Secret US plans for Iraq’s oil

The Bush administration made plans for war and for Iraq’s oil before the 9/11 attacks, sparking a policy battle between neo-cons and Big Oil, BBC’s Newsnight has revealed.

Falah Aljibury
Iraqi-born Falah Aljibury says US Neo-Conservatives planned to force a coup d’etat in Iraq

Two years ago today – when President George Bush announced US, British and Allied forces would begin to bomb Baghdad – protesters claimed the US had a secret plan for Iraq’s oil once Saddam had been conquered.

In fact there were two conflicting plans, setting off a hidden policy war between neo-conservatives at the Pentagon, on one side, versus a combination of “Big Oil” executives and US State Department “pragmatists”.

“Big Oil” appears to have won. The latest plan, obtained by Newsnight from the US State Department was, we learned, drafted with the help of American oil industry consultants.

Insiders told Newsnight that planning began “within weeks” of Bush’s first taking office in 2001, long before the September 11th attack on the US.

We saw an increase in the bombing of oil facilities and pipelines [in Iraq] built on the premise that privatisation is coming
Mr Falah Aljibury

An Iraqi-born oil industry consultant, Falah Aljibury, says he took part in the secret meetings in California, Washington and the Middle East. He described a State Department plan for a forced coup d’etat.

Mr Aljibury himself told Newsnight that he interviewed potential successors to Saddam Hussein on behalf of the Bush administration.

Secret sell-off plan

The industry-favoured plan was pushed aside by a secret plan, drafted just before the invasion in 2003, which called for the sell-off of all of Iraq’s oil fields. The new plan was crafted by neo-conservatives intent on using Iraq’s oil to destroy the Opec cartel through massive increases in production above Opec quotas.

Phil Carroll, former CEO of Shell Oil USA
Former Shell Oil USA chief stalled plans to privatise Iraq’s oil industry

The sell-off was given the green light in a secret meeting in London headed by Mr Chalabi shortly after the US entered Baghdad, according to Robert Ebel.

Mr Ebel, a former Energy and CIA oil analyst, now a fellow at the Center for Strategic and International Studies in Washington, told Newsnight he flew to the London meeting at the request of the State Department.

Mr Aljibury, once Ronald Reagan’s “back-channel” to Saddam, claims that plans to sell off Iraq’s oil, pushed by the US-installed Governing Council in 2003, helped instigate the insurgency and attacks on US and British occupying forces.

“Insurgents used this, saying, ‘Look, you’re losing your country, you’re losing your resources to a bunch of wealthy billionaires who want to take you over and make your life miserable,'” said Mr Aljibury from his home near San Francisco.

“We saw an increase in the bombing of oil facilities, pipelines, built on the premise that privatisation is coming.”

Privatisation blocked by industry

Philip Carroll, the former CEO of Shell Oil USA who took control of Iraq’s oil production for the US Government a month after the invasion, stalled the sell-off scheme.

Mr Carroll told us he made it clear to Paul Bremer, the US occupation chief who arrived in Iraq in May 2003, that: “There was to be no privatisation of Iraqi oil resources or facilities while I was involved.”

Ms Amy Jaffe
Amy Jaffee says oil companies fear a privatisation would exclude foreign firms

Ariel Cohen, of the neo-conservative Heritage Foundation, told Newsnight that an opportunity had been missed to privatise Iraq’s oil fields.

He advocated the plan as a means to help the US defeat Opec, and said America should have gone ahead with what he called a “no-brainer” decision.

Mr Carroll hit back, telling Newsnight, “I would agree with that statement. To privatize would be a no-brainer. It would only be thought about by someone with no brain.”

New plans, obtained from the State Department by Newsnight and Harper’s Magazine under the US Freedom of Information Act, called for creation of a state-owned oil company favoured by the US oil industry. It was completed in January 2004 under the guidance of Amy Jaffe of the James Baker Institute in Texas.

Formerly US Secretary of State, Baker is now an attorney representing Exxon-Mobil and the Saudi Arabian government.

View segments of Iraq oil plans at

Questioned by Newsnight, Ms Jaffe said the oil industry prefers state control of Iraq’s oil over a sell-off because it fears a repeat of Russia’s energy privatisation. In the wake of the collapse of the Soviet Union, US oil companies were barred from bidding for the reserves.

Ms Jaffe says US oil companies are not warm to any plan that would undermine Opec and the current high oil price: “I’m not sure that if I’m the chair of an American company, and you put me on a lie detector test, I would say high oil prices are bad for me or my company.”

The former Shell oil boss agrees. In Houston, he told Newsnight: “Many neo conservatives are people who have certain ideological beliefs about markets, about democracy, about this, that and the other. International oil companies, without exception, are very pragmatic commercial organizations. They don’t have a theology.”

A State Department spokesman told Newsnight they intended “to provide all possibilities to the Oil Ministry of Iraq and advocate none”.

Uncovering the Hidden Costs of the Petrodollar

In its growth from conceptual white paper to trillion-dollar asset, Bitcoin has

attracted an enormous amount of criticism. Detractors focus on its perceived negative externalities: energy consumption, carbon footprint, lack of centralized control and inability to be regulated. Regardless of the validity of these arguments, few critics stop to think comparatively about the negative externalities of the world’s current financial system of dollar hegemony.

This is, in part, because many Bitcoin critics see it as just a Visa-like payment platform, and analyze its performance and costs by “transactions per second.” But Bitcoin is not a fintech company competing with Visa. It is a decentralized asset competing to be the new global reserve currency, aiming to inherit the role gold once had and the role the dollar holds today.

The world relies on the U.S. dollar and U.S. treasuries, giving America unparalleled and outsized economic dominance. Nearly 90% of international currency transactions are in dollars, 60% of foreign exchange reserves are held in dollars and almost 40% of the world’s debt is issued in dollars, even though the U.S. only accounts for around 20% of global GDP. This special status that the dollar enjoys was born in the 1970s through a military pact between America and Saudi Arabia, leading the world to price oil in dollars and stockpile U.S. debt. As we emerge from the 2020 pandemic and financial crisis, American elites continue to enjoy the exorbitant privilege of issuing the ultimate monetary good and numéraire for energy and finance.

The past few decades have seen a vast global rise in economic activity, population, democratic progress, technological advancement and living standards, but there are many flaws in this system that are rarely spoken about and that weigh heavily on billions of people across the globe.

What would the world look like with an open, neutral, predictable base money instead of one controlled and manipulated by one government representing only 4% of the planet’s population? This article explores the seldom discussed and staggering downsides of the current system in the hope that we can replace it with something more fair, free and decentralized.

This essay will explore the rarely discussed creation of the petrodollar and lay out how America has supported brutal dictators, compromised its national security, harmed its industrial base, propped up and protected the fossil fuel industry and even waged conflict abroad, all to bolster the dollar’s status as global reserve currency. While this strategy worked for U.S. leaders for many decades, today the world is inexorably moving to a more multipolar financial structure, and possibly, towards a Bitcoin standard.


The British Empire was the unquestioned economic hegemon of the 19th century, but began to lose steam early in the 20th century, especially after World War I. The United States emerged much healthier than war-torn Europe and as the country with by far the most gold. By the outbreak of World War II, the dollar had unquestionably eclipsed the pound as the world’s most influential national currency.

Governments still relied on gold as the underlying global reserve currency, but U.S. and U.K. policymakers were determined to create a more “flexible” system. In the waning months of World War II, leaders from 44 countries gathered in a hotel in Bretton Woods, New Hampshire, to choose a new financial bedrock. British economist John Maynard Keynes pushed the idea of the bancor, a global unit of account that many nations would manage. But the U.S. preferred the idea of the dollar at the center, pegged to gold at $35 per ounce. Since international trade deficits still had to be settled in gold, America’s substantial control of the world’s gold supply and favorable balance of payments position provided the leverage to get its way.

Over the coming decades, the world shifted to the Bretton Woods standard, with national currencies pegged to adjustable dollar amounts, where the U.S. was trusted to custody and hold enough gold to prop up the whole system. Up until the early 1960s, it did a reasonably good job. Dollars became the dominant medium of exchange for international settlement, backed by a promise to pay in gold. America became the largest creditor nation and an economic powerhouse. However, after the assassination of President Kennedy, the U.S. government chose a path of huge social and military spending. With President Johnson’s “great society” social programs and the invasion of Vietnam, U.S. debt skyrocketed. Unlike World War II or the Korean War, Vietnam was the first American war waged almost entirely on credit.

As Niall Ferguson wrote in “Ascent Of Money,” “In the late 1960s, U.S. public sector deficits were negligible by today’s standards, but large enough to prompt complaints from France that Washington was exploiting its reserve currency status to collect seigniorage from America’s foreign creditors by printing dollars, much as medieval monarchs had exploited their monopoly on minting to debase the currency.”

French economist Jacques Reuff called this the “monetary sin of the West,” and the French government coined the term “exorbitant privilege.” Poor British fiscal policy forced a devaluation of the pound in 1967, and the French, fearing that unsustainable American spending would result in similar negative results, wanted their gold back before a dollar devaluation.

By 1971, U.S. debt had simply grown too high. Just $11 billion in gold backed $24 billion in dollars. That August, French President Pompidou sent a battleship to New York City to collect his nation’s gold holdings from the Federal Reserve, and the British asked the U.S. to prepare $3 billion worth of gold held in Fort Knox for withdrawal. In a televised speech on August 15, 1971, President Richard Nixon told the American people that the U.S. would no longer redeem dollars for gold as part of a plan that included wage and price freezes and an import surcharge in an attempt to save the economy. Nixon said closing the gold window was temporary, but few things are as permanent as temporary measures. As a result, the dollar was devalued by more than 10%, and the Bretton Woods system ceased to exist. The world entered a major financial crisis, though when asked about the impact that the “Nixon Shock” would have on foreign nations, Nixon made his position clear: “I don’t give a shit about the lira.”

As David Graeber wrote in “Debt,” “Nixon floated the dollar in order to pay for the cost of a war in which he ordered more than four million tons of explosives and incendiaries dropped on cities and villages across Indochina… the debt crisis was a direct result of the need to pay for the bombs, or, to be more precise, the vast military infrastructure needed to deliver them. This was what was causing such an enormous strain on U.S. gold reserves.”

For the first time in history, the world was in a pure fiat standard. The dollars held by central banks across the globe lost their backing, and there was a geopolitical moment where U.S. dominance was called into question and where a multipolar financial world was a distinct possibility. Adding even more pressure, in 1973 the Arab petroleum exporters of OPEC decided to quadruple the price of world oil and embargo the U.S. in response to its support for Israel during the Yom Kippur War. In just a few years, a barrel of oil rose from less than $2 to nearly $12. Faced with double-digit inflation and declining global faith in the dollar, Nixon and his Secretary of State and National Security Advisor Henry Kissinger came up with an idea that would allow them to keep “guns and butter” going in the post-gold standard era and alter the fate of the world.

In 1974, they sent new Treasury Secretary William Simon to Saudi Arabia “to find a way to persuade a hostile kingdom to finance America’s widening deficit with its newfound petrodollar wealth.” Simply put, a petrodollar is a U.S. dollar paid to a petroleum exporter in exchange for oil. As a Bloomberg report says, the basic framework was “strikingly simple.” The U.S. would “buy oil from Saudi Arabia and provide the kingdom military aid and equipment. In return, the Saudis would plow billions of their petrodollar revenue back into Treasuries and finance America’s spending.” This was the moment that the U.S. dollar was officially married to oil.

On June 8, 1974 in Washington, Kissinger and Crown Prince Fahd signed agreements establishing Saudi investment in the U.S. and American support for the Saudi military. Nixon flew to Jeddah a few days later to continue working out details. Declassified documents later revealed that the U.S. government confidentially enabled the Saudis to purchase treasuries “outside regular auctions and at preferential rates.” In early 1975, they purchased $2.5 billion of treasuries, beginning a spree that would later become hundreds of billions of petrodollars invested in U.S. debt. Decades later, Gerry Parsky, who was deputy to Treasury Secretary Simon at the time, said that this “secret arrangement with the Saudis should have been dismantled years ago,” and that he was “surprised the Treasury kept it in place for so long.” But even so, he said he “has no regrets” since “doing the deal was a positive for America.”

By 1975, other OPEC nations followed Saudi Arabia’s lead. If you wanted to buy oil from them and their store of nearly 80% of world petroleum reserves, you had to pay in dollars. This created new demand for America’s currency at a time of global uncertainty and even at a time of continued inflation. Industrializing nations needed oil, and to get it, they now had to either export goods to the United States, or buy dollars in foreign exchange markets, increasing the dollar’s global network effect. In 1974, 20% of global oil was still transacted in the British pound, but that number fell to 6% by 1976. By 1975, Saudi imports of U.S. military equipment had risen from $300 million to more than $5 billion. Oil prices, boosted by the premium that came with being able to be sold for dollars, would remain sky-high until 1985.


In his research on the petrodollar, political economist David Spiro argues that OPEC dollar profits were “recycled” into U.S. treasuries to subsidize the “debt-happy policies of the U.S. government as well as the debt-happy consumption of its citizenry.” Petrodollar recycling over time pushed down interest rates and allowed the U.S. to issue debt very cheaply. This system was created and held in place not by pure economics but by politics through the pact with Saudi Arabia. As Alan Greenspan said in 1977, reflecting on his experience as chairman of the Council of Economic Advisers during the Ford administration, the Saudis were “non-market decision-makers.”

Graeber points to petrodollar recycling as an example of how U.S. treasuries replaced gold as the world’s reserve currency and ultimate store of value. The kicker, he explains, was that “over time, the combined effect of low interest payments and inflation is that these bonds actually depreciate in value… economists prefer to call it ‘seigniorage.’”

Since its creation in 1974, the petrodollar system has changed the world in many significant ways, including:

  • The creation of a tight alliance between the United States and the Saudi Arabian dictatorship, as well as other tyrannies in the Gulf region.
  • The steep rise of the “eurodollar” shadow global economy as petrodollars (created outside the control of the Federal Reserve) flooded banks in London and North America and were then recycled into U.S. treasuries or loaned back out to emerging markets.
  • The financialization of the American economy as the artificially strong dollar made exports uncompetitive, hollowed out the middle class and shifted focus from manufacturing to finance, technology, defense and services, all while increasing the leverage in the system.
  • Additional stress on the Soviet Union, which was now faced with an increasingly dollarized world market, where the U.S. could print money to buy oil, but it had to dig oil out of the ground.
  • Painful issues for emerging market economies, which became mired in dollar-denominated debt that was difficult to pay back and stuck in a system that prioritized dollar accumulation over domestic investment, harming income and triggering debt crises everywhere, from Mexico to East Asia to Russia to Argentina.
  • Steady growth of the oil and fossil fuels industries at the expense of nuclear power and regional energy independence.
  • And, of course, the continuation of the U.S. as a military-financial hegemon and the ability of the U.S. to run humongous deficits to finance wars and social programs, all in part paid for by other countries.

There are petrodollar theory critics who say the phenomenon is largely a myth. They say the dollar has been dominant simply because there has been no competition. Dean Baker from the Center for Economic and Policy Research has said that “while it is true that oil is priced in dollars and that most oil is traded in dollars, these facts make relatively little difference for the status of the dollar as an international currency for the economic well-being of the United States.”

Meanwhile, Modern Monetary Theorists like Warren Mosler and Stephanie Kelton downplay the importance of the petrodollar, saying “it doesn’t matter” or “it’s irrelevant” as it does not limit what the U.S. can do domestically and that internationally, it does not matter what oil is priced in because countries can just swap currencies before purchase. Critics point to the fact that the dollar was already the world reserve currency before 1973, and that the pricing of commodities in dollars is “just a convention,” and that “there would be no real difference if the euro, the yen, or even bushels of wheat were selected as the unit of account for the oil market.” They also say the dollars involved in the oil trade are “trivial” compared with other sources of demand.

But the decision of Saudi Arabia and OPEC to price their oil exports in dollars and invest the profits in U.S. debt was not a strict market decision, and not one of fortune or happenstance, but a political one, done in exchange for protection and weapons, and one that sparked countless additional network effects that over time solidified the dollar as the world’s reserve currency. When countries are forced to exchange their own currencies for dollars to buy oil, this strengthens that trading pair for that country, extending U.S. influence beyond energy markets. In “Debt,” Graeber does mention the debate over whether or not oil sales denominated in dollars give any seigniorage to the U.S., but says that regardless, what ultimately matters is “that U.S. policymakers seem to feel the fact that they are symbolically important and resist any attempt to alter this.”


In October 2000, Saddam Hussein did attempt to alter the petrodollar system when he announced that Iraq would sell oil in euros, not dollars. By February 2003, he had sold 3.3 billion barrels of oil for 26 billion euros. With his French and German trading partners, the “petroeuro” was born, which if expanded would help a euro market develop against lots of other currencies, boosting the euro’s strength and eroding the dollar’s exorbitant privilege. But one month later, the U.S., aided by the United Kingdom, invaded Iraq and overthrew Saddam. By June, Iraq was back to selling oil in dollars again.

Did America go to war to defend the petrodollar? This possibility is almost never discussed in retrospective analyses of the war, which tend to fixate on questions of Iraq’s alleged weapons of mass destruction stockpile, human rights abuses or terror links. But at the time, the euro was actually seen by many as a realistic challenger to the dollar. Given that the ouster of Saddam, in retrospect, helped deter change and give the petrodollar system many more years of dominance, it seems like one of the more reasonable explanations for the most mysterious war in modern American history.

Last year, the journalist Robert Draper appeared on Ezra Klein’s show to discuss his new book, “To Start A War: How The Bush Administration Took America Into Iraq.” With a decade of hindsight, they covered many of the possible motives for the invasion, but ultimately called it a “war in search for a reason.” To this day, there is no consensus for why exactly the U.S. invaded Iraq, and the official reasons have proven to be completely contrived.

According to former Treasury Secretary Paul O’Neill, by February 2001 the Bush Administration was already talking internally about the logistics of invading Iraq. “Not the why,” he said, “but the how and how quickly.” Blueprints were already being made. On 9/11, just a few hours after the attacks, then-deputy secretary of defense Paul Wolfowitz ordered a comprehensive study of Saddam’s ties to terrorist organizations.

Over the next 18 months, the Bush administration sold the war effort, and by March 2003 had achieved wide support, especially with the help of Secretary of State Colin Powell who spent his credibility on a PR campaign at the United Nations and on news television. Both houses of Congress supported the removal of Saddam, including Senators Clinton, Kerry, Reid and Biden. In the media, outlets ranging from “Fox News” to The New York Times supported the invasion, as did 72% of the American people in polling in the weeks leading up to the invasion. The public rationale was clear: Saddam was dangerous, was believed to have weapons of mass destruction (WMDs), could slip them to Al Qaeda and needed to be stopped. At the time, vice president Dick Cheney said “there can be no doubt that Saddam has WMDs.” The war was also marketed as a humanitarian effort and was given the name Operation Iraqi Freedom. But in retrospect, America did not invade Iraq to promote human rights. There was no connection to Al Qaeda or 9/11. And, despite Cheney’s promises, no WMDs were ever found.

Other motives were and continue to be discussed, including countering Iran, which makes little sense given most Iraqis are shia and their political structure ended up tilting more toward Iran during the occupation, and given that the U.S. had supported Saddam in previous decades for this very purpose. The flimsy nature of the official reasons for war led many to believe that oil was the root cause. This would not be unusual. Over the past 150 years, natural resources have been at the root of many wars, invasions and occupations that have shaped our world, including the Scramble for Africa, the Great Game in Central Asia, the Sykes-Picot treaty, the overthrows of Mossadegh and Lumumba and the first Gulf War.

George W. Bush, Colin Powell, Secretary of Defense Donald Rumsfeld, Coalition Provisional Authority Paul Bremer and British Foreign Secretary Jack Straw all publicly denied that the war was about oil. But former Federal Reserve Chairman Alan Greenspan wrote in his memoir that “I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil” and told the media that removing Saddam was “essential” to secure world oil supplies. Former head of U.S. operations in Iraq General John Abizaid said that “of course it’s about oil; we can’t really deny that.” And former defense secretary Chuck Hagel admitted in 2007 that “people say we’re not fighting for oil. Of course we are.”

It is true that America, even at the time, did not consume a large portion of its oil from the Middle East. In 2003, the U.S. received most of its oil from domestic production plus sources in Canada, Mexico and Venezuela. In this light, invading Iraq simply to “control” oil seems like a weak reason. And most could easily predict that a hot war would damage Iraq’s oil infrastructure, creating long delays before production could get back up to speed. But perhaps the war was not waged for oil in a general sense, but specifically, to defend the petrodollar system.

In post-invasion May 2003, weeks before Iraq switched back to selling oil in dollars, Howard Fineman wrote in Newsweek that the Europeans were debating the U.N. over whether or not to continue searching for the WMDs that they could not find. He reported that the real dispute was not “about WMDs at all. It’s about something else entirely: who gets to sell — and buy — Iraqi oil, and what form of currency will be used to denominate the value of the sales.”

As Graeber asks: “How much did Hussein’s decision to buck the dollar really weigh into the U.S. decision to depose him? It’s impossible to say. His decision to stop using ‘the enemy’s currency,’ as he put it, was one in a back-and-forth series of hostile gestures that likely would have led to war in any event; what’s important here is that there were widespread rumors that this was one of the major contributing factors, and therefore, no policymaker in a position to make a similar switch can completely ignore the possibility. Much though their beneficiaries do not like to admit it, all imperial arrangements do, ultimately, rest on terror.”

With hindsight, the early 2000s were an era when, presented with the challenge of the euro, it made sense for the U.S. to take action. And so, whether or not the defense of the petrodollar was the main aim of the invasion of Iraq, the outcome was the same: other countries saw what was done to Saddam, and were, for many years, careful about pushing their own “petro” currency. And the oil? Iraq’s production more than doubled from 2001 to 2019, eventually climbing to five million barrels of oil per day. The financial world has become multipolar over the past few years, but as of 2019, more than 99% of crude oil trade payments were still in dollars.


Beyond the Iraq War, there are several other key and much more obvious negative externalities of the petrodollar system. American support for the Saudi dictatorship is one. Even though 15 of the 19 hijackers on 9/11 plus Osama Bin Laden himself were Saudi, the U.S. government has forcibly resisted any attempt to investigate the Saudi regime for involvement in the attack and instead invaded and bombed other countries in retaliation. The petrodollar is one of the primary reasons why the murderous House of Saud is still in power.

In 2002, former U.S. Ambassador to Saudi Arabia Chas Freeman told Congress: “One of the major things the Saudis have historically done, in part out of friendship with the United States, is to insist that oil continues to be priced in dollars. Therefore, the U.S. Treasury can print money and buy oil, which is an advantage no other country has.” In 2007, the Saudis warned the U.S. that it would drop the petrodollar system if they pursued the “NOPEC” Congressional bill that would enable the Justice Department to pursue OPEC governments under antitrust laws for manipulating oil prices. The bill was never enacted.

According to a 2016 New York Times story, Saudi Arabia “told the Obama administration and members of Congress that it will sell off hundreds of billions of dollars’ worth of American assets held by the kingdom if Congress passes a bill that would allow the Saudi government to be held responsible in American courts for any role in the Sept. 11, 2001, attacks.”

In 2020, then-Attorney General William Barr prevented the name of a Saudi diplomat linked to 9/11 from entering the public domain because such a disclosure risked “significant harm to the national security.” In the wake of the murder of Washington Post columnist Jamal Khashoggi, President Donald Trump would not push for action against Mohamed bin Salman. On “NBC News” he said “I’m not like a fool that says, ‘we don’t want to do business with them.’” President Biden has also refused to penalize MBS directly, even though he has been presented with evidence from his own intelligence agencies showing that he ordered Khashoggi’s murder, saying it would be too costly for America.

These are just a few examples of how, despite the Saudi regime’s bloody war in Yemen, its torture of female political prisoners and its assassination of Khashoggi, America’s relationship with the kingdom remains steadfast and protected at the highest levels. According to research from the Stockholm International Peace Research Institute, “between 2015 and 2019, the six Gulf states bought more than one-fifth of arms sold globally, with Saudi Arabia, the United Arab Emirates (UAE) and Qatar ranking as the world’s first, eighth and tenth largest arms importers. Saudi Arabia alone purchased one-quarter of total U.S. arms exports during that period, up from 7.4 percent in 2010–14.” The oil pricing pact first made in 1974 remains strong in 2021, despite very different times.

Domestically, certain factions of America have prospered because of the petrodollar, but the impact on the median American has been negative. As was recently written in “Foreign Affairs,” “the benefits of dollar primacy accrue mainly to financial institutions and big businesses, but the costs are generally borne by workers. For this reason, continued dollar hegemony threatens to deepen inequality as well as political polarization in the United States.” Corporations and asset owners have benefited most in the system’s low-interest rate environment. As Feygin and Leusder argue in “The Class Politics Of The Dollar System,” “dollar primacy feeds a growing American trade deficit that shifts the country’s economy toward the accumulation of rents rather than the growth of productivity. This has contributed to a falling labor and capital share of income, and to the ballooning cost of services such as education, medical care, and rental housing.”

As the petrodollar system kept international demand for the dollar artificially strong throughout the decades, America’s manufacturing base became weak and uncompetitive and lost jobs overseas. Normally a currency that is too strong ends up creating a deficit issue and is forced to devalue to sell exports. But, as investor Lyn Alden points out in “The Fraying Of The US Global Currency Reserve System,” that has never happened with the U.S. due to the continual payment of its deficit by foreign nations. In 1960, the economist Robert Triffin identified this phenomenon, now known as the Triffin Dilemma: to remain the world’s reserve currency, the U.S. must provide global liquidity by running increasingly large deficits, which one day must undermine faith in the dollar.

The U.S. financial sector has ballooned, now accounting for 20% of GDP, compared with 10% in 1947. This financialization has enriched the asset-holding elite on the coasts while ruining Rust Belt workers who deal with stagnant wages. This has sparked populism and extreme inequality, where the U.S. average wealth is still relatively high among advanced nations, but its median wealth is relatively low. In this way, Alden and other macroeconomic thinkers like Luke Gromen argue that dollar hegemony actually hurts the U.S. in its competition with nations like China, which are able to continually borrow dollars to stockpile hard assets, and consolidate control over important global supply chains.

And then, of course, we have the petrodollar itself and its impact on the environment. As Reuters reported, “if dollar-denominated oil usage declines in favour of home-produced wind, solar or hydro energy sources, then the swelling pool of global petrodollars recycled and invested by the world’s big oil producers since the end of the gold standard in the 1970s may drain with it.” Simply put, a global shift to renewables would put a big dent in the demand for fossil fuels, which could deal a knockout blow to the petrodollar system and the ability for the U.S. to run up massive deficits without consequences. Oil interests have aggressively resisted attempts to develop nuclear energy and renewables over the past few decades. The U.S. military continues to be the single largest consumer of petro resources.

When the global reserve currency is literally reliant on the sale of oil, the world has a massive carbon emissions problem. Not to mention the fact that, as discussed, the petrodollar is defended by the U.S. military’s global presence, which has a carbon output the size of a mid-sized nation, is exaggerated in size by America’s need to protect the dollar, and is boosted by the oil price-spiking wars it fights on various continents. It is truly impossible for the petrodollar system to be green when it is based on black gold.


U.S. foreign policy has kept the petrodollar dominant for many decades, but its power is inarguably beginning to wane. Many Americans, including this author, have been incredibly privileged by this system, but it will not last forever.

Luke Gromen calls the petrodollar system a “company town,” where the U.S. has enforced control over oil pricing with threats and violence. After the fall of the Soviet Union, he says, America could have restructured the system and held another Bretton Woods, but it held on to the unipolar moment. Beyond protecting the system against disruptions like the petroeuro, Gromen says that America extended the life of the system by launching NAFTA and helping China join the World Trade Organization in 2001. These steps allowed the U.S. to continue exporting manufacturing and treasuries abroad in exchange for goods and services. He notes that in 2001, China’s treasury holdings were $60 billion, but rose to $1.3 trillion a decade later. From 2002 to 2014, America’s biggest export was treasuries, where foreign central banks bought 53% of the issuance, using it as a new form of gold. But since then, China and other governments have been divesting treasuries and pushing us toward a new system, in expectation of that gold losing value. According to Gromen, they realized if dollars were still priced in oil as the U.S. continued to run higher debt-to-GDP ratios (up from 35% in the 1970s to more than 100% today), the price of oil would eventually skyrocket. Europe was not able to disrupt the petrodollar system in the early 2000s, but over time the U.S.’s hegemony and ability to stop other nations from pricing oil in their own currencies has eroded.

More and more countries are denominating oil trade in other currencies, like euros, yuan and rubles, partly because they fear reliance on a weakening system, and partly because the U.S. government continues to use the dollar as a weapon. The American sanction system is incredibly powerful, as it can cut enemies off from the SWIFT payment network or from the World Bank or IMF. As the Financial Times reported, “by using American banks as a cudgel against Russia, Joe Biden has shown a willingness to weaponize the U.S. financial system against foes, continuing a tactic honed during the Obama years and dramatically ramped up under Donald Trump.”

This month, President Biden publicly denounced the Nord Stream2 Pipeline project, which would build on the momentum Russian President Vladimir Putin already has with Rosneft, pricing more than 5% of the world’s oil in euros by connecting Europe and Russia. Team Biden reportedly wants to “kill” the project, and its officials have commented that dollar primacy remains “hugely important” to the administration and that “it’s in our national interest because of the funding cost advantage it provides, [because] it allows us to absorb shocks… and gives us enormous geopolitical leverage.” This is a striking indication of just how important the petrodollar system remains politically to the U.S., 50 years after its creation, despite critics who say the world uses dollars for pure market reasons.

Many countries want to escape from U.S. financial control, and this desire is accelerating global de-dollarization. For example, China and Russia are, as of last year, transacting in dollars just 33% of the time, versus just 98% seven years ago. China is expanding oil trading denominated in yuan, and many worry about the Chinese Communist Party’s new “DC/EP,” or digital yuan project, being a ploy for increased international use of the yuan. Meanwhile, former European Commission president Jean-Claude Juncker has said “it is absurd that Europe pays for 80 percent of its energy import bill — worth 300 billion euros a year — in U.S. dollars when only roughly 2 percent of our energy imports come from the United States.” While the dollar is still dominant, trends point to other major currencies gaining traction in the coming years.

Beyond a shift to a multipolar currency world, another threat to the petrodollar could be the SDR, or “Special Drawing Right,” employed by the IMF, which is based on the dollar, euro, pound, yen and yuan. Inspired by Keynes and his failed bancor idea from Bretton Woods, the SDR has achieved more traction in the past few years, with more than 200 billion units in circulation and another 650 billion possibly being created. But few governments in a position of economic power would willingly hand their monetary control over to an unelected alphabet soup organization.

As for gold, the world is not going back. As Jacques Rueff wrote in the 1960s, “money managers in a democracy will always choose inflation; only a gold standard deprives them of the option.” The left-wing historian Michael Hudson explains that in the 1970s, he tried to make an apolitical case for the U.S. government to revert to the gold standard, teaming up with the right-wing scholar Herman Khan: “He and I went down and gave a presentation to the U.S. Treasury, saying, ‘gold is a peaceful metal because it’s a constraint on the balance of payments. If countries had to pay their balance-of-payments deficit in gold, they would not be able to afford the balance-of-payments costs of going to war.’ That was pretty much accepted and that was why the United States basically responded, ‘That’s why we’re not going back to gold. We want to be able to go to war and we want the only alternative to hold central bank reserves to be the United States Dollar.’” Gold is, by the account of most economists today, simply too restrictive.

A 2020 study in the Journal of Institutional Economics posited four potential future monetary outcomes for the world: continued dollar hegemony, competing monetary blocs (where the EU and China act as counterweights to the U.S.), an international monetary federation (where at the top of the international hierarchy stands no longer a state, but the BIS and the SDR), and international monetary anarchy, where the world shrinks into less connected islands. The authors, however, miss a fifth possibility: a Bitcoin standard where the digital currency becomes the global reserve asset.

Since its creation in 2009 by Satoshi Nakamoto, bitcoin has grown in value from less than a penny to more than $50,000, spreading to every major urban area on earth as a store of value and, in some places, a medium of exchange. In the past year, Fortune 500 companies like Tesla and sovereign wealth funds like Singapore’s Temasek have started to accumulate bitcoin on account of its inflation-resistant properties. Many call it digital gold.

We are very possibly witnessing the birth of not just a new ultimate store of value but also a new global base money, neutral and decentralized like gold, but unlike gold in that it is programmable, teleportable, easily verifiable, absolutely scarce and resistant to centralized capture. Any citizen or any government can receive, store or send any amount of bitcoin simply with internet access, and no alliance or empire can debase that currency. It is, as some say, the currency of enemies: adversarial parties can use the system and benefit equally without detracting from each other.

As bitcoin’s value goes up against fiat currencies, more and more corporations and individuals will begin to accumulate. Eventually, governments will too. At first they will add it as a small part of their portfolio alongside other reserve currencies, but eventually, they will try to buy, mine, tax or confiscate as much as they can.

Born at a time when the previous world reserve currency had reached its apex, Bitcoin could introduce a new model, with more possibilities but also more restraint. Anyone with an internet connection will be able to protect their wages and savings, but governments, unable to so easily create money on a whim, will not be able to wage forever wars and build massive surveillance states that contradict the wishes of their citizens. There could be a closer alignment between the rulers and the ruled.

The big fear, of course, is that America will not be able to finance its exorbitant social programs and military spending if there is less global demand for the dollar. If people prefer the euro or yuan or bonds from other countries, the U.S. in its current form would be in big trouble. Nixon and Kissinger designed the petrodollar so that the U.S. could benefit from global demand for dollars tied to oil. The question is, why can’t there be a global demand for dollars tied to bitcoin?

No matter the base money, there could still be fiat currency and government debt, priced according to the economic power and bitcoin position of those countries. And in the emerging Bitcoin world, America is leading in many categories, whether it is infrastructure, software development, actual holdings by the population, and, increasingly given current trends, mining. America is also built on liberty, equality of opportunity, free speech, private property, open capital markets and other values and institutions that Bitcoin reinforces and reverberates. If Bitcoin did eventually become the global base money, then America is in a position to capitalize on that transformation.

This means no more reliance on dictators and secret pacts in the Middle East, no more need to threaten or invade other countries to preserve dollar primacy, and no more opposing nuclear or renewable energy technology to protect the fossil fuel industry. Unlike the petrodollar system, Bitcoin could very well accelerate the global energy transition to renewables, with miners always choosing the cheapest sources of electricity, and trends pointing to cheaper renewables in the future.

Under the Bitcoin standard, everyone would play by the same rules. No government or alliance of governments can manipulate the monetary policy. But any individual can opt into a nondiscretionary rules-based currency and control a savings instrument that has historically appreciated versus goods and services. This would be a dramatic net benefit for most people on earth, especially when considering that billions today live under high inflation, financial repression or economic isolation.

This transition may not be so pleasant for authoritarian regimes, which are more closed, tyrannical, violently redistributionist and isolated than liberal democracies. But in this author’s view, that would be a good thing, and one that could force reforms where activism alone has failed.

The world’s multipolar drift is inevitable. No one country can, in the near future, gain as much power as America had at the end of the 20th century. The U.S. will still be a powerhouse for a long time to come, but so will China, the EU, Russia, India and other nations. And they may compete in a new monetary system that moves away from the petrodollar and all of its costly externalities: a neutral Bitcoin standard that plays to the strengths of open societies, does not depend on dictators or fossil fuels, and is ultimately run by citizens, not the entrenched elite.

This is a guest post by Alex Gladstein. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Not Oil, But Dollars vs. Euros

Why is George Bush so hell bent on war with Iraq? Why does his administration reject every positive Iraqi move? It all makes sense when you consider the economic implications for the USA of not going to war with Iraq. The war in Iraq is actually the US and Europe going head to head on economic leadership of the world.

America’s Bush administration has been caught in outright lies, gross exaggerations and incredible inaccuracies as it trotted out its litany of paper thin excuses for making war on Iraq. Along with its two supporters, Britain and Australia, it has shifted its ground and reversed its position with a barefaced contempt for its audience. It has manipulated information, deceived by commission and omission and frantically “bought” UN votes with billion dollar bribes.

Faced with the failure of gaining UN Security Council support for invading Iraq, the USA has threatened to invade without authorisation. It would act in breach of the UN’s very constitution to allegedly enforced UN resolutions.

It is plain bizarre. Where does this desperation for war come from?

There are many things driving President Bush and his administration to invade Iraq, unseat Saddam Hussein and take over the country. But the biggest one is hidden and very, very simple. It is about the currency used to trade oil and consequently, who will dominate the world economically, in the foreseeable future — the USA or the European Union.

Iraq is a European Union beachhead in that confrontation. America had a monopoly on the oil trade, with the US dollar being the fiat currency, but Iraq broke ranks in 1999, started to trade oil in the EU’s euros, and profited. If America invades Iraq and takes over, it will hurl the EU and its euro back into the sea and make America’s position as the dominant economic power in the world all but impregnable.

It is the biggest grab for world power in modern times. America’s allies in the invasion, Britain and Australia, are betting America will win and that they will get some trickle-down benefits for jumping on to the US bandwagon. France and Germany are the spearhead of the European force — Russia would like to go European but possibly can still be bought off. Presumably, China would like to see the Europeans build a share of international trade currency ownership at this point while it continues to grow its international trading presence to the point where it, too, can share the leadership rewards.


Oddly, little or nothing is appearing in the general media about this issue, although key people are becoming aware of it — note the recent slide in the value of the US dollar. Are traders afraid of war? They are more likely to be afraid there will not be war.

But despite the silence in the general media, a major world discussion is developing around this issue, particularly on the internet. Among the many articles: Henry Liu, in the ‘Asia Times’ last June, it has been a hot topic on the Feasta forum, an Irish-based group exploring sustainable economics, and W. Clark’s “The Real Reasons for the Upcoming War with Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth” has been published by the ‘Sierra Times’, ‘’, and ‘’.

This debate is not about whether America would suffer from losing the US dollar monopoly on oil trading — that is a given — rather it is about exactly how hard the USA would be hit. The smart money seems to be saying the impact would be in the range from severe to catastrophic. The USA could collapse economically.


The key to it all is the fiat currency for trading oil. Under an OPEC agreement, all oil has been traded in US dollars since 1971 (after the dropping of the gold standard) which makes the US dollar the de facto major international trading currency. If other nations have to hoard dollars to buy oil, then they want to use that hoard for other trading too. This fact gives America a huge trading advantage and helps make it the dominant economy in the world.

As an economic bloc, the European Union is the only challenger to the USA’s economic position, and it created the euro to challenge the dollar in international markets. However, the EU is not yet united behind the euro — there is a lot of jingoistic national politics involved, not least in Britain — and in any case, so long as nations throughout the world must hoard dollars to buy oil, the euro can make only very limited inroads into the dollar’s dominance.

In 1999, Iraq, with the world’s second largest oil reserves, switched to trading its oil in euros. American analysts fell about laughing; Iraq had just made a mistake that was going to beggar the nation. But two years on, alarm bells were sounding; the euro was rising against the dollar, Iraq had given itself a huge economic free kick by switching.

Iran started thinking about switching too; Venezuela, the 4th largest oil producer, began looking at it and has been cutting out the dollar by bartering oil with several nations including America’s bete noir, Cuba. Russia is seeking to ramp up oil production with Europe (trading in euros) an obvious market.

The greenback’s grip on oil trading and consequently on world trade in general, was under serious threat. If America did not stamp on this immediately, this economic brushfire could rapidly be fanned into a wildfire capable of consuming the US’s economy and its dominance of world trade.


Imagine this: you are deep in debt but every day you write cheques for millions of dollars you don’t have — another luxury car, a holiday home at the beach, the world trip of a lifetime.

Your cheques should be worthless but they keep buying stuff because those cheques you write never reach the bank! You have an agreement with the owners of one thing everyone wants, call it petrol/gas, that they will accept only your cheques as payment. This means everyone must hoard your cheques so they can buy petrol/gas. Since they have to keep a stock of your cheques, they use them to buy other stuff too. You write a cheque to buy a TV, the TV shop owner swaps your cheque for petrol/gas, that seller buys some vegetables at the fruit shop, the fruiterer passes it on to buy bread, the baker buys some flour with it, and on it goes, round and round — but never back to the bank.

You have a debt on your books, but so long as your cheque never reaches the bank, you don’t have to pay. In effect, you have received your TV free.

This is the position the USA has enjoyed for 30 years — it has been getting a free world trade ride for all that time. It has been receiving a huge subsidy from everyone else in the world. As it debt has been growing, it has printed more money (written more cheques) to keep trading. No wonder it is an economic powerhouse!

Then one day, one petrol seller says he is going to accept another person’s cheques, a couple of others think that might be a good idea. If this spreads, people are going to stop hoarding your cheques and they will come flying home to the bank. Since you don’t have enough in the bank to cover all the cheques, very nasty stuff is going to hit the fan!

But you are big, tough and very aggressive. You don’t scare the other guy who can write cheques, he’s pretty big too, but given a ‘legitimate’ excuse, you can beat the tripes out of the lone gas seller and scare him and his mates into submission.

And that, in a nutshell, is what the USA is doing right now with Iraq.


America is so eager to attack Iraq now because of the speed with which the euro fire could spread. If Iran, Venezuela and Russia join Iraq and sell large quantities of oil for euros, the euro would have the leverage it needs to become a powerful force in general international trade. Other nations would have to start swapping some of their dollars for euros.

The dollars the USA has printed, the ‘cheques’ it has written, would start to fly home, stripping away the illusion of value behind them. The USA’s real economic condition is about as bad as it could be; it is the most debt-ridden nation on earth, owing about US$12,000 for every single one of it’s 280 million men, women and children. It is worse than the position of Indonesia when it imploded economically a few years ago, or more recently, that of Argentina.

Even if OPEC did not switch to euros wholesale (and that would make a very nice non-oil profit for the OPEC countries, including minimising the various contrived debts America has forced on some of them), the US’s difficulties would build. Even if only a small part of the oil trade went euro, that would do two things immediately:

* Increase the attractiveness to EU members of joining the ‘eurozone’, which in turn would make the euro stronger and make it more attractive to oil nations as a trading currency and to other nations as a general trading currency.

* Start the US dollars flying home demanding value when there isn’t enough in the bank to cover them.

* The markets would over-react as usual and in no time, the US dollar’s value would be spiralling down.


America’s response to the euro threat was predictable. It has come out fighting.

It aims to achieve four primary things by going to war with Iraq:

* Safeguard the American economy by returning Iraq to trading oil in US dollars, so the greenback is once again the exclusive oil currency.

* Send a very clear message to any other oil producers just what will happen to them if they do not stay in the dollar circle. Iran has already received one message — remember how puzzled you were that in the midst of moderation and secularization, Iran was named as a member of the axis of evil?

* Place the second largest reserves of oil in the world under direct American control.

* Provide a secular, subject state where the US can maintain a huge force (perhaps with nominal elements from allies such as Britain and Australia) to dominate the Middle East and its vital oil. This would enable the US to avoid using what it sees as the unreliable Turkey, the politically impossible Israel and surely the next state in its sights, Saudi Arabia, the birthplace of al Qaeda and a hotbed of anti-American sentiment.

* Severe setback the European Union and its euro, the only trading bloc and currency strong enough to attack the USA’s dominance of world trade through the dollar.

* Provide cover for the US to run a covert operation to overturn the democratically elected government of Venezuela and replace it with an America-friendly military supported junta — and put Venezuala’s oil into American hands.

Locking the world back into dollar oil trading would consolidate America’s current position and make it all but impregnable as the dominant world power — economically and militarily. A splintered Europe (the US is working hard to split Europe; Britain was easy, but other Europeans have offered support in terms of UN votes) and its euro would suffer a serious setback and might take decades to recover.

It is the boldest grab for absolute power the world has seen in modern times. America is hardly likely to allow the possible slaughter of a few hundred thousand Iraqis stand between it and world domination. President Bush did promise to protect the American way of life. This is what he meant.


Obviously, the US could not simply invade Iraq, so it began casting around for a ‘legitimate’ reason to attack. That search has been one of increasing desperation as each rationalization has crumbled. First Iraq was a threat because of alleged links to al Qaeda; then it was proposed Iraq might supply al Qaeda with weapons; then Iraq’s military threat to its neighbours was raised; then the need to deliver Iraqis from Saddam Hussein’s horrendously inhumane rule; finally there is the question of compliance with UN weapons inspection.

The USA’s justifications for invading Iraq are looking less impressive by the day. The US’s statements that it would invade Iraq unilaterally without UN support and in defiance of the UN make a total nonsense of any American claim that it is concerned about the world body’s strength and standing.

The UN weapons inspectors have come up with minimal infringements of the UN weapons limitations — the final one being low tech rockets which exceed the range allowed by about 20 percent. But there is no sign of the so-called weapons of mass destruction (WMD) the US has so confidently asserted are to be found. Colin Powell named a certain north Iraqi village as a threat. It was not. He later admitted it was the wrong village.

‘Newsweek’ (24/2) has reported that while Bush officials have been trumpeting the fact that key Iraqi defector, Lt. Gen. Hussein Kamel, told the US in 1995 that Iraq had manufactured tonnes of nerve gas and anthrax (Colin Powell’s 5 February presentation to the UN was just one example) they neglected to mention that Kamel had also told the US that these weapons had been destroyed. Parts of the US and particularly the British secret ‘evidence’ have been shown to come from a student’s masters thesis.

America’s expressed concern about the Iraqi people’s human rights and the country’s lack of democracy are simply not supported by the USA’s history of intervention in other states nor by its current actions. Think Guatemala, the Congo, Chile and Nicaragua as examples of a much larger pool of US actions to tear down legitimate, democratically elected governments and replace them with war, disruption, starvation, poverty, corruption, dictatorships, torture, rape and murder for its own economic ends. The most recent, Afghanistan, is not looking good; in fact that reinstalled a murderous group of warlords which America had earlier installed, then deposed, in favour of the now hated Taliban.

Saddam Hussein was just as repressive, corrupt and murderous 15 years ago when he used chemical weapons, supplied by the US, against the Kurds. The current US Secretary for Defence, Donald Rumsfeld, so vehement against Iraq now, was on hand personally to turn aside condemnation of Iraq and blame Iran. At that time, of course, the US thought Saddam Hussein was their man — they were using him against the perceived threat of Iran’s Islamic fundamentalism.

Right now, as ‘The Independent’ writer, Robert Fisk, has noted, the US’s efforts to buy Algeria’s UN vote includes promises of re-arming the military which has a decade long history of repression, torture, rape and murder Saddam Hussein himself would envy. It is estimated 200,000 people have died, and countless others been left maimed by the activities of these monsters. What price the US’s humanitarian concerns for Iraqis? (Of course, the French are also wooing Algeria, their former north African territory, for all they are worth, but at least they are not pretending to be driven by humanitarian concerns.)

Indonesia is another nation with a vote and influence as the largest Muslim nation in the world. Its repressive, murderous military is regaining strength on the back of the US’s so-called anti-terror campaign and is receiving promises of open and covert support — including intelligence sharing.


While the world’s attention is focused on Iraq, America is both openly and covertly supporting the “coup of the rich” in Venezuela, which grabbed power briefly in April last year before being intimidated by massive public displays of support by the poor for democratically-elected President Chavez Frias. The coup leaders continue to use their control of the private media, much of industry and the ear of the American Government and its oily intimates to cause disruption and disturbance.

Venezuela’s state-owned oil resources would make rich pickings for American oil companies and provide the US with an important oil source in its own backyard.

Many writers have noted the contradiction between America’s alleged desire to establish democracy in Iraq while at the same time, actively undermining the democratically-elected government in Venezuela. Above the line, America rushed to recognise the coup last April; more recently, President Bush has called for “early elections”, ignoring the fact that President Chavez Frias has won three elections and two referendums and, in any case, early elections would be unconstitutional.

One element of the USA’s covert action against Venezuela is the behaviour of American transnational businesses, which have locked out employees in support of “national strike” action. Imagine them doing that in the USA! There is no question that a covert operation is in process to overturn the legitimate Venezuelan government. Uruguayan congressman, Jose Nayardi, made it public when he revealed that the Bush administration had asked for Uruguay’s support for Venezuelan white collar executives and trade union activists “to break down levels of intransigence within the Chavez Frias administration”. The process, he noted, was a shocking reminder of the CIA’s 1973 intervention in Chile which saw General Pinochet lead his military coup to take over President Allende’s democratically elected government in a bloodbath.

President Chavez Frias is desperately clinging to government, but with the might of the USA aligned with his opponents, how long can he last?


Some have claimed that an American invasion of Iraq would cost so many billions of dollars that oil returns would never justify such an action. But when the invasion is placed in the context of the protection of the entire US economy for now and into the future, the balance of the argument changes.

Further, there are three other vital factors:

First, America will be asking others to help pay for the war because it is protecting their interests. Japan and Saudi Arabia made serious contributions to the cost of the 1991 Gulf war.

Second — in reality, war will cost the USA very little — or at least, very little over and above normal expenditure. This war is already paid for! All the munitions and equipment have been bought and paid for. The USA would have to spend hardly a cent on new hardware to prosecute this war — the expenditure will come later when munitions and equipment have to be replaced after the war. But munitions, hardware and so on are being replaced all the time — contracts are out. Some contracts will simply be brought forward and some others will be ramped up a bit, but spread over a few years, the cost will not be great. And what is the real extra cost of an army at war compared with maintaining the standing army around the world, running exercises and so on? It is there, but it is a relatively small sum.

Third — lots of the extra costs involved in the war are dollars spent outside America, not least in the purchase of fuel. Guess how America will pay for these? By printing dollars it is going to war to protect. The same happens when production begins to replace hardware. components, minerals, etc. are bought in with dollars that go overseas and exploit America’s trading advantage.

The cost of war is not nearly as big as it is made out to be. The cost of not going to war would be horrendous for the USA — unless there were another way of protecting the greenback’s world trade dominance.


Why are Australia and Britain supporting America in its transparent Iraqi war ploy?

Australia, of course, has significant US dollar reserves and trades widely in dollars and extensively with America. A fall in the US dollar would reduce Australia’s debt, perhaps, but would do nothing for the Australian dollar’s value against other currencies. John Howard, the Prime Minister, has long cherished the dream of a free trade agreement with the USA in the hope that Australia can jump on the back of the free ride America gets in trade through the dollar’s position as the major trading medium. That would look much less attractive if the euro took over a significant part of the oil trade.

Britain has yet to adopt the euro. If the US takes over Iraq and blocks the euro’s incursion into oil trading, Tony Blair will have given his French and German counterparts a bloody nose, and gained more room to manouevre on the issue — perhaps years more room. Britain would be in a position to demand a better deal from its EU partners for entering the “eurozone” if the new currency could not make the huge value gains guaranteed by a significant role in world oil trading. It might even be in a position to withdraw from Europe and link with America against continental Europe.

On the other hand, if the US cannot maintain the oil trade dollar monopoly, the euro will rapidly go from strength to strength, and Britain could be left begging to be allowed into the club.


Some of the reasons for opposition to the American plan are obvious — America is already the strongest nation on earth and dominates world trade through its dollar. If it had control of the Iraqi oil and a base for its forces in the Middle East, it would not add to, but would multiply its power.

The oil-producing nations, particularly the Arab ones, can see the writing on the wall and are quaking in their boots.

France and Germany are the EU leaders with the vision of a resurgent, united Europe taking its rightful place in the world and using its euro currency as a world trading reserve currency and thus gaining some of the free ride the United States enjoys now. They are the ones who initiated the euro oil trade with Iraq.

Russia is in deep economic trouble and knows it will get worse the day America starts exploiting its take-over of Afghanistan by running a pipeline southwards via Afghanistan from the giant southern Caspian oil fields. Currently, that oil is piped northwards — where Russia has control.

Russia is in the process of ramping up oil production with the possibility of trading some of it for euros and selling some to the US itself. Russia already has enough problems with the fact that oil is traded in US dollars; if the US has control of Iraqi oil, it could distort the market to Russia’s enormous disadvantage. In addition, Russia has interests in Iraqi oil; an American take over could see them lost. Already on its knees, Russia could be beggared before a mile of the Afghanistan pipeline is laid.


The scenario clarifies the seriousness of America’s position and explains its frantic drive for war. It also suggests that solutions other than war are possible.

Could America agree to share the trading goodies by allowing Europe to have a negotiated part of it? Not very likely, but it is just possible Europe can stare down the USA and force such an outcome. Time will tell. What about Europe taking the statesmanlike, humanitarian and long view, and withdrawing, leaving the oil to the US, with appropriate safeguards for ordinary Iraqis and democracy in Venezuela?

Europe might then be forced to adopt a smarter approach — perhaps accelerating the development of alternative energy technologies which would reduce the EU’s reliance on oil for energy and produce goods it could trade for euros — shifting the world trade balance.