Connect With Us

19. U.S. Dollar vs. the Euro: Another Reason for the Invasion of Iraq

Sources:

THE SIERRA TIMES, February 9, 2003
Title: “The Real Reasons for the Upcoming War with Iraq”
Author: William Clark

FEASTA, January 2003
Title: “Oil, Currency, and the War on Iraq”
Author: Cóilín Nunan

THE NATION, September 23, 2002
Title: The End of Empire
Author: William Greider

Faculty Evaluators: Wingham Liddell Ph.D, Tony White Ph.D , Phil Beard Ph.D.,
Thom Lough Ph.D.
Student Researchers: Effren Trejo, Kathleen Glover, Dylan Citrin-Cummins

President Richard Nixon removed U.S. currency from the gold standard in 1971. Since then, the world’s supply of oil has been traded in U.S. fiat dollars, making the dollar the dominant world reserve currency. Countries must provide the United States with goods and services for dollars – which the United States can freely print. To purchase energy and pay off any IMF debts, countries must hold vast dollar reserves. The world is attached to a currency that one country can produce at will. This means that – in addition to controlling world trade – the United States is importing substantial quantities of goods and services for very low relative costs.

The Euro has begun to emerge as a serious threat to dollar hegemony and U.S. economic dominance. The dollar may prevail throughout the Western Hemisphere, but the Euro and dollar are clashing in the former Soviet Union, Central Asia, Sub-Saharan Africa, and the Middle East.

In November 2000, Iraq became the first OPEC nation to begin selling its oil for Euros. Since then, the value of the Euro has increased 17%, and the dollar has begun to decline. One important reason for the invasion and installation of a U.S. dominated government in Iraq was to force the country back to the dollar. Another reason for the invasion is to dissuade further OPEC momentum toward the Euro, especially from Iran- the second largest OPEC producer, who was actively discussing a switch to Euros for its oil exports.

It is estimated that the dollar is currently overvalued by at least 40%, burdening the United States with a huge trade deficit. Conversely, the euro-zone does not run huge deficits, uses higher interest rates, and has an increasingly larger share of world trade. As the euro establishes its durability and comes into wider use, the dollar will no longer be the world’s only option. At that point, it would be easier for other nations to exercise financial leverage against the United States without damaging themselves or the global financial system as a whole.

Faced with waning international economic power, military superiority is the United States’ only tool for world domination. Although, the expense of this military control is unsustainable, says William Clark, “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 standard. This is America’s preeminent, inescapable Achilles Heel.” If American power is ever perceived globally as a greater liability than the dangers of toppling the international order, the U.S. systems of control can be eliminated and collapsed. When acting against world opinion – as in Iraq – an international consensus could brand the United States as a “rogue nation.”

UPDATED BY WILLIAM CLARK: Only time will tell what will happen in the aftermath of the Iraq war and U.S. occupation, but I am hopeful my research will contribute to the historical record and help others understand one of the important but hidden macroeconomic reasons for why we conquered Iraq. The Bush/Cheney administration probably believes that the occupation of Iraq and the installation of a large and permanent U.S. military presence in the Persian Gulf region will stop other OPEC producers from even considering switching the denomination of their oil sales from dollars to Euros. However, using the military to enforce dollar hegemony for oil transactions strikes me as a rather unwieldy and inappropriate strategy. Regrettably, President Bush and his neo-conservative advisors have exacerbated “anti-American” sentiments by applying a military option in Iraq that is in essence an economic problem. History may not look kindly upon their actions.

Despite the U.S. media reporting otherwise, the current wave of ‘global anti-Americanism’ is not against the American people or against American values – but against the hypocrisy of militant American Imperialism. The foreign polices of the neoconservatives may be creating the regrettable emergence of a possible European-Russian-Chinese alliance in an effort to counter American Imperialism. It appears that the structural imbalances in the U.S. economy, along with the Bush administration’s flawed tax, economic, and most principally their overtly imperialist foreign polices could result in the dollar’s reserve currency status and/or oil transaction currency status being placed in jeopardy or at the very least significantly diminished over the next 1-2 years. In the event that my hypothesis materializes, the U.S. economy will require restructuring in some manner to account for the reduction of either of these two pivotal advantages.

What is needed is a multilateral meeting of the G-7 nations to reform the international monetary system. Given that future wars will become more likely over oil and the currency of oil, the author advocates that the global monetary system be reformed without delay. This would include the dollar and euro being designated as equal international reserve currencies, and placed within an exchange band along with a dual-OPEC oil transaction currency standard. Additionally, the G-7 nations should also explore a future third reserve currency option regarding a yen/yuan bloc for East Asia. A compromise on the euro/oil issues via a multilateral treaty with a gradual phase-in of a dual-OPEC transaction currency standard could minimize economic dislocations within the U.S.

While these proposed multilateral reforms may lower our ability to finance our current massive levels of debt and maintain a global military presence, the benefits would include improving the quality of our lives and that of our children by reducing animosity towards the U.S., while we rebuild our alliances with the E.U. and world community. Creating balanced domestic fiscal polices along with global monetary reform is in the long-term national security interest of the United States, and necessary for the Global economy. Hopefully these proposed monetary reforms could mitigate future armed or economic warfare over oil, ultimately fostering a more stable, safer, and prosperous global economy in the 21st century.

UPDATE BY CÓILÍN NUNAN: At the time this article was written, the suggestion that Iraq’s move to selling oil for euros had something to do with the US threatening war against the country was just a theory. It still is a theory, but a theory which subsequent US actions have done little to dispel: the US has invaded Iraq, installed its own authority to rule the country and as soon as Iraqi oil became available to sell on the world market, it was announced that payment would be in dollars only (1). But the story doesn’t end there: the US trade deficit is still widening and the dollar falling. More and more oil exporters are talking openly about selling their commodity for euros instead of greenbacks. While Indonesia has only been considering it (2), Malaysia’s Prime Minister Dr Mahathir has been strongly encouraging his country’s oil industry to actually do it (3), which has led the European Union’s Energy Commissioner, Loyola de Palacio, to comment that she could see the euro replacing the dollar as the main currency for oil pricing (4). Iran meanwhile has been giving all the signs that it is about to switch to the euro: it has been issuing eurobonds, converting its foreign exchange reserves from dollars to euros and having warm trade negotiations with the EU. According to one recent report it has even started selling its oil to Europe for euros and encouraging Asian customers to pay in euros too (5). Should US talk of ‘regime change’ in Iran not be seen in the light of these facts? The media largely appear to think not since there has been little discussion of the dollar-euro connection with the ‘war on terror’. What discussion there has been may well be expanded upon in the future as neither the threat to the dollar and the US economy or the US threat to world peace are likely to go away any time soon.

1. Carola Hoyos and Kevin Morrison, ‘Iraq returns to international oil market’, Financial Times, June 5 2003,http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1054416466875
2. Kazi Mahmood, ‘Economic Shift Could Hurt U.S.-British Interests In Asia’, March 30 2003, IslamOnline.net
3. Shahanaaz Habib, ‘Use euro for oil prices, says Dr M’, The Star, June 16 2003,http://thestar.com.my/news/story.asp?file=/2003/6/17/nation/sboil&sec=nation
4. Reuters, ‘EU says oil could one day be priced in euros’, June 16 2003,http://biz.yahoo.com/rf/030616/energy_euro_2.html
5. C. Shivkumar, ‘Iran offers oil to Asian union on easier terms’, June 16 2003,http://thehindubusinessline.com/stories/2003061702380500.htm

Project Censored 2014
Receive a Free Project Censored "Top 25 Censored Stories" Book For Being a Member
Become a $5 monthly subscriber to Project Censored and as long as you are a member, every year we will send you the newest Project Censored Top 25 Most Censored Stories of the Year book. You can choose paperback or e-book, you can cancel your monthly support at any time, and your support is tax deductible. 

Book, button, 3@2x