Wanted to address both Turnea and moif..
Turnea it is believed firstly that KSA in return for total 100% control and nationalization of their oil from the US that a secret pact or arrangement between the two nations (US/KSA) was that KSA would only sell their oil in US dollars. It is my own personal opinion that once this deal was brokered...which was a result or a solution to the oil crisis in the late 1970s that OPEC died. Now if you watch OPEC and how she reacts to market fluctuations you will see that all she does is react...she is no longer in control and is constantly just in a frenzy to best adjust to the market.

Moif...there are entire books devoted to this very subject (the hidden Euro-Dollar wars) and so claiming you have no evidence to offer because this is such a touchy issue...avoided by most.. is not true at all.
Petrodollars was a cold war tactic. I personally feel it is a quite outdated "struggle" "conflict' or however you wish to define it. The US petrodollar set-up is how the US took out the USSR.. all on the backs of the poorest of the world.

Now I have read economist's accounts on the effects of the US losing world currency status and the numbers just do not support your view at all. I also personally believe that the petrodollar..as I said before is ...and was... by the time of the Iraqi invasion already a thing of the past. No one here in DC was planning a revival of it...this is a new strategy..a new US approach to the world..and a new goal. The petrodollar was the friendly cooperative and more socialist side of America..whereas what we see today is the aggressive, defensive and angry America.

The US dollar is now America's weakness...what the past US admins did in regards to promoting the dollar has now..in a time of war and gathering enemies placed the US in a VERY vulnerable position. I personally feel the US seeks to eliminate this....hence why the current admin supports a weaker dollar. We have to gather ourselves in and prepare for another attack and I honestly believe the US gov. has considered that attacks will come in various forms.
We have to shake all those off our backs..they have all had enough of a free ride and it is time for them to step up and take some responsibility too.
I think we have given enough to these nation's economies and I personally feel that a less dominant dollar and a lower valued dollar is what is best for America right now.

I know this is a hard concept for many to grasp or even accept of the US but in this case having our currency weak is an advantage...weakness is an advantage for the US.

The rest of the industrialized world has benefited GREATLY off the strength of the dollar by remaining soft and flexible...yet having the US stand up and take action..be the bully..be the tough guy. I think finally the US has realized this hard currency stance is not only inflexible but a precarious and dangerous position to have and..and none of our allies will have our back because none of them are capable.

I couldn't disagree more with the petrodollar theory..yes perhaps if we were speaking of the 1980s but we aren't this is 2005 and times a' changing...hallelujah!

.

Yes, this is absolutely the case. There was a long string of events that clearly gave UBL the perception that the US lacked the will power to respond. He saw it in the first WTC attack, he saw it in the African embassies, he saw it in Somalia, he saw it with the USS Cole. What he didn't see is that we viewed these as relatively minor events, and that we had simply not yet been roused to respond.



No, I didn't see it with the start of the Euro....just as the initial drive to push for conclusion to the Iraqi issue started. It became clear, to me, that nothing short of regime change was going to be acceptable, and that invasion was the only way to bring that about. I believe this is one of the distinctions that may have been misunderstood....regime change became imperative...WMD was only an aspect of that. All of the alternative proposals dealt solely with the WMD aspect, and were therefore insufficient to meet the goal (and in fact acted against it). If Europe misjudged our intention, I think it could only be because they misunderstood the objective.



I think we would have. In short, I think 9-11 demonstrated that we (the US) had not been dealing sufficiently with various issues against us (see the UBL list above), and the ramifications of that. Once that was realized, Saddam's fate was sealed....the Iraqi situation had been ongoing for 12 years, and it was decided to resolve it. Only regime change would offer final resolution. I think oil, dollars, etc. were all subsidiary reasons...the primary motivation was more one of realization of the eventual ramifications of leaving issues unresolved, combined with the realization that fundamental social change in the Middle East was required to truly address the issue of terrorism.



Yes, I'm sure this was the strategy. It seemed clear, prior to 9-11, that the US was indeed the sole superpower, which would give rise to a period of economic competetion post Cold War. I think the EU was created to be more competetive in that environment. I can see two ways this would effect their views of the War in Iraq. Either they would be against the war, as it would raise the possibility of a larger, more protracted confrontation, thereby extended the period in which US military power would dominate global politics. Or, they would be in favor of the US suffering a setback in the war, thereby speeding up the curtailment of US military dominance in global politics. In either scenario, working against the drive to war was the path to take diplomatically.



Going back to the above argument, I raise the following hypothesis. The rest of the EU fell into scenario one, which was the concern that the war in Iraq would lead to a greater confrontation, delaying the rise of economic power over military power in terms of which was dominating global politics. France, however, seems like it might have fallen into the latter category, pushing more for actual failure of the US military to deal with Iraq....thereby creating a global power vacuum that I think Chirac was positioning France to fill. This would then vault France to the forefront of the EU power structure...something I think you would readily agree they desire.



Hmmmm...very good question. I think the main candidate might be.....France again? If anything, I would think our sibling issues are more internal...with the weird sibling varying depending on which party is currently in power.




Yes, I think, given the reactions he had seen in his previous issues with the US...I do think he did indeed feel his attack would go unpunished, with a large public outcry for a peaceful resolution, and a pullback of American interactions in foreign affairs.



I think the situation there is much the same as the situation domestically. Which is that as the military need for the bases dwindled, their economic impact rises to the forefront. The larger the base, the greater its economic impact. I believe that, for some time now, the majority of European bases have been kept open at the behest of the host government due to the economic consisderations....just as they are here. Surely, their is still a large military strategic impact....but economics plays a major role in these decisions.

Mrs Pigpen

As usualy, I think you're right. The Euro doesn't seem to have been damaged by the war at all..



bucket

Welcome back. A lot of food for thought in your post but...

... I can hardly offer a book I haven't read as evidence can I?

I have not left yet...I leave Saturday. In the UK if a person dies suddenly..like many elderly do..then by law you have to have an autopsy. Often there is quite a wait..it took a full moth til we could bury my last nan.

You said you wished you had resources...as if they don't exist..but they do. I think this is a pretty popular conspiracy was my point.

Excuse me for jumping in mid-debate . Just wanted to share this "euro-dollar petro-currency rivalry chart," which clearly shows the gains and losses at a glance, as I think it might also be of some general interest in the context of the on-going "oil/currency war" debate:

1) January 1999: launch of the euro.

2) January 1999 ­ Oct 2000: euro in "bear market" versus the dollar.

3) November 2000: Iraq switches oil sales to euro. Euro's fall versus the dollar is halted.

4) April 2002: senior OPEC representative gives speech in which he states that OPEC would consider possibility of selling oil in euros.

5) April 2002 to May 2003: euro in "bull market" versus the dollar.

6) June 2003: US switches Iraqi oil sales back to dollar.

7) June 2003 to September 2003: euro falls versus dollar.

8) October 2003 to early February 2004: statements by Russian and OPEC politicians/officials that switch to euro for oil sales is being considered. Euro's value versus the dollar increases.

9) 10 February 2004: OPEC meets and no decision to switch to euro is taken.

10) February 2004 to May 2004: euro falls versus the dollar.

11) June 2004: Iran announces intention to establish oil-trading market to rival those of London and New York.

12) June 2004: euro's value versus the dollar begins to increase again.

Source (in .PDF): Petrodollar or Petroeuro? A new source of global conflict by Cóilín Nunan

Makes an interesting read, as does this article (dating pre-war January 2003) by the same author Cóilín Nunan (who, according to his bio, has "studied mathematics at the universities of Brussels, Cambridge and Oxford"):

Cóilín Nunan: Oil, Currency and the War on Iraq

For further reading, EnergyBulletin.net, a "clearinghouse for current information regarding the peak in global energy supply," seems like a good source for oil news and research.

I, for one, believe that the unholy trinity of weak dollar--skyrocketing deficit--petro-currency will be devastating for the US dollar, indeed, for the United States of America as we know it, as euro slowly replaces the dollar as the global reserve currency. The British empire, running similar debts, for the very same reason lost her global hegemony as dollar replaced the sterling as the global reserve currency. The mechanics have not changed a bit.

Larissa,

Thanks for the good information. I am willing to admit there is indeed a correlation here. However, with currency fluctuations like this, you run into a chicken vs. the egg dilemma. Is the Euro strengthening or weakening vs. the dollar because of the oil purchases, or are the oil purchases changing currency because of expected/actual changes in the currency valuation? Such data doesn't answer this question, which is crucial to deciding the impact these actions would have had in the war in Iraq.



Ditto for this argument. Did the British empire lose its hegemony because the dollar replaced the sterling....or was that just a symptom? Can't really say...although in this case I would argue strongly that the waning empire came first....the switch in currency then followed. Which is why I am skeptical of the dire consequences of currency switching in petrol sales. Not denying it could be the case...but skeptical nonetheless. I would need to see more proof that the currency switch does indeed lead to dollar devaluation, and further that such devaluation has negative long-term consequences. Remember that currency fluctuations, particularly for the dollar, tend to be self-correcting, as the dollars devaluation impacts foreign trade in ways which bring the value back into balance. EU goods would become more expensive, reducing imports, slowing the EU economy...and thereby reducing the value of the Euro. This has been going on with the dollar vs. European and Japanese currency for quite some time, with no dire consequences for any of the groups.

Did the US government invade Iraq to control the oil?

There is far too much in this thread to catch up on each person's position. My belief is that the war isn’t so much about the oil itself as it is the power that control of the oil represents. Once the US controls Middle East oil, the rest of the world will be at US mercies.

I ran across this essay that is pertinent to the discussion, especially as regards the Euro vs. dollar.
The author's book, "Petrodollar Warfare : Oil, Iraq and the Future of the Dollar" has been published and is available on Amazon.

Did the US government invade Iraq to control the oil?

I think it's going to be a generation, at least, until we know the full truth about Iraq.

What were the reasons the neocons gave for going? In order:

1. Iraq had WMD. (The argumnent easiest to market to the public?)
2. Iraq had a substantial pre-9/11 connection with bin Laden. (Plan B?)
3. Create a democracy in Iraq. (Backup plan?)
4. Control Oil. (Hidden agenda?)

I would suggest that how fast historians unravel whast happened in Iraq will depend on what documents are released after Bush leaves office and how soon they are released.

Given the uncertainty of what information historians wull have to work with, I'll pass on the other questions.

Many of the same factor are in play in both situation.

Bush could not use military power to implement Social Security because the military cannot control Social Security under US law.

Likewise, the US military does not control the Iraqi oil ministry.


Nonsense, the whole point of my previous post was that Bush did not "invent" any pretext at all.

The situation of Iraqi WMD was viewed by succesive American presidents as a threat to US and world security for over a decade.


There are requests and then there are requests. If the Iraqi government demanded a troop withdrawal they would get it.



No I think you missed my point, military power cannot trump all other powers. Sistani would not have to call up a militia (although he could) he could order Iraqi Shia off the job around the country, stage sit-in's, grind the country to a halt.

He could have Shia workers in the Ministry simply sabotage the equipment beyond repair or threaten to do so.

These are political and economic means which the US could do nothing to stop.

... he would also have the option of military power, One of the main pipelines still operable passed by Basra, one of his bases of power. It could become as dead as the pipelines to the north.



I said it again because you didn't address it. You claim the Iraqis could not demand a pullout because of the chaos. I counter that the chaos has reduced Iraq's oil output to a trickle which defeats the supposed purpose of taking over the country.

Once the chaos subsides and the oil flows freely, the Iraqi could order the US out without fear.

As much as you refuse to believe it, the sheer numbers of Iraqi and there positions in key political and economic structures mean they do hold the ultimate power in that country, not the US.

Which is as it should be.

I give you the same argument I give moif if the country stays in chaos it produces very little oil (as we are seeing now). If it leaves chaos then the threat of civil war is not enough to keep US troops in Iraq.

...and no good deed goes unpunished.

Regardless of who brought them to power, if the US acts against their interests they will not cooperate.

This reflects a simplistic view of Iraq. The Shia and Kurds (80% of the country) have little problem working together. The Sunnis hate the US enough to refuse any attempts by the US to use them in such a manner.

The US could not "engineer internal hostility" in Iraq. Al-Qaeda has been trying to do so for over a year with no success. Shia and Kurdish leaders refuse to be caught in a civil war.

You are more than welcome to jump into the debate any time you wish, and thanks for the useful info.

True to form, I must now ask for more.

Hobbes bring up a good point of possibly confused cause and effect. How much money would the US lose if Iraq traded in Euros?

Would it be comparable the hundreds of billions spent on the war itself?

What would Iraq matter in this case, since it is much less economically important that China or even Saudi Arabia?

etc.

Of course the war in Iraq does not translate to increased control of Middle East oil...

Let’s imagine a world where there are only four countries:

D is Dollarland
E is Euroland
O is Oilland
RW is the Rest of the World Land

1. Dollarland and Oilland strike a deal that O will sell its oil for D’s dollars and only for D’s dollars, which D and D alone can print. Print against what? Well, that is the real question here, because, you see…

2. …the Dollarland is, in fact, not only rat-poor and penniless but deep, deep in debt. But hey, it does not really matter, because, you see…

3. …the Rest of the World Land needs D’s dollars to buy oil. Well, how does RW get dollars? Buy importing stuff to Dollarland in exchange of dollars with which to buy oil.

4. Ah, but one day Oilland decides to switch from D’s dollars to E’s euros.

5. Now, suddenly, the Rest of the World Land no longer needs dollars. Nor does RW need to import stuff to Dollarland in exchange of dollars. Instead, RW starts to import stuff to Euroland to get euros to buy oil.

6. Okay, then how does Dollarland buy oil? Why, Dollarland imports stuff to Euroland in exchange of euros with which to buy oil, of course.

7. Then what is the Dollarland to do with the now useless dollars when the Rest of the World no longer wants them, and the Dollarland itself no longer can use its own dollars to buy oil for its own consumption? Nobody wants dollars. No, in fact, the Rest of the World is quickly getting rid of its reserve of dollars because, well, they are useless. Only euros will buy oil. Which means…

8. …that soon the Dollarland is swimming in its own dud dollars. Is the Dollarland turning into another Argentine? And how is the Dollarland to keep up with its high standard of living when RW no longer imports stuff to Dollarland in exchange of dollars which the Dollarland prints? Sure, Dollarland still exports stuff to Euroland in exchange of euros with which to buy oil, but for a long time the Dollarland has been importing more stuff than it has been exporting. Well, okay, the Dollarland could, of course…

9. …actually buy stuff. Only, buy stuff with what? You see, as noted before, the Dollarland is penniless and deep, deep, deep in debt.

10. How does the Dollarland save itself? By making sure Oilland does not forsake dollar and switch to euros – or, if it does, act and make sure Oilland switches back to dollars?

In June 2003, less than two months after the invasion, US switched Iraqi oil sales back to dollar, this against the fact that Iraq was making more money in euro sales.

That is the nuts and bolts story of a slight of a budget deficit and the woes of petro-currency.

Are you saying that RW cannot trade directly for dollars in equivalent currency?


Were they?

..and of course Iraq especially in its condition before the war, hardly consituted "Oil Land" all on its lonesome. It provided only a small percentage of the world's oil.

You mean export stuff to Euroland, I think? We have a trade deficit not because countries need to export things to us for our dollars to buy oil, but because we like to buy items cheaply. Currencies can be exchanged, so there is no need to export materials to us to obtain dollars...and our debt is funded by countries, individuals, banks, and corporations via bonds, treasure bills, etc. Some other countries have reserves of our currency, which they might "dump" SLOWLY (and they are), in favor of the euro or other currency. However, decreasing the value of the dollar would decrease the value of their remaining reserves and decrease the returns of all of that money which they lent out, so it will be a gradual process. Secondly, though Dollarland has its debts, it still has (by far) the highest GDP in the world at this time. I think someone will still lend us money.

Edited to add: Incidentally, it is interesting that Saddam changed to the euro currency over a year before even Europe was using it (e day was January 1, 2002). No wonder some thought he was a bit crazy.

Surely then, if leaving the country will plung it into chaos and make the infant democracy vulnerable, and that chaos means little oil, the position of being able to withdraw unless granted contracts DOES mean power (in the short term) over oil production.

Regardless of the above, the US forces being in Iraq and so close to the government puts US companies ahead of those from France and Russia in getting those contracts without need for threats. That was the point; it was less about making threats, and pre-empting and cancelling prior deals, but better positioning the US for oil production compared to the competition. France and Russia already lost out by having to look at renegotiating deals, and if the US can have sway over Iraq, then it has a foot in OPEC. If as said above OPEC is more of a follower than a leader currently, then it is easier to influence them and thus prices either passively or actively.



Maybe; indeed I haven't looked at the different strains and groups to know what they disagree on. But if they have such little problem working together, why didn't they do so to overthrow Saddam themselves? I'm not aware of any great allegiance between them. Indeed, i understand they used to fight. That they CAN work together doesn't mean that they would naturally do so, and that being the case, divisions can be fairly easily created. If evidence was given, for example, that one groups militia off'd a senior member of another group, it would cause problems. Such situations have been manipulated before: why not now?

I assume Al-queda have been trying to rally them all to attack the US, but it wouldn't have served their agenda's since they were acheiving progress. They wouldn't want them to attack each other, which could be easier in the current climate.

Here's the flaw I see in the petrodollar argument. It assumes that oil sales account for the majority of currency transactions on earth. This is far from the case for the entire industry....when you then look at only the Iraqi component, it becomes completely insignificant. Current Iraqi oil production amounts to about $3.5 billion annually...with peak production expected to be about $30 billion. Compare this to the global economic output...it is easy to see that even the $30 billion is insignificant by several zeros. Even compared just to the trade deficit, it is but a minor factor....amounting currently to about 6/10's of a percent of the annual trade deficit. Consider further what that trade deficit means....we are importing far more than we are exporting. Therefore we are buying...in US dollars... far more than we are selling in other currencies. This means that the world is being flooded with dollars, regardless of whether or not OPEC purchases are done in dollars or Euros. Given that, if petrodollars are truly important, it would the EU that would have been invading Iraq, not the US...as it is the EU that needs the currency transfer more than the US. While this might explain the EU opposition to the war...it would have been irrelevant to us as far as initiating it. Countries don't go to war to get resources there is already a surplus of.

TURNEA:
No, I’m not saying that; this was an Imagined World, after all, exempt from all other variables save Dollarland which produces dollars, Euroland which produces euros, Oilland which produces oil, and RW which produces stuff, created to illustrate the connection between massive budget deficits and petro-currency.

But let’s say our Imagined World also circulates yens and rubles; sure, rubles are good if you want to buy an ice-cream at the Red Square. If you want to buy oil to make that ice-cream or those rubles, however, you need Dollarland’s dollars. What changes? The Dollarland still stacks neither yens nor rubles as the Dollarland runs, say – purely hypothetically, of course – a 3,800,000,000,000.00 international debt and growing, 7,700,000,000,000.00 federal debt and growing; the interest alone is something like 40,000,000 per hour. Plus private household, consumer & business sector debt of, oh well, 28,900,000,000,000.00. That is a lot of rubles.

The Dollarland’s petro-dollars are like dud cheques. RW imports stuff and “equivalent currency,” if you like, to Dollarland because RW needs the dollars the Dollarland alone prints. And Dollarland keeps writing those dud cheques (read: print more excess dollar and risk feeding too much money into the system in order to finance the federal budget) whenever it needs to buy stuff from RW. But hey, dud cheques don’t matter as long as they are in the circulation and nobody tries to cash them, right? RW imports stuff to D, gets D’s cheque in exchange. RW takes the cheque to O and buys oil with it. O takes the cheque back to RW to buy stuff with it. And on and on it goes: The Dollarland produces dollars; the Rest of the World Land produces stuff that dollars can buy. Everyone everywhere accepts dollars because dollars buy oil, which is needed to produce stuff. In fact, the Rest of the World competes in exports to get those needed dollars, which means the Dollarland gets its imported stuff cheaper.

Until the day the Oilland decides D’s cheques are no longer good. The whole dynamic changes. What is RW to do with D’s cheques that are no good any more? RW tries to cash D’s cheque and get some real currency. Only, D’s cheques are duds: D’s bank account reads minus 741,202,257,573.69 or thereabouts.

But, of course, “the markets” are all about speculation. The Big Crash will come if and when “the markets” start to speculate the Big Crash will come.



TURNEA:
Yes, they were. During the period of Nov 2000-Jun 2003, euro had gained roughly 25% against the dollar; Iraq’s 10 billion dollar ”oil for food” reserve fund became 26 billion euros. Notes The Observer (February 16, 2003): Iraq nets handsome profit by dumping dollar for euro.

So what exactly was the rationale behind the quick switch back to petro-dollar? Why did Iraq, a country in dire need of reconstruction and reconstruction funds, surely, have to lose 25% of its reserve funds? What was the rationale of making Iraq a less prosperous an oil country than it was before the switch, considering that the oil sector has traditionally provided about 95% of Iraq’s foreign exchange earnings? What did the Iraqi people gain in this euro-to-dollar switch, since it is the Iraqi people, after all, whose future and well being is an issue of such great importance to President Bush, who authorized the switch? So what exactly have the Iraqi people to thank President Bush for?

Thank you, Mr. President, for looking after our financial interests?



TURNEA:
You’re absolutely right, and, apparently, they make even less now than before the war. In the Imagined World, the Oilland does not stand for Iraq. However, with proved reserves of 113.8 billion bbl, Iraq, of course, has the world’s second largest known oil reserves and presents some handsome prospects. This is hardly in dispute.

Earlier you mentioned Hobbes's bringing up a good point (I agree!) of possibly confused cause and effect, and asked how much money would the US lose if Iraq traded in Euros and would it be comparable the hundreds of billions spent on the war itself.

Well, from the mouth of the horse : “The costs of leaving Saddam Hussein in power far exceed the cost of anything that might involve the disarmament and the reconstruction of Iraq.” (Ari Fleischer, who unfortunately is no longer with the White House, Office of the Press Secretary, February 18, 2003 http://www.whitehouse.gov/news/releases/20...30218-4.html#10)

Well, rest assured that I’m not going to calculate even a rough theoretical estimate . The “nuts and bolts again” pattern, however, would be like this, in other words, this is the mechanism how the US would lose money:

Iraq has the world’s second largest proved oil reserves. Hence, it is reasonable to assume good many countries buy Iraqi oil and that the volume will only go up, not down, in the future. To buy Iraqi oil, X amount of countries need X amount of euros, which translates to X amount of countries that need X amount less dollars. Which from the US POV means X amount less imports against dollars (a.k.a “dud cheques”). However, the US still needs X amount of imports to sustain itself. Being the world’s largest debtor nation, the US needs to borrow vast sums from the rest of the world to buy the “stuff” the rest of the world produces – no problem as long as the rest of the world is willing to lend vast sums to the US.

However, considering that China, an ideological rival, the fastest growing economy in the world as well as a growing global rival for oil & power, is now the largest US debt holder, I see not only economical risks but political risks as well. In April 2001 “pro-democracy & freedom” President Bush vowed in ABCNEW’s ”Good Morning America” show that the United States of America would help Taiwan to defend herself against China ”whatever it takes.” December 2003, however, the same President strongly criticizes a planned Taiwan referendum that could be taken as a move toward independence from China and strongly warns Taiwan not to ”antagonize” China. In the months between, China, of course, has established itself as the largest US debt holder. Two old wisdoms seem to still apply when it comes to money: Don’t bite the hand that feeds you and Whose bread I eat: his song I sing.

And then there is the oil. If, one day, the US needs the Iraqi oil – and I guarantee it does – it needs to borrow more money from the rest of he world to buy euros to buy Iraqi oil. In this wire-model, that is the US loss. As noted above, the interest alone, at present, runs around $40,000,000 per hour. The Iraq war runs around $7,000,000 per hour, or so I have been told.

As to would it be comparable the hundreds of billions spent on the war itself?

Now, of course, the Iraq war was supposed to come cheaper — at least in someone’s daydreams – than it has in real rational world. After all, the Iraq war was supposed to be an “affordable endeavor” in the range of, oh well, between $50billion and $95 billion, no long-time commitment and sustained aid needed : Iraqi oil revenues would pay for the reconstruction.

Clearly, those who started the war did not expect the war to be anywhere near as costly as it has been and continues to be. That is what it comes down to, isn't it?



MRS. PIGPEN:

Oh yes. You caught me.



MRS. PIGPEN:
Actually, incorrect. Euro was introduced on 1 January 1999, when it become good for banking, trade, electronic transfers etc., so the crazy part does not apply, at least, not on this one, as I do not imagine Dictator Hussein was paid in cash, er, wait, except, of course, if one wanted to scam the “oil-for-food” programme… but who would do THAT...?



HOBBES:
I don’t read it that way. The way I see it, the petrodollar argument assumes that oil is perhaps the most vital commodity on earth. To produce stuff/imports/dollar bills/whatever you need oil. To import and export the stuff/imports/dollar bills/whatever you need oil: to build and move ships, planes, trucks, trains… and so forth. It is not so much about the amount of oil sales as it is about the fact that everybody needs oil; if you don't have it, you have to buy it. This is non-negotiable. Hence the power of oil.

But you’re right, the world is being flooded with dollars. One of the major issues in this whole petro-currency theory war is, what happens if the flood turns (as in, central banks around the world oust their dollars in favor of, say, the euro) and the excess dollars fly home to roost.

I lived in Europe when the euro was initially introduced. I can assure you that e day was January 1, 2002. It was two days before the birth of my second child (almost named him Euro, except the pronounciation would have been confusing.."arrow"...when we returned to the US. He is an Italian citizen by birth). The Europeans themselves did not use the euro currency exclusively until that day (which basically means they didn't use it at all..I didn't see my first euro dollar until after the new year). Currency trading was available, obviously, but it was a big risk. No one knew what the new currency was going to do, or how stable it would be.

Are you not getting confused by the day the Euro was availbe to the European public?

The Euro was available for the oil trade in 1999.



editted for grammar

The euro was available before, but few chose to use it. I don't know if Denmark used the euro in 2002? I remember watching the French and Italians on television lamenting that they were millionaires before the euro but after, they were not. I don't remember seeing my first euro until after my second son was born. I also remember the change purse with each wallet, at the end of 2002, in Italian stores. I bought 7 of them because my husband keeps small (US) change. In the euro currency, the smallest paper currency is the 5 dollar bill. So, I felt like a kid in a candy store with the coins of one dollar euro. I always expected that the EU was gambling on their currency depreciating since they decided to use the five as the lowest paper currency. Perhaps we will see paper one dollar Euro bills in the future. I expect so, and hope so. Complimenti on the euro's success....my mother receives an Italian pension, so it is good for us as well.

No, Denmark doesn't even use the Euro now... we opted out.

Sorry moif Geez...Okay, I'm an idiot. Shows what I know.

Adding to be a bit more constructive...Larissa:

I don't understand this. Please explain the difference currency makes to buy ice cream or oil. Why can't Dollarland convert to buy oil just as it can convert to buy ice cream? If I want to buy gelato in Venice they aren't going to take US dollars either. Please explain the significance.

[quote=Larissa,Mar 9 2005, 01:16 PM]
Until the day the Oilland decides D’s cheques are no longer good. The whole dynamic changes. What is RW to do with D’s cheques that are no good any more? RW tries to cash D’s cheque and get some real currency. Only, D’s cheques are duds: D’s bank account reads minus 741,202,257,573.69 or thereabouts. [/QUOTE]

This is where I have a problem with the petrodollar explanation of the war....merely switching currency for a transaction doesn't indicate at all that Oilland decided D's cheques were no longer good. Rather, it indicates that Oilland was speculating at the time that E's cheques were going to be worth more given the current currency valuations than D's. (But I'm definitely with you on the duds....care to wager any money that almost no one is aware of the fact that the US government is...BY FAR...the poorest entity on the face of the earth? (BTW...you're missing a digit in your number....it's really 10 times worse than that))

[QUOTE]But, of course, “the markets” are all about speculation. The Big Crash will come if and when “the markets” start to speculate the Big Crash will come. [/QUOTE]

This part I completely agree with.


[QUOTE]So what exactly was the rationale behind the quick switch back to petro-dollar? Why did Iraq, a country in dire need of reconstruction and reconstruction funds, surely, have to lose 25% of its reserve funds?[/QUOTE]

How would Iraq lose any money? Currency trades are conducted at current value

[QUOTE]What did the Iraqi people gain in this euro-to-dollar switch, since it is the Iraqi people, after all, whose future and well being is an issue of such great importance to President Bush, who authorized the switch? So what exactly have the Iraqi people to thank President Bush for? [/QUOTE]

The ability to pay US construction companies, of course...which is good or bad, depending on your point of view on that, separate topic.

[QUOTE]
Iraq has the world’s second largest proved oil reserves. Hence, it is reasonable to assume good many countries buy Iraqi oil and that the volume will only go up, not down, in the future. To buy Iraqi oil, X amount of countries need X amount of euros, which translates to X amount of countries that need X amount less dollars. Which from the US POV means X amount less imports against dollars (a.k.a “dud cheques”). However, the US still needs X amount of imports to sustain itself. Being the world’s largest debtor nation, the US needs to borrow vast sums from the rest of the world to buy the “stuff” the rest of the world produces – no problem as long as the rest of the world is willing to lend vast sums to the US.[/QUOTE]

Actually, the currency transactions are reversed. In order to buy imports, you only need dollars. When was the last time anyone here paid for their Honda in yen? Which is precisely why I don't see the petrodollar argument having much sway.

[QUOTE]However, considering that China, an ideological rival, the fastest growing economy in the world as well as a growing global rival for oil & power, is now the largest US debt holder, I see not only economical risks but political risks as well.[/QUOTE]

Again, I think the problem is more China's than ours. Remember what happened when the Japanese were our largest debtholders? They invested heavily back into the US in an effort to hedge against currency devaluation. The result...an influx of capital into the US....bolstering the economy, and thereby boosting the dollar. It is almost always a self-correcting problem.

[QUOTE]And then there is the oil. If, one day, the US needs the Iraqi oil – and I guarantee it does – it needs to borrow more money from the rest of he world to buy euros to buy Iraqi oil. In this wire-model, that is the US loss. As noted above, the interest alone, at present, runs around $40,000,000 per hour. The Iraq war runs around $7,000,000 per hour, or so I have been told. As to would it be comparable the hundreds of billions spent on the war itself?[/QUOTE]

Making such a currency play doesn't add any debt...remember that you're getting back an equivalent amount of currency. How much money do you owe when change a dollar into 4 quarters? Nothing. Same thing, only on a vastly larger scale.

[QUOTE]Now, of course, the Iraq war was supposed to come cheaper — at least in someone’s daydreams – than it has in real rational world.[/QUOTE]

Good thing we're only in Imaginary World, then, huh!

[QUOTE]...as I do not imagine Dictator Hussein was paid in cash, er, wait, except, of course, if one wanted to scam the “oil-for-food” programme… but who would do THAT...? [/QUOTE]

Again, good thing this in only in Imaginary World...no, wait....

[QUOTE]

HOBBES:
I don’t read it that way. The way I see it, the petrodollar argument assumes that oil is perhaps the most vital commodity on earth. To produce stuff/imports/dollar bills/whatever you need oil. To import and export the stuff/imports/dollar bills/whatever you need oil: to build and move ships, planes, trucks, trains… and so forth. It is not so much about the amount of oil sales as it is about the fact that everybody needs oil; if you don't have it, you have to buy it. This is non-negotiable. Hence the power of oil.

But you’re right, the world is being flooded with dollars. [/QUOTE]

Which is why needing to have Euros to buy oil isn't a big deal. The US would have exactly zero problem getting the Euros.

[QUOTE][quote=Hobbes,Mar 9 2005, 04:29 PM]Here's the flaw I see in the petrodollar argument. It assumes that oil sales account for the majority of currency transactions on earth.

[/quote]One of the major issues in this whole petro-currency theory war is, what happens if the flood turns (as in, central banks around the world oust their dollars in favor of, say, the euro) and the excess dollars fly home to roost.
[/quote]

Now, there is an Orwellian concern here, which I might be tempted to go along with. Basically, this is saying lets nip the Euro thing in the bud, before it has a chance to become an issue. I'll buy that as a potential thought...but enough to go to war? On its own, no. As one of many contributing factors...possibly. As I have said in all my Iraqi posts...there were a great many factors involved, and almost all of them pointed to invasion as the only real solution. For those that insist that this be on that list...ok, done.

(once again I give up figuring out why the quote monster dislikes me)

Let me attempt to shutdown the Euro vs. Dollar debate. This was written in 1998 before the debut of the euro.

Bombing Iraq Isn't Enough

William Kristol & Robert Kagan
The New York Times
January 30, 1998



Saddam switching to the Euro may well have been a reaction based on hostility he perceived (and rightfully so) coming from the United States. Our invasion of Iraq was assured on Sept. 11 when the Al-Queda attack put Bush firmly in the neo-con camp.

Well then please expand on your theory for us...I for one would be interested to know how the Euros rise has helped the EU and if it has why does the ECB keep complaining about it?

I would also be curious for you to explain to us how the US' current position resembles that of the UK's? At the end of WWII the UK was spent..physically and financially. At the time she had been drained by numerous confrontations or wars the world over (Europe, Asia, Middle East and Africa) and even at home...are you saying this or something familiar is what will happen to the US in the near future? EDITED TO ADD...forgot a train of thought I wished to add sorry...The Brentton Woods agreement is what made the switch..from Sterling to USD official. I just do not really understand how this event and what many here apparently believe will be the up and coming event are comparable. I honestly do not think we are approaching a new "world currency" I think it is exactly the opposite.

We are told and reminded all the time that the war on terror is not a world war it is not like anything Europe endured so why would we be so easily lead to believe the effects will be the same?

Also you claim that this is just the same mechanics and nothing has changed at all...and I claim otherwise..I think everything is changing...as it has before. When the USD became the world's currency the US did so by adopting the gold standard. Last time when she was challenged.. and lost might I add ..she decided that the gold standard was of no use and all followed her lead. How can you claim things have always gone unchanged?

I think those who support this theory also must explain why it will be different this time. Because I believe it won't. Last time the US decided to wage war on Europe's dime..she decided to try and break America's currency privileges and what was the result? A new currency system.


Hobbes brings about an excellent point...oil sales in dollars account for how much? He claims only 3.5 billion a year for Iraq...it just seems like every one in this debate seems to always look to the wrong resource..oil oil oil. When oil is just one of the things we buy with our Dollars or our Euros....what about gold? Gold's price is still set and sold in dollars. Do you have any idea how much gold the banks in Europe have hoarded away?

They have the poor people of the world dig the stuff out of the ground and then hide it away again...how does this make sense to anyone? Why even go through the trouble of digging it up if you are only going to turn around and keep it hidden away for 50+yrs?

Just to give you an idea of the gold holdings EU nations have...and keep in mind gold does nothing and it earns no interest. Instead it costs them money to keep it because of the costs to keep it secure.
Germany has 3,446 tons
France has 3,025 tons
and Italy has 2,452 tons
that is billions upon billions of dollars in gold said to be upwards of 2% of the EUs GDP..over half of some of these EU nations central bank holdings are in gold. ..why?
All in all European nations hold close to 13,000 tons of gold where as America holds around 8,000.

How much oil reserves do these nations have? And how do they escape the USD when gold is priced in USDs?

If the Brits have decided to sell their gold then I have to conclude that holding gold and hoarding it away as if it were a king's ransom is clearly an outdated idea.

I personally believe that America being part of the "New World" has the advantage. I have read some really interesting opinions on the idea that the new "wealth' will not be found in dead metal (that is what Keynes called gold) but rather in intellectual property. Something the US is a massive exporter of and something that none of our current trade indexes keep track of well. I have to admit I think that is very interesting and probably has a lot of truth to it....because the only thing the ECB seems interested in permitting or promoting the sale of their gold for is to reinvest it into science and research.

I would just like to say in reference to this topic..I find the people who peddle this sort of belief and the desire for it's outcome to be peddlers of hate and war. It is my opinion that free trade, free movement of peoples and private ownership is the key to peace and stability. What is the greater discrimination than to discriminate access to the world based on someone's nationality.
Promotion of trade blocs, and trade warfare and economic discrimination is to me a promotion of war, violence and hatred.

As for all this real world, dollarland, oilland, disneyland hullaballoo I can not even follow the logic or even determine if there is a rational explanation hidden within it.

It usually seems to end that way doesn't it?
Though I'm sure no one arguing for the theory wants it it does create an unhealthy Europe vs. USA attitude. I suspect those who originally thought it up had this in mind.

It is useful for some political entities for Europeans to focus on the US as an enemy rather than perhaps the actions of their own politicians.

Hobbes and bucket made great points on the scale (or lack thereof) of the effect the war could possibly have on the Euro or dollar.

Hugo also adds that the timing is wrong.


My main argument is that the US lacks the means to force Iraq to trade in Euros over the long term.

1. I agree that the US has the power to shoot itself in the foot, I don't agree this is a power one goes to war to gain.

2. Actually I was trying to explain that there is relatively little oil production now by the time oil production reaches projected levels US leverage concerning security will be over.


Not necessarily. Iraq is in dire needs of funds, I doubt they will give out oil deals out of gratitude alone. It goes to the highest bidder.

So the US does not have sway over Iraq, likely they have less then they have over KSA, Kuwait or Mexico (other OPEC members).

Shia and Kurds were some what separated both by Geography (Concentrated in the North and South) and the oppressive totalitarian regime which didn't exactly engender communication between the two groups.

Both aided the Iranians somewhat in the Iran-Iraq war. In return, massacres.

It's not easy to create divisions, do you not remember the death of Ayatollah Hakim of SCIRI? It was early in the war and blamed on Sunni insurgents.

There were attacks on prominent Kurdish politicians, but again no civil war.

In return Shia and Kurdish leaders called for peace. They have what they want and will not risk it in civil war.

As i said, the US companies will still pay value, just not value plus bonuses, and favours that the French and Russians were offering. Freedom was the chosen favour. And i still disagree about the non-existance of sway over Iraq. We're talking the government not the people. I think they, their dollars, business and security give very good reasons to follow the USA lead. I'll predict public disagreements, as part in show of strength, but under the table they're holding hands.


I guess we'll have to wait and see. I suspect it wouldn't take much at all, just like it doesn't take much to get England and France at each other's throats!

Just thought i'd add this link, since you suggested something like it yesterday! Start suggesting peace, start suggesting peace!
Al-queda gun man kills senior Iraqi - http://news.bbc.co.uk/1/hi/world/middle_east/4328825.stm

edited to remove probably inappropriate smiley

I'll see your assassination and raise you a bombing.

Blast hits Shia funeral in Iraq
This isn't the first time something like this as happened. I fear it won't be the last, but experience has taught us that this will not lead to widespread sectarian war or civil strife.

The conventional wisdom on Iraq's ethnic/religious tensions is all wet, no outside force will be able to cause divisions.

Proponents of the "Oil for War" theory, what evidence do you have that the US
is attempting such a thing?

I prefer to take my evidence straight from the horse's mouth:

When prominent gentlemen and policy-makers Misters William J. Bennett, Gov. Jeb Bush, Vice President Dick Cheney, Francis Fukuyama, Donald Kagan, Zalmay Khalilzad, VP's chief of staff I. Lewis Libby, Dan Quayle, Richard Perle, Secretary of Defense Donald Rumsfeld, and Deputy Secretary of Defense Paul Wolfowitz spell it out as their strategy, I believe they mean every word and the words are not random words -- Hands up, who believes these high-power men are just, you know, having little fun, fooling around, pingponging syllables.



"Rebuilding America's Defences: Strategy, Forces and Resources for a New Century"

I'm afraid the strategists also got what they called "some catastrophic and catalyzing event – like a new Pearl Harbor."

And President Bush himself, of course, has been very clear and consistent all the way: The policy of this government is a strong dollar policy:

June 9, 2003: But I'll repeat as clearly as I can, the policy of the United States government is a strong dollar policy. President Discusses Middle East, Iraq and the Dollar in Cabinet Meeting

December 15, 2003: Part of the economic policy of this administration is a strong dollar policy. President Bush Holds Press Conference

1/13/2005: America is — first of all, we have a strong dollar policy in this administration. http://www.usatoday.com/news/washington/20...ranscript_x.htm]Bush: 'This is a chance to work to spread peace'[/URL]

Why, Lawrence Lindsey, President Bush's chief economics adviser, spells it out very clearly in the article on the administration's dollar policy he wrote to The International Economy (March, 2001) "In the Dollar We Trust - George W. Bush advocates strong dollar":



So, as to the question of "Oil for War" theory, to me, these two papers spell out the strategy clear enough, as moif has pointed out over and over again: global dominance ("longstanding American interests in the region") through military means and dollar hegemony ("global willingness to hold dollars and dollar denominated assets") to finance the dominance.

Sweden wants to buy tea from India. As to the payment, there are most likely several options, the most obvious being Swedish Krona or India's Rupee. Other currencies would also be possible, I imagine, depending on what Sweden stacks.

To ship the tea to Sweden, however, Sweden obviously needs a ship + fuel. To process the tea, package, and distribute it Sweden needs factories which need fuel. In other words, Sweden needs oil. Oil is sold in USD. So, the tea itself may have been sold and paid in Kronor or Rupees, regardless, Sweden still needs to have USDs as well or the tea never leaves India.

To get the milk to the ice cream/gelato factory, gasoline is needed. To turn the milk into ice cream, petroleum is most likely needed. To get the ice cream/gelato product itself onto the market, to the consumer, gasoline is again needed. The consumer, if s/he drives to Venice to buy gelato, needs gasoline. And OPEC sells its oil in dollars, not in kronor or rupees or euros.

Does this make any sense?

Agreed, petroleum is important to transport everything, and do much mechanical work...but currency exchange transactions happen virtually instantaneously. Why is it a problem (aside from the transaction fee, which can't be that monumentous) to exchange currencies to buy oil? In other words....what significant problem does the buying of oil in the dollar (or euro) present for the buyer? Isn't it simply an issue of currency exchange?

Yet you are just assuming what is they mean by "longstanding" it could be stability or peace or even democracy rather than currency hegemony.


It means so little to say this...they have always said this through all it's ups and downs. The idea or the concept of a strong dollar policy is transcendent..the strong dollar policy changes in accordance to the moment and time it is said or who says it. It means many different things to different people.
Obviously we do not support the strong dollar policy like we have in the past...yes? Or do you just feel the US economy is completely out of control and out of reach of gov. intervention? Wouldn't we be doing something if we really did support a strong dollar?
Also Lawrence Lindsey is the old National Economic Council chief ..Lindsay was asked to leave the White House by Bush himself in 2002 along with the Sec. of Treasury and since then what has happened to the USD? Snow..the new Sec of Treasury ... has been actually caught telling the truth. He publicly admitted that the US is in favor of a weak dollar policy now...
US backs off from 'strong dollar'
And his mantra is we will let the markets decide. Not we will enforce a strong dollar policy..letting the markets decide is more or less having a policy of no policy.

The falling dollar is not a welcomed policy in the EU, nor is it in Asia or the ME so I don't understand why they would take actions or policies to make it occur. Which is what I assume they would know would happen if they choose to wage war against the dollar.

Hey I know..perhaps if all these nations around the world are tired of having to buy worthless USDs maybe they shouldn't tie their currency to the dollar? Hmm? Perhaps they aren't listening to Mr. Snow when he says we will let the markets decide. The US did this before...she shook the whole system up and thankfully rid us all of the gold standard. Perhaps the agenda is not currency hegemony but currency fairness... to get other nations to practice free and open trade..you know letting the markets decide.

The question is not whether countries have to buy dollars but whether this poses any particular burden to them or causes any overwhelming benefit to the US.

To say that oil is critical makes no difference if the is argument the that this trade in dollars props up the US economy.

Hobbes has noted that event the highest projected levels of Iraqi oil production are tiny in comparison to the US economy.

Not to mention the US can't make Iraq trade in dollars for any length of time if the Iraqis don't want to.

It don't add up.

BUCKET:

Oh yes, just as I’m “just” assuming that the “longstanding American interests” in Saudi Arabia since, oh well, 1953 and the establishment of the first US military training mission at Dhahran, was certainly not done in the name of ensuring the continuous democracy and freedom of the region.

Just as you are “just” assuming stability and status quo of the region are important but have nothing to do with the fact the Saudi Arabia is the largest oil country in the world and has a prominent role in the OPEC, which consequently trades in US dollars?

In other words, the United States of America’s military presence in Saudi Arabia and elsewhere in the region and the US military facilities of, say, Damman, Dhahran, Eskan Village, Hofuf, Jeddah AB, Jubail, Khamis Mushayt, Khobar Towers, King Khalid Military City, Prince Sultan AB, Riyadh AB, Tabuk AB, Taif AB, Yanbu, and elsewhere in the region, are there to defend the current governments and ensure, can we say, that the House of Saud and all other oil-tyrants of the region are neither overthrown by their own rebelling subjects nor by their neighboring tyrannies; this stands for stability and peace in the region and perfectly coincides with President Bush’s “National Security Strategy,” which states that “the presence of American forces overseas is one of the most profound symbols of the U.S. commitments to allies and friends. Through our willingness to use force in our own defense and in defense of others, the United States demonstrates its resolve to maintain a balance of power that favors freedom.”

“Maintain a balance of power that favors freedom”…?

So, when Vice President Cheney, VP's chief of staff I. Lewis Libby, Sec. Of Defence Rumsfeld, and Deputy Sec. of Defense Wolfowitz vision that ”America’s global leadership, and its role as the guarantor of the current great-power peace, relies upon […] the preservation of a favorable balance of power in Europe, the Middle East and surrounding energyproducing region, and East Asia,” the wording “the Middle East and surrounding energyproducing region” is just… what? Coincidental?

And when the same gentlemen pronounce that “At present the United States faces no global rival. America’s grand strategy should aim to preserve and extend this advantageous position as far into the future as possible” and “maintaining U.S. preeminence, precluding the rise of a great power rival," the “global power rival” has no reference whatsoever to, say, the rising economic powers of EU, China, India – and never mind the telltale word “grand strategy.”

Well, I suppose there is always the possibility that the rival European Union would propose that free national election be held in Saudi Arabia and this would seriously go against the “preservation of a favorable power balance in the Middle East.”

REBUILDING AMERICA'S DEFENSES Strategy, Forces and Resources For a New Century



Yes, it does. And President Bush’s chief economics adviser spelled out what ”strong dollar policy” stood for the administration and the President he represented: ”This global willingness to hold dollars and dollar denominated assets is fundamentally what is meant by a "strong dollar" policy.”



And yet the fact remains. Lawrence Lindsay was the Secretary of Treasury, and in that capacity he spoke for the First Bush Administration when he spelled out the administration's dollar policy. Unless, of course, you can prove that Mr. Lindsay was asked to step down because he misrepresented the administration’s position when he wrote this piece in March, 2001…?

In the Dollar We Trust - George W. Bush advocates strong dollar



Interestingly, this Sec. Snow’s May 2003 comment came days after the President announced the end of major combat operation in Iraq and just weeks before President Bush officially switched Iraqi oil sales back to dollar. The strong dollar policy changes in accordance to the moment and time?

Well, obviously times have changed a bit since, as has the situation in Iraq, as the Sec. Snow is back in line promoting President’s strong dollar policy:

"A strong dollar is in our national interest," Sec. Snow said in a television interview with CNBC just last January 2005.