Summary:

Although completely suppressed by the U.S. media and government, the answer to the Iraq enigma is simple yet shocking -- it is an oil currency war. The real reason 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-empt OPEC, they need to gain geo-strategic control of Iraq along with its 2nd largest proven oil reserves. This essay will discuss the macroeconomics of the 'petro-dollar' and the unpublicized but real threat to U.S. economic hegemony from the euro as an alternative oil transaction currency. The author advocates reform of the global monetary system including a dollar/euro currency 'trading band' with reserve status parity, and a dual OPEC oil transaction standard. These reforms could potentially reduce future oil currency warfare.

"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 almost no international support to topple Saddam? If Iraq's 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 350 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 rhetoric, the CIA has not found any links between Saddam Hussein and Al Qaeda. To the contrary, some intelligence analysts believe it is far 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. 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. Strangely, Donald Rumsfeld suggested that if Saddam were 'exiled' we could avoid an Iraq war. Confused yet? Well, I'm going to give their game away -- the core driver for toppling Saddam is actually the euro currency, the - €.

Although completely suppressed in the U.S. media, the answer to the Iraq enigma is simple yet shocking. The upcoming war in Iraq war is mostly about how the ruling class at Langley 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 Reason for this upcoming war is this administration's goal of preventing further OPEC momentum towards the euro as an oil transaction currency standard. However, in order to pre-empt OPEC, they need to gain geo-strategic control of Iraq along with its 2nd largest proven oil reserves.

This essay will discuss the macroeconomics of the 'petro-dollar' 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 astute and anonymous former-government employee/macroeconomist 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)."

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 U.S. invasion and occupation of Iraq (ie. Iran circa 1979). ^[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 Ghawar oil fields in the event of a 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 being censored by the U.S. media and 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' can be found on a Radio Free Europe article discussing Saddam's switch for his oil sales from dollars to the euros 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 Recknagel 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 millions 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 is astoundingly 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. According to the abovementioned former government macroeconomist, the following scenario would occur if OPEC made a 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 1930s, 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. Avoiding this Iraq war would require a responsible U.S. administration that convenes a meeting of the G-8 industrialized nations. The US could then negotiate the global monetary system and compromise on the euro/oil issue. Unfortunately the current Bush administration has chosen a military option instead of a multilateral conference on monetary reform. 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 '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 might receive 'regime change' if they convert their oil payments to euros.

An interesting yet again underreported story from this summer related to another OPEC 'Axis of Evil' country, Iran, who is vacillating on the euro issue.

"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 payments 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 this MSNBC article alludes to one of the objectives of 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 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. ^[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 devastating to the U.S. 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. Unlike the U.S. and U.K., 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.

Additionally, other risks might arise if the Iraq war goes poorly or becomes prolonged. It is possible that civil unrest may unfold in Kuwait or other OPEC members including Venezuela, as the latter has indicated they may switch to euros just as Saddam did in November 2000. This would foster the very situation this administration is trying to prevent: another OPEC member switching to euros as their oil transaction currency.

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. Processing uranium appears to be taking place at a rapid pace, 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.

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