes 
(Henderson, Hazel, Beyond Bush's Unilateralism: Another Bi-Polar World or 
A New Era of Win-Win?)

"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  

As for the events currently taking place in Venezuela the Bush 
administration quickly endorsed the failed military-led coup of Hugo Chavez 
in April 2002. Although the coup collapsed after two days, 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.

Interestingly, according to an article by Michael Ruppert, Venezuelan's 
ambassador Francisco Mieres-Lopez apparently floated the idea of switching 
to the euro as their oil currency standard approximately one year before 
the failed coup attempt.

Venezuela is the fourth largest producer of oil.

Furthermore, the establishment might be concerned that Chavez's "barter 
deals" with 12 Latin American countries and Cuba are effectively cutting 
the US 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. Continuing attempts by the CIA to remove Hugo 
Chavez appear likely.

"World trade is now a game in which the US produces dollars and the rest of 
the world produces things that dollars can buy. The world's interlinked 
economies no longer trade to capture a comparative advantage; they compete 
in exports to capture needed dollars to service dollar-denominated foreign 
debts and to accumulate dollar reserves to sustain the exchange value of 
their domestic currencies.

Dollar hegemony

"This phenomenon is known as dollar hegemony, which is created by the 
geopolitically constructed peculiarity that critical commodities, most 
notably oil, are denominated in dollars. Everyone accepts dollars because 
dollars can buy oil. The recycling of petro-dollars is the price the US has 
extracted from oil-producing countries for US tolerance of the oil-
exporting cartel since 1973." (Liu, Henry C K, US dollar hegemony has got 
to go, "Asia Times", 11-04-02)

However, the introduction of the euro is a significant new factor, and 
appears to be the primary threat to US economic hegemony.

Moreover, in December 2002 ten additional countries were approved for full 
membership into the E.U. In 2004 this will result in an aggregate GDP of 
$9.6 trillion and 450 million people, directly competing with the US 
economy ($10.5 trillion GDP, 280 million people).

Especially interesting is a speech given by Mr Javad Yarjani, the Head of 
OPEC's Petroleum Market Analysis Department, in a visit to Spain (April 
2002). He said:

"The Euro-zone has a bigger share of global trade than the US and while the 
US has a huge current account deficit, the euro area has a more, or 
balanced, external accounts position.

"From the EU's point of view, it is clear that Europe would prefer to see 
payments for oil shift from the dollar to the euro, which effectively 
removed the currency risk. It would also increase demand for the euro and 
thus help raise its value.

"Moreover, since oil is such an important commodity in global trade, in 
term of value, if pricing were to shift to the euro, it could provide a 
boost to the global acceptability of the single currency..

"Should the euro challenge the dollar in strength, which essentially could 
include it in the denomination of the oil bill, it could be that a system 
may emerge which benefits more countries in the long-term. Perhaps with 
increased European integration and a strong European economy, this may 
become a reality."

Facing these potentialities, I hypothesise that President Bush intends to 
topple Saddam in 2003 in a pre-emptive attempt to initiate massive Iraqi 
oil production far in excess of OPEC quotas, to reduce global oil prices, 
and thereby dismantle OPEC's price controls.

The end-goal of the neo-conservatives is incredibly bold yet simple in 
purpose, to use the "war on terror" as the premise to finally dissolve 
OPEC' s decision-making process, thus ultimately preventing the cartel's 
inevitable switch to pricing oil in euros.

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 US General for the first 
several months) will convert Iraq back to the dollar standard.

Next, with the US military protecting the oil fields, the Bush junta will 
undertake the necessary steps to rapidly increase production of Iraq oil, 
quintupling Iraq's current output  well beyond OPEC's two-million barrel 
per day quota.

Dr Nayyer Ali offers a succinct analysis of how Iraq's underutilised oil 
reserves will not be a "profit-maker" for the US Government, but it will 
serve as the crucial economic instrument used by the Bush junta to leverage 
and hopefully dissolve OPEC's price controls, thus causing the neo-
conservative's long sought goal of collapsing the OPEC cartel (15). (Iraq 
and oil, 13-12-02)

If Iraq were reintegrated into the world economy, it could allow massive 
investment in its oil sector and boost output.

What would be the consequences of this? First would be the collapse of 
OPEC, whose strategy of limiting production to maximize price will have 
finally reached its limit.

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 US 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 

"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 Westernised, 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."

The Bush administration and the neo-conservative movement has set out on a 
multiple-front course to ensure that this cannot take place by a graduated 
assertion of military hegemony atop the existent economic hegemony.

Despite President Bush's attempt to use the threat of applying military 
force to OPEC producers who may wish to switch to the euro for their oil 
payments, it appears their belligerent neo-conservative policies may 
paradoxically bring about the dire outcome they hope to prevent  an OPEC 
currency switch to euros.

The American people are not aware of such information due to the US mass 
media, which has been reduced to a handful of consumption/entertainment and 
profit-oriented conglomerates that filter the flow of information in the US 
Indeed, the Internet provides the only source of unfiltered "real news."

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 US military actions or 
covert intelligence agency interventions.

This war in Iraq will have nothing to [do] with any threat from Saddam's 
old WMD program. This war will be over the global currency of oil.

We must not stand silent and watch our country become a 'rogue' superpower, 
relying on brute force, thereby forcing the industrialized nations or OPEC 
to abandon the dollar standard  and thus with the mere stroke of a pen  
slay the US Empire?

* * *
The above article has been substantially abridged for reasons of space. The cross-heads were added by The Guardian. There are extensive references to the material used in it which are available from The Guardian

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