Showing posts with label war with Iran. Show all posts
Showing posts with label war with Iran. Show all posts

Friday 28 June 2019

Petrodollar Warfare: Understanding the US Obsession with Iran

First invasion of Iraq 1991

When the USA was planning its first invasion of Iraq, a young Kuwaiti nurse testified before Congress  describing Iraqi soldiers pulling infants out of their incubators and tossing them on the floor.  The "nurse" turned out to be a princess of the Kuwaiti royal family, and her testimony pure fiction. However, her story created the needed public support for the invasion.

Second invasion of Iraq 2003

As the USA was preparing its second invasion of Iraq, Colin Powell was tasked with presenting "irrefutable" evidence that Saddam Hussein was producing weapons of mass destruction.  Powell's presentation together with the totally fatuous belief, held by some Americans, that Hussein was responsible for 9/11 were sufficient to once again garner support for a war against Iraq.  As is well known at this point, the proclaimed purpose of the war was baseless--no WMDs or facilities were found.

USA preparing for war in Iran

As the USA once again prepares to go to war in the Middle East, this time against Iran, perhaps it's time to ask why.  What is the "real" reason the USA is about to invade Iran?  The answer is for the same reason the USA invaded Iraq:  petrodollars.  There are hundreds of sites on the internet which will give you a more detailed, sophisticated description and expert explanation of petrodollars than I will give you here.  As usual, I am shocked by my own ignorance.  However . . .

Petrodollars are basically another name for American dollars, but to understand the significance of this simple fact we need a primer on how money works.  Imagine you are looking at a house and the price is one million USD.  We always think in terms of what the house or the product or the service is worth in terms of money, but we rarely ask "What is $1,000,000 worth?"

Prior to the 1970s it was easy to say what one American dollar was worth, because the USA promised to maintain a stockpile of gold and every American dollar was backed up by that gold.  However in the early 70s the USA was no longer able to maintain a sufficient amount of gold to back up the amount of money they were spending on the Vietnam War.  Richard Nixon announced that the US dollar was no longer on the gold standard.

How the "gold standard" became the "petrodollar"

Keep in mind that money, the US dollar, for example, is physically just paper or pixels--pretty worthless.   The challenge for the USA was:  How do you make your money worth something when you don't have the gold or resources or anything else to back up the trillions and trillions of dollars you want to create and spend?   The answer is that the USA made a deal with the Royal Family of Saudi Arabia--the largest oil producing country in the world.  "We will buy your oil and provide you with military protection against any and all your enemies.  In return, you agree to only sell your oil for American dollars."  Eventually, all the OPEC countries signed on to the same deal.  Over time, virtually all oil transactions world-wide would come to be conducted using American dollars.

Why is an American dollar worth something even in China or Japan or Sweden or Australia?  Because you are going to need American dollars if you want to buy oil, and every industrialized country in the world needs oil (so far).  Oil remains the most valuable resource on the planet. From an American perspective this means you can print paper money and produce pixel dollars, endlessly running up deficits and debts, but you don't have to worry about your money losing its value because virtually every country in the world has a vested interest in maintaining the value of the US dollar because they have some and they need them to buy oil.

As William Clark puts it in Petrodollar Warfare, "No longer backed by gold, the dollar became backed by black gold."  The irony is, of course, that the American dollar isn't backed by American oil; it's backed by oil from other countries.  What happens if some countries and some oil producers decide that they want to start buying and selling oil in a currency other than American dollars?

Military defense of oil, the USD and the petrodollar seems inevitable

The USA is the largest debtor nation in the world.  The USA spends more on its defense and runs larger deficits than any other country in the world.  The economy of the USA (including the strength of its military) depends on oil, the US dollar, and the connection between these two.  If you are still wondering why the USA invaded Iraq in 2003, as Williams points out: "On September 24, 2000, Saddam Hussein emerged from a meeting of his government and proclaimed that Iraq would soon transition its oil export transactions to the euro currency."

Iran has also announced its intention to sell oil for Euros and other currencies--as has Venezuela.

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