How about the petrodollar accords between the Saudis and the US governments in the '70's?  Hasn't this had the effect of maintaining the dollar as the world's reserve currency with the benefits that go with it--including the massive availability of capital to fund our deficit spening?  Didn't Saddam's decision to sell oil in Euro's contribute substantially to the true rationale for the invasion of Iraq?

The dollar also became the currency for tech financing, through the venture capital financing sector, which added to its strength. A lot of this is reversing itself now, it seems to me, but the runaway real estate market is masking matters somewhat for the ordinary American whose net worth in dollars keeps rising.

I don't know if the latter part of this is true:

"The second was to allow growth overseas - not only did you get the deflationary effects of labor arbitrage but improving standards of living in Asia used less energy than such production would have done here."

Production is much more energy inefficient in China. The labor is cheaper, not the energy component. We are energy hogs here, but we get a lot for the oil dollar.

US and Euro dollars, Iran, and Russia:

Financial Sense

about the US dollar and what happens to other countries when it declines.

We are exporters.  The price of our goods has been rising.  Stocks that we hold in US dominations have been declining.  That's great for the USA, isn't worth a pinch of coonshit in my portfolio!  

is murky to me.  How do you suggest this was achieved?

Your conclusion surprises me.  My interpretation (not particularly well informed) was that Saudi Arabia discovered that they owned such large financial reserves that they did not have a strong interest in disrupting the Western economies.  Plus, the Saudis do not want to encourage conservation, etc.  And, perhaps most importantly, in the 1980s, the Saudis were radical allies of US v. Soviets.

I do not see evidence that the Saudis have been dominated by US, or denied market power, in the 1990s.  But I may misunderstand your argument.

The labor arbitrage argument sounds persuasive.  But how else do you see the international market developing?  An international minimum wage?  At what price?  Enforced how?  I am curious as to what you propose.

a reasonably well informed person but it is only recently that this has become news to me: Didn't Saddam's decision to sell oil in Euro's contribute substantially to the true rationale for the invasion of Iraq?

Do you have some documentation on this? Because I don't recall that ever happening. Mind you, I could very easily be wrong, but it is only within the last six months that I've heard about this. I knwo the Iranians are trying it (and don't have a snowball's chance in hell of getting it off the ground in the near term) but other than that, I know zip.

what "accord" between whom, when, in the 1970s?

is it your view that the "accord" was maintained since then?

by whom?  how?

... a fair bit of evidence has come out that there was an accord to keep oil prices down.  This required keeping Saudi Arabia as the swing producer - as long as they could unilaterally raise production and effecitvely drop prices that agreement could work.  As soon as it couldn't....

Iraq was making threatening noises about switching to Euro's and that did contribute, imo, although I also beleive the NeoCons had always intended to invade Iraq when they could.

The problem was that by the time of the invasion it was becoming clear that Iraq oil needed to get back on the market in a serious way in order to keep demand lower than supply - to make sure there was no tightness.  Ending sanctions would have done that, but they really didn't trust Saddam - they were convinced he's spend that money on building nukes and destabilizing other American interests.

I'll discuss that in a bit more detail in the article on how the Bush economy "works".

I had read coverage about Saddam pegging oil prices to Euro in several places in the run up to the invasion and I can't now remember where but I recall that one of the very first things the Bushies did on taking the reigns of the oil industry in Iraq was to "re-peg" Iraqi oil trading to the U.S. dollar.

I did find one pretty comprehensive look at this topic in an article entitled

"Iraq and the hidden euro-dollar wars"

By F. William Engdahl

to wit:

[snip]

Until November 2000, no OPEC country dared violate the dollar price rule. They had little reason to do so as long as the dollar was the strongest currency. But on that date, French and other Euroland members finally convinced Saddam Hussein to defy the United States by selling Iraq's oil-for-food not in dollars, "the enemy currency" as Iraq named it, but only in euros. The euros were on deposit in a special UN account of the leading French bank, BNP Paribas. Radio Liberty of the US State Department ran a short wire on the news but the story was quickly hushed up.[2] This little-noted Iraq move to defy the dollar in favour of the EUR, was in itself insignificant. Yet, if it were to spread, especially at a point the dollar was already weakening, it would have created a panic sale of dollars by foreign central banks and OPEC oil producers.

In the months before the latest Iraq war, hints in this direction were heard from Russia, Iran, Indonesia and even Venezuela. An Iranian OPEC official, Javad Yarjani, delivered a detailed analysis of how OPEC at some future point might sell its oil to the EU for euros not dollars. He spoke in April, 2002 in Oviedo Spain at the invitation of the EU. All indications are that the Iraq war was seized on as the easiest way to deliver a deadly pre-emptive warning to OPEC and others, not to flirt with abandoning the petro-dollar system in favour of one based on the EUR.

Informed banking circles in the City of London and elsewhere in Europe privately confirm the significance of that little-noted Iraq move from petro-dollar to petro-EUR.

"The Iraq move was a declaration of war against the dollar," one senior London banker told me recently. "As soon as it was clear that Britain and the US had taken Iraq, a great sigh of relief was heard in London City banks. They said privately, `now we don't have to worry about that damn EUR threat'".

Why would something so small be such a strategic threat to London and New York banks, or to the United States itself such that an American President would apparently risk fifty years of good global relations, to make a military attack, whose justification could not be proved to the world?

The answer is the unique role of the petro-dollar to underpin American economic hegemony.

read the rest in:

"Alexander's Oil and Gas Connections: News & Trends, Middle East" Vol. 9 Iss. 13 of June 2004.

Available online: http://www.gasandoil.com/goc/news/ntm42655.htm

this analysis also explains why tony "the poodle" blair and his cohorts in the british govt stood and still stand with the bushies. notice whose banks were "under attack" with saddam hussein's 2000 switch to petro-euros over petro-dollars.

in the end, all wars are about money.

is Petrodollar Warfare: Oil, Iraq and the Future of the Dollar by William R. Clark.  He connects a lot of dots to build a non-technical picture of how vital petrodollars have been to our economy.  So vital that we would go to war to protect the system.

He quotes from Enghdal's book extensively.

Once I read this book, the Confessions of an Economic Hitman jumped back into my mind.

SP, I recommend looking into this.  I found it to be very persuasive.  I would be good to hear from someone with more knowledge.

the analysis, I still think this whole Switch Iraqi oil to Euros things is a little too cute and too ex post facto of a rationalization. I'm not saying it wasn't a part of it, and I'm not saying that switching oil contracts to Euros instead of dollars would be bad economically for us, I just don't think in the run-up to the war Rummy and Wolfie and Tommy Franks and Condi and Georgie were really thinking all too much about this issue.

there was all this rhetoric about the Europeans not being our friends.  This is all petroeuro vs. petrodollar talk.  

worldwide back while it was happening. American media didn't report it?

it. thanks for the heads up.

that Wolfie said there were several reasons to go to war but the WMD's were something "we" could all agree on.  When you start connecting dots, it makes a lot of sense.

I could easily imagine Cheney say something like, "If we let that asshole Sadaam keep rubbing our faces in the Euro, the French are going to be eating our corn flakes--we'll be totally screwed, Mr. President.  Totally.  You might as well start getting ready to kiss Chirac's hand in public."

is perfect.  It's a kind of bridge too far.  But I think he succeeds in what is most important to him which is too point out the vital importance of the petrodollar recycling system and the important role it still is playing in our national life.

being a huge issue here. There was a lot of noise and a lot of propoganda, ya know? I could have missed it but I'd wager most American Agonistas don't recall this either.

But it was part of the larger picture of Saddam trying desperately to drive a rift between the U.S. and Europe/China in order to better maneuver around the sanctions.  He was succeeding to some degree, but Bush's military action has widened the rift to a far greater extent than Saddam could ever have accomplished.

The euro was already beginning to challenge the dollar for reserve supremacy and has been making even more progress since the war began in 2003.  It's true that if oil were priced in euros this would do particular damage to the dollar, but Saudi Arabia would have to go along with this for the change to have any real meaning.  The Saudis were not about to allow Saddam to dictate their decision about oil pricing.

So it is quite a stretch to place this issue at the forefront of reasons for the invasion of Iraq.  The Bush White House has deliberately moved away from Clinton's focus on mercantilism and globalization as the basis for foreign policy, and has replaced it with a policy of moral righteousness backed up by militarism.  The Treasury Department under Bush has been neutered, and to this day many key positions in Treasury remain unfilled.

hate to burst your bubble. The guy could be 100% right but I've read some other stuff from that site and it is, well, let's just say this: I am a finance professional and I wouldn't repeat it to my clients.

by Engdahl and Clark for details.

But from what I can tell, they were agreements which have been followed by every President since made by the Nixon administration via Henry Kissinger.  The decision apparently was made not to invade and seize the oil fields but to allow the price of oil rise with the assurance of engaging in petrodollar recycling.  In exchange, we have provided "protection" for the Saudis.

but it did point out that Saddam had tried to price his oil in Euro dollars.

And Iran and Venezula have now done that too.  And in 2003, I believe it was that Putin believed it advisable to price Russian oil in petrodollars.  China and Russian are contemplating a pipeline.  

So...was the reason the States invaded Iraq because they meant to retain petrodollars and to put pressure on OPEC to price it in those dollars?  

But that doesn't IMHO, make a whole lot of sense because sooner of later one or more currencies will have currency reserve status.  It could be the Euro, the Yuan, the Yen or ...

---

"Despite the absence of media coverage, the plausibility of slowly abandoning the dollar standard for the euro is real. An article by Hazel Henderson outlines the dynamics and the potential outcomes:

"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 economists). Some elements of this scenario:

1. US global over-reach in the `war on terrorism' already leading to deficits as far as the eye can see -- combined with historically-high US trade deficits -- lead to a further run on the dollar. This and the stock market doldrums make the US less attractive to the world's capital.
   
2. More developing countries follow the lead of Venezuela and China in diversifying their currency reserves away from dollars and balanced with euros. Such a shift in dollar-euro holdings in Latin America and Asia could keep the dollar and euro close to parity.
   
3. OPEC could act on some of its internal discussions and decide (after concerted buying of euros in the open market) to announce at a future meeting in Vienna that OPEC's oil will be re-denominated in euros, or even a new oil-backed currency of their own. A US attack on Iraq sends oil to euro dollar symbol40 (euros) per barrel.
   
4. The Bush Administration's efforts to control the domestic political agenda backfires. Damage over the intelligence failures prior to 9/11 and warnings of imminent new terrorist attacks precipitate a further stock market slide.
   
5. All efforts by Democrats and the 57% of the US public to shift energy policy toward renewables, efficiency, standards, higher gas taxes, etc. are blocked by the Bush Administration and its fossils fuel industry supporters. Thus, the USA remains vulnerable to energy supply and price shocks.
   
6. The EU recognizes its own economic and political power as the euro rises further and becomes the world's other reserve currency. The G-8 pegs the euro and dollar into a trading band -- removing these two powerful currencies from speculators trading screens (a "win-win" for everyone!). Tony Blair persuades Brits of this larger reason for the UK to join the euro.
   
7. Developing countries lacking dollars or "hard" currencies follow Venezuela's lead and begin bartering their undervalued commodities directly with each other in computerized swaps and counter trade deals. President Chavez has inked 13 such country barter deals on its oil, e.g., with Cuba in exchange for Cuban health paramedics who are setting up clinics in rural Venezuelan villages.

The result of this scenario? The USA could no longer run its huge current account trade deficits or continue to wage open-ended global war on terrorism or evil. The USA ceases pursuing unilateralist policies. A new US administration begins to return to its multilateralist tradition, ceases its obstruction and rejoins the UN and pursues more realistic international cooperation." [15]

As for the events currently taking place in Venezuela, items #2 and #7 on the above list may allude to why the Bush administration quickly endorsed the failed military-led coup of Hugo Chavez in April 2002. Although the coup collapsed after 2 days with Chavez being restored to power, 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. Now it is slowly filtering out that in recent months White House officials met with key coup figures, including Carmona. Although the administration insists that it explicitly objected to any extra-constitutional action to remove Chavez, comments by senior U.S. officials did little to convey this. . . .

"The CIA's role in a 1971 Chilean strike could have served as the working model for generating economic and social instability in order to topple Chavez. In the truckers' strike of that year, the agency secretly orchestrated and financed the artificial prolongation of a contrived work stoppage in order to economically asphyxiate the leftist Salvador Allende government.

"This scenario would have had CIA operatives acting in liaison with the Venezuelan military, as well as with opposition business and labor leaders, to convert a relatively minor afternoon-long work stoppage by senior management into a nearly successful coup de grâce." [16]

Interestingly, according to an article by Michael Ruppert, Venezuelan's ambassador Francisco Mieres-Lopez apparently floated the idea of switching to the euro approximately one year before the failed coup attempt. Furthermore, there is some evidence that the U.S. is still active in its attempts to overthrow the democratically elected Chavez administration. In December 2002 a Uruguayan government official exposed the ongoing covert CIA operations in Venezuela:

"Uruguayan EP-FA congressman Jose Nayardi says he has information that far-reaching plan have been put into place by the CIA and other North American intelligence agencies to overthrow Venezuelan President Hugo Chavez Frias within the next 72 hours. . . .

Nayardi says he has received copies of top-secret communications between the Bush administration in Washington and the government of Uruguay requesting the latter's cooperation to support white collar executives and trade union activists to `break down levels of intransigence within the Chavez Frias administration.'" [17]"

(snip)

These structural imbalances in the U.S. economy are sustainable as long as:

1. Nations continue to demand and purchase oil for their energy/survival needs
   
   
2. the world's monopoly currency for global oil transactions remains the US dollar
   
   
3. the three internationally traded crude oil markers remain denominated in US dollars

More: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth

by William Clark