Re: [A-List] euros, dollars, Iraq, and Peak Oil

[WRC92@xxxxxxx]

(I hope this message is formatted correctly, I have aol and it looks ok on my end, but I've heard my messages lack proper spacing?  I don't know how to test this, please advise, thanks)

<<<i believe this was central to much of  mark jones' analyses.  perhaps some are still turned off by the supposedly Malthusian implications of the "peak oil" phenomenon.>>>

Well then, I shall attempt to pick up where Mark Jones left off. (Not that I am as knowledgeable or astute as he was, but that these issues merit serious discussion and exploration).  After all, I think Mark and Stan Goff originally invited me to the A-list in large part due to my essay on Iraq and the oil currency issues. 

I have been reading an well written analysis by Richard Heinberg on the subject of Peak Oil ("The Party's Over: Oil, War and the Fate of Industrial Societies", published March 2003).  I sent Mr. Heinberg my essay on the "real reasons for the Iraq war" months ago and he was quite impressed.  Hence, he incorporated my research into his "Muse Letter" with respect to Peak Oil the oil currency issue.  I highly recommend the below essay if one wants to look at what I would call the "red-pill" world.  (Analogy from the original Matrix world where Morpheous offers Neo a blue pill or a red pill.)  Most folks like the cozy blue-pill world must better, but I think Mark Jones was actually raging against the blue-pill world and the blue-pill people.  He wanted others to see into red-pill reality.  I commend his efforts. 

'The US and Eurasia: End Game for the Industrial Era?' by Richard Heinberg
http://www.museletter.com/archive/132.html

"Ironically, even the European Union is concerned about this trend, because if the dollar sinks too low then European firms will see their US investments lose value. Nevertheless, as the EU grows (it is slated to add ten new members in 2004), its economic clout is increasingly perceived as inevitably surpassing that of the US.

For US geostrategists, the prevention of an OPEC switch from dollars to euros must therefore seem paramount. An invasion and occupation of Iraq would effectively give the US a voting seat in OPEC while placing new American bases within hours' striking distance of Saudi Arabia, Iran, and several other key OPEC countries.

The second factor likely weighing on Bush's decision to invade Iraq is the depletion of US energy resources and the consequently increasing American dependency on oil imports. The oil production of all non-OPEC countries, taken together, probably peaked in 2002. From now on, OPEC will have ever more economic power in the world. Moreover, global oil production will probably peak within a few years. As I have discussed elsewhere, alternatives to fossil fuels have not been developed sufficiently to permit a coordinated process of substitution once oil and natural gas grow scarce. The implications - especially for major consumer nations such as the US - will eventually be ruinous. 10

Both problems are of overwhelming urgency. Bush's Iraq strategy is apparently an offensive one designed to enlarge the US empire, but in reality it is primarily defensive in character since its deeper purpose is to forestall an economic cataclysm.

It is the two factors of dollar hegemony and oil depletion - even more than the hubris of the neo-conservative strategists in Washington - that are prompting an overall de-emphasis of long-standing alliances with Europe, Japan, and South Korea; and the increasing deployment of US troops in the Middle East and Central Asia.

While no one is talking about it openly, top echelons in the governments of Russia, China, Britain, Germany, France, Saudi Arabia and other countries are keenly aware of these factors - hence the shifting alliances, the veto threats, and the back-room negotiations leading up to the US invasion of Iraq.

But the war, though by now inevitable, remains a highly risky gamble. Even if it ends in days or weeks with a decisive American victory, we will not know for some time whether that gamble has paid off."
(end of excerpt)

What I would like to explore is the effects of the dollar's role as the monetary currency for oil.  Michael Hudson has an incredible depth of knowledge on macroeconomics, and his excellent book "Super Imperialism" is testimony to his experiences and understanding.  However, what I would like him and others to consider are the effects of dollar denomination of hydrocarbons, and the effects of inevitable transition to the euro for oil pricing by several OPEC states as well as Russia and Norway.  We need to shift our thinking slightly to a paradigm that includes the subtle but important psychological aspects of petrodollars.  Please allow me to illustrate a hypothetical:

-Assume that the US financial markets have significant distortions, have become unsustainable, and the short-term outlook is one of sufficient uncertainty.  In other words, will the US dollar and US equity markets experience a severe correction in the future?  We shall use the next 6-months as the time period in this example.  

-Next, assume we as individuals have limited financial means of $20,000 to spend of US dollars at today's valuation, that we have shelter (a home with no mortgage), and must choose between two or four tangible assets over the next 6 months (assume we can onyl choose 2 options):

Option #1: A garage filled with a six-month supply of food and water for you and your immediate family.  Let's assume the current monetary value of these food and water supplies is $10,000 in current US dollars.

Option #2: A suitcase filled with $10,000 worth of genuine US dollar bills (at current US dollar valuation) that we can keep either in a bank or under the mattress.

Option #3: A suitcase filled with $10,000 worth of 1 oz. gold coins.  Let's assume the current valuation for a 1 oz gold coin is $333.33 in US dollars (at the dollar's current valaution).  This equates to 30 gold coins.

Option #4: A garage filled with hydrocarbon fuel(s).  Assume this could be a mixture of home heating/cooking oil, plus gasoline and/or diesel fuel as well for transportation devices.  Assume the combined valuation of these hydrocarbon based fuels are worth $10,000 at today's fair market price, and the dollar's current valuation.

So, those are the 4 options, we can only choose two, as we have only $20,000 at today's market valuation.  One last variable: Assume you are a typical American suburban dweller and oyu can *not* walk or bicycle to work/school, etc. In other words, you need to burn some sort of hydrocarbons for home heating/cooking as well as transportation.  Transportation can be provided by a automobile burning gasoline (to get to and from work), a train where you supply some of the fuel, or perhaps diesel fuel if you are a fisherman and use a boat for "work", or farmer and your "work" consists of driving a tractor, or airplane fuel if you "work" as a pilot.  It doesn't matter what mode of transportation you use, but letâs assume as a citizen in an industrialized nation (the US), you need individual transportation in order to work, and currently this requires hydrocarbons of some sort. 

Question?  Which two options would you choose?  Personally, I would choose option #1 (food) and option #4 (fuel).  I and most others would chose these two tangible assets over the âmonetaryâ assets for the very same reasons:

"Life is nothing more than a competition for energy."

We all need food and water to survive, and in our modern/industrialized society for the past 8-10 decades we have become addicted to hydrocarbons.  This is nothing new.  100 hundred years ago you could substitute option #4 for coal, and most folks would choose options #1 and #4.  Go back 200 years ago (forget about transportation for a moment), and substitute hydrocarbons for wood, and most folks would choose options #1 and #4.  Life is truly is a competition for energy.  Neither gold nor dollar provides any form of energy (Well, you could burn the dollars, but the heat given off is not very efficient, and wood/coal/gas would be much more energy efficient at heating something). Oil is not just a commodity, and pricing oil in US dollars is not a simple matter of traditional economics.

Stanâs excellent essay from last August deals with this issue, and as such I have posted a few excerpts:

âThe Infinite War and Its Rootsâ by Stan Goff
http://www.fromthewilderness.com/free/ww3/082702_infinite_war.html

..."So I will focus on oil, on currency, and on the evolving role and dilemma of the U.S. military. While we can certainly acknowledge that currency and the military are constants in the abstract and not a sector of capital, oil at first blush appears to be a definite sector. But this, too, is illusory. Oil is not a separate sector, first for the reasons cited above, but also because oil is no mere commodity.

Oil is the form of a deeper cycle of material reality than that on which radical theorists concentrated in the abstract with relation to the commodity and the vast social architecture they unfold from that enigma. It is the embodiment of inescapable physical laws related to energy and matter, and those are the laws, in conjunction with the laws of social motion, that we are bumping up against, not just as a society but as a species. Oil is a form of super-concentrated energy, originating as solar energy that formed over hundreds of millions of years in unique biological and geological conditions that cannot be replicated. Our species has used over half of the recoverable oil in approximately 100 years."

(more)

âIt is because oil is denominated in dollars -- which I can now call "petrodollars" -- since the U.S. dropped the gold standard and all its associated fixed currency exchange rates in 1971, that the U.S. has been able to dominate not only the developing world, but its key capitalist competitors. Other nations must pay their energy bills in (petro)dollars, at a higher rate than the U.S., and those dollars come right back to the homeland (via Saudi Arabia, et al) to invest in T-Bills and real estate.

In 1973 the Nixon Administration devalued the dollar, by then firmly fixed as the currency of international trade by virtue of being the petrodollar, and cleared its own debts to its European and Asian capitalist competitors. 

American petrodollars were then cycled through American banks, which lent them to Latin Americans and Africans, still reeling from the last oil shock, who then required petrodollar loans to pay their own energy bills. Economic growth has stagnated and fallen back in Africa and Latin America ever since. This is the method by which the U.S. was able to shift the burden of its own post-Vietnam accumulation crisis onto others, and to shift the maintenance model of its hegemony from semi-fascist client regimes to "structural adjustment" debt peonage under nominally "democratic" governing bodies.â

(end of excerpts)

In my previous post I addressed the issue of âcurrency riskâ regarding energy consumption (or lack there of in the US thanks to the dollar as the international oil transaction currency standard).  I have belabored this scenario to illustrate that the dollar as the monopoly currency for international oil has a âstorage of wealthâ much greater than what traditional economics would imply.  To illustrate, I have a 5-euro bill in my wallet that I purchased at the airport last month that costs me $6 US dollars.  

So, the relative value between these two currencies is that one is worth about 20% more than the other, but the âweakerâ currency is the one that is directly convertible into energy purchases (oil), and is universally accepted as the denomination or monetary unit of measurement for international energy/hydrocarbon purchases.  Under the current geo-political arrangement with Saudi/OPEC, the dollar is worth 1.5 to 1.9 gallons of crude oil ($22-$28 per barrel).  The euro is worth some ratio to the dollar (above or below) that does not correspond to its ability to purchase energy.  

Where am I going?  Hang on and youâll see.  In May 2004 the EU is scheduled to add 10 countries, and 450 million people that will be dependent upon hydrocarbons imports from OPEC.   That is one-third more people than in the US.  Do you see where I am going? While the dollar is a âmilitary-baskedâ currency, not even the neocons are crazy enough to think they can overthrow several OPEC countries, keep Norway from switching to the euro, and keep Russia from re denominating their oil sales to the EU in their native currency â the euro. 

Although Michael has suggested that the ECB/EU does not have a proper âvehicleâ for depositing the surplus proceeds from a âpetroeuroâ conversion â Iâll bet my last dollar that they are working on this issue right now, and that if other OPEC countries such as Iran and Indonesia re-denominated in euros, the ECB/EU would be drinking a lot of champagne as they quickly created the necessary arrangements.  However, the US military will be unleashed under the current neocons administration to undo such events.  In case no one noticed, the US has successfully changed Iraqâs oil transaction currency back to the US dollar about three weeks ago under the US administered âIraqi Assistance Fund.â  Yes, US oil companies like Exxon et al got tired of buying 64% of Iraqâs oil in euros from November 2000 to March 2003.  The Bush junta is not done eitherâ. 

Anyhow, Nixonâs de-linking of the dollar to the âgold standardâ in 1971 led to period of dollar devaluation and volatility.  Likewise, and potentially and inevitable de-linking of the dollar to international oil purchases will create devaluation.  However, due to the massive debt and debt manipulations/distortions over the past 30 years, this will be worse than the 1970s. That is why OPEC would never do this collectively, as it would collapse the US economy.  No one wants that outcome (except for bin Laden/ radical Islamic fundamentalist types).   Governments want the US consumer base to stay in tact. 

Despite Michael Hudsonâs suggestion that the Iraq war was pure imperialism (not an oil currency war), I have *very good reason to believe it was in fact an oil currency war.*  Why? I have conversed with unidentified acquaintance that is a former US intelligence analyst who worked in international economics, and informed me that thwarting further OPEC momentum towards the euro was the core driver for the upcoming Iraq war.  He told me this way back in Aug 2002.  Another individual (former NSA) stated that despite CIA failed attempt at unseating Chavez in April 2002, they are still at it.  Why?  Venezuelaâs ambassador made a suggestion in 2001 that Venezuela should consider euro oil-pricing.  Sometimes I think this type of information is a blessing, and sometimes I think it is a curse (Kind o like the curse of the "red-pill" world - where you sometimes want to go back to the cozy, ignorance is bliss "blue-pill" world.)

Well, I was shocked at this information as it was a complete surprise to me (and is unknown by 99% of Americans). I began a long journey to research this issue last year.   It should be noted that of the major US media (CNN, MSNBC, ABC, CBS, FOX, etc), there was only one mention of Iraqâs oil currency transaction currency switch.  CNN ran a short article on their website on Oct 30, 2000  (the switch occurred 11/-6-00)
U.N. to let Iraq sell oil for euros, not dollars http://www.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut/
Amazingly, I could not find another âmainstreamâ US media source discuss this until April 23, 2003.

âIn Round 2, itâs the dollar vs. euroâ 

http://stacks.msnbc.com/news/904236.asp?0bl=-0&cp1=1

My research culminated in a Jan 2003 with an essay that was posted on Indy media and quickly mimicked/plagiarized onto various Internet websites by various writers.  I really donât mind the latter as war is a serious issue.  Surprisingly, my essay was recently voted as one of the top 25 'most-censored news stories' of 2003 (out of 900 news stories reviewed), and will be published later this summer by a group in California called "Project Ceonsored."

http://www.projectcensored.org/store/storeitems.html

(FYI - I donât get any compensation for this publication, just increased infamy ;-)  My point to this long and often verbose post is that current US geostrategy can be distilled down to 3 components, all of which I hope members of this list will continue to explore/debate:

1)  To gain geostrategic control of the last remaining large hydrocarbon deposits (Caspian region and Persian Gulf) before Peak Oil arrives (originally predicted to be 2011 or 2012, but recent analysis as discussed in Heinbergâs book suggest 2006 may be The Peak Oil)

2)  Keep Europe divided â which is the prime regional competitor to the US.  Rumsfeld and Wolfowitcz are doing a superb job of this with their period hand grenades they lob to Europe (âOld Europe versus New Europe,â âFrance, or erstwhile allyâ, pulling troops out of Germany, disrupt NATO, etc.)

3)  Prevent at any costs the euro from challenging the dollarâs hegemonic status, most especially with regard to an alternative oil transaction currency:

All of this brings us to the much larger question of Peak Oil.  As Hubbert pointed out amny years ago, there is a fundmamental disconnect between our "matter-energy and monetary" system.  Matter-energy is a finite substance that is rapidly approaching it's peak.  What happens to monetary policy/growth when we outpace the finite *supply* of our current matter-energy source - hydrocarbons?  That is a deep question for another post, but Mark Jones was interested in this construct, and so am I.  Anyhow, as taken from my earlier essay on the Real Reasons for the Upcoming Iraq War(and reinfored by 'peer review' - former US intel folks)â

âIt would appear that any attempt by OPEC member states in the Middle East or Latin America to transition to the euro as their oil transaction currency standard shall be met with either overt U.S. military actions or covert U.S. intelligence agency interventions. Under the guise of the perpetual `war on terror' the Bush administration is manipulating the American people about the unspoken but very real macroeconomic reasons for this upcoming war with Iraq. This war in Iraq will not be based on any threat from Saddam's old WMD program, or from terrorism. This war will be over the global currency of oil. A war intended to prevent oil from being priced in euros.â

Bottom line: Do not underestimate the monetary and *psychological* effects of pricing oil in euros vs. dollars, and not underestimate the lengths and methods this administration will employ to pursue the 3 above geostrategic goals...