Is intervention in the Gulf still a profitable venture? :: Final Part ::

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Constituencies for war

The Israeli Lobby and the Christian right were not the only domestic constituencies that supported the invasion of Iraq. An unhealthy minority of Americans are prone to support any military intervention abroad -” regardless of the cause. You can take their temperature any day of the week and it always registers ‘war fever’.

The military industrial complex is yet another constituency that is willing to engage in any foreign entanglement the government can cook up. Iraq may not be a good war, but it’s the only war we have. War profiteers, like Halliburton, always stand prepared to support any war, any place, any time and for any reason

Every American generation has its moments on foreign battlefields. Some call it tradition -” others consider it a bad habit. The warmongers among us never cease appreciating “the smell of napalm in the morning”. When Thomas Friedman opined that “I have no problem with a war for oil”, he certainly expected a lot of Americans would share his sentiments. Friedman, a former energy analyst for the New York Times, should have known that the war was not about securing America’s ‘vital’ energy needs. As a master propagandist -” he was just making an appeal to the jingoists who would just as soon go to war to secure our ‘vital access’ to Honduran bananas.

In the hysteria that preceded the invasion of Iraq, Michael Ledeen, a fellow at the American Enterprise Institute and a leading neo-conservative, made a statement that outraged some -” but appealed to those who find war to be an indispensable rite of passage. Ledeen observed that "every now and again the United States has to pick up a crappy little country and throw it against a wall just to prove we are serious." He might have been crass -” but his sentiments reflected the views of a very real and a very significant American constituency.

Of course, the mass media has a long tradition of fanning the flames of war -” because nothing entertains the crowds like the ‘shock and awe’ of seeing a major foreign city go up in flames. With new and improved ‘real time’ technological capabilities, CNN’s embedded journalists can now take their viewers to the front lines for a ‘reality TV’ experience in Tora Bora and Fallujah. While waiting anxiously for the war in Iraq to begin -” as scheduled – Aaron ‘arson’ Brown of CNN rhapsodized about what a ‘perfect moment’ it was for journalism.

Judith Miller of the New York Times played a vital role in the ‘intelligence failure’ scam. America’s ‘doctor germ’ was a major conduit for ‘leaking’ the pulp fiction produced by the Office of Special Plans. A constant stream of propaganda was unleashed on the public from “reliable intelligence sources” and “Pentagon insiders who declined to be identified”.

The Fifth estate made up of a handful of Washington think tanks supplied a small army of ‘experts’ who set up permanent camps in the studios of CNN and FOX. Richard Perle was a permanent fixture on prime time TV. And The American Enterprise Institute, a front for the Israeli lobby, substituted for the State Department.

No doubt, certain constituencies in America support the invasion of Iraq just because it’s the only war we have. But it would be preposterous to argue that our government staged two major military interventions in the Gulf for the purpose of entertaining those Americans who want to sniff some napalm while imbibing their morning coffee. We went to war for other reasons.

Altruism was not one of those reasons. Many of the young marines and soldiers who made the ultimate sacrifice in Iraq honestly believed that Saddam Hussein was the man behind the 9/11 catastrophe. A significant minority of Americans continue to believe that Iraq had weapons of mass destruction and that Baghdad was about to Fed Express them to terrorists. Many progressives and liberals have been taken in by the latest justification for the war. For who amongst us would not take a stand for liberty? Go sell that line in Fallujah where ‘we destroyed the city so they could vote.’ Since the Civil War, the only American war ever fought for altruism was World War II -” and we didn’t bother to fight it until after the Japanese attacked Pearl Harbor.

So, where does that leave us?

Hopefully, the above analysis discounts many of the usual reasons given to justify or explain our military intervention in the Gulf.

A brief summary is in order. We certainly didn’t go to war to secure oil from a region that supplies only 5% of our total annual energy requirements. It would make just as much sense to launch a war against China to force the emerging Asian giant to curb its growing demand for crude. The interests of the oil majors did not require direct military intervention. Even during the Cold War and after the fall of the Shah, American oil companies managed to do just fine without the flexing of American military muscle. As we have seen, the project to contain Khomeini was contracted out to Saddam.

We certainly didn’t invade Iraq to destroy non-existent WMDs. We knew Saddam had no links to Al Qaeda. International law only matters when America feels like it. The John Bolton crowd does not go to war to uphold the integrity of United Nations resolutions. Spreading democracy in the Middle East has never been an American priority and is just the latest public relations scam by an administration desperate to justify the cost in blood and treasure of their quagmire in the Gulf.

War profiteers, jingoists and Armageddon worshipers and even a few altruistic souls joined the march to war. The Israeli lobby played a key the role of cheerleaders for the invasion – by leveraging their legendary media muscle and deploying their think tanks in Washington. And the mass media had no qualms about beating the drums for a ‘war on terror’.

But none of these narrow constituencies, alone or combined, had a compelling foreign policy agenda that rose to the level of a ‘vital national interest’. In terms of national security and our economic interests, our strategic priorities in the Gulf have not changed. Our hegemony over the region is designed to protect the ruling monarchies -” especially the house of Al Saud. And that is why we went to war.

Protecting the house of Al Saud

The United States, Saudi Arabia and other Gulf monarchies have been joined at the hip since the Cold War. The nature of our strategic partnership has evolved from a nice place do oil business, to a cold war ally to an essential economic asset. During the last two decades – the Gulf despots have endeared themselves to the United States government by providing America with an incredible economic advantage -” a virtual El Dorado.

The relationship is actually pretty straightforward. The Al Saud and Al Sabah clans price and sell their oil in dollars. They then transfer a healthy portion of their oil revenues to American capital markets. Both Saudi Arabia and Kuwait are also expected to use their vast excess capacity to discipline other OPEC countries. In return, the United States provides them with military muscle against all comers -” both foreign and domestic. That is the sum total of our imperial project in the Gulf.

When Prince Saud Al Faisal, the foreign minister of Saudi Arabia, recently commented that Saudi-American relations were ‘back to normal’ -” he meant that the above mentioned arrangements were still in force. Faisal made his statement after the meeting between Crown Prince Abdullah and President Bush in Crawford. What exactly is our ‘normal’ relationship with the Kingdom of Oil?

Saudi Arabia is no longer a ‘swing producer’

The decade that followed the ‘Liberation of Kuwait’ saw a decline in oil prices, as the Saudis and Kuwaitis used their excess capacity to act as enforcers and reign in OPEC by flooding the market with cheap Gulf crude. By 1998, oil was trading as low as ten dollars a barrel.

From 2002 to 2005, due to increased demand by emerging economic giants like China and India, global oil demand went from 78 million barrels a day up to 84 million barrels a day – a six million barrel increase. These days, every OPEC country is pumping oil at near full capacity and Saudi Arabia is no longer capable of acting as a ‘swing producer.’ In fact, if current market conditions prevail, OPEC will become irrelevant.

The days of major oil discoveries are behind us. Newly discovered oil reserves are not keeping up with the current rate of depletion. In fact, there is real concern in oil circles that previously reported reserves were greatly exaggerated. Colin Campbell, a founder of the London-based Oil Depletion Analysis Center notes that "The estimates for the OPEC countries were systematically exaggerated in the late 1980s to win a greater slice of the allocation cake. Middle East official reserves jumped 43% in just three years despite no new major finds."

The logic of inflating reserves allowed the Saudis and Kuwaitis to increase their share of OPEC quotas. The whole idea behind OPEC was to allocate production quotas between oil exporting countries -” to assure a reasonable and stable price for their oil products. If they all pumped at full capacity -” they would all lose. But they all cheated and sold more than their quotas. And they all exaggerated their reserves to land a higher production quota. Now, they don’t need quotas and they don’t need to cheat. These days, all OPEC can do is give price guidance and promise to try to find some new oil fields.

Part of the rationale for our imperial project in the Gulf was to get Saudi Arabia to leverage its excess capacity to tame the price of oil and neutralize the power of OPEC. At the current rate of increased consumption, we would have to discover another Saudi Arabia every ten years just to keep up with demand. Given current market conditions, OPEC is an obsolete organization. Who needs cartels or production quotas when there is a buyer willing to pay a premium price for every marginal barrel? And what is the value of having a ‘swing producer’ when there is virtually no excess global capacity? The simple truth is that the Saudis have no excess capacity to swing and neither does anyone else.

Was keeping OPEC on a short leash a sufficient reason to go to war in 1991? Did it rise to a level of a ‘national interest’? Did it justify engaging in the largest military intervention since Vietnam?

The answers to these questions really depend on an individual’s moral values. Thomas Friedman say ‘yes’ and more decent people would say ‘no’. In any case, these questions are not of immediate concern. What matters now is that OPEC is no longer a viable operation and does not engage in setting production quotas. So, even if the Saudis promise to continue acting out the role of a ‘swing producer’ -” they can’t deliver. So, the OPEC rationale is ancient history and can no longer qualify as a ‘national interest’ worthy of military intervention.

The greatest money laundering racket in human history

The massive increase in oil prices engineered by OPEC after the Arab oil embargo in 1973 was a major turning point for American-Saudi relationship. The record shows that Saudi Arabia always played the role of the moderate in OPEC councils to reign in Venezuela, Iran and Algeria and keep prices ‘reasonable’. Even so, prices continued to rise. Massive amounts of revenues were pumped into the treasuries of OPEC nations in an unprecedented transfer of wealth from oil consuming nations to oil exporting nations.

The argument was made that Gulf oil exporters -” with their relatively small populations – could not economically absorb such windfalls given their level of development. The solution was to recycle these excess ‘petro-dollars’ by investing them in more developed economies. Using that rationale, the Gulf monarchies began a massive illicit transfer of oil revenues to safe havens. The primary beneficiaries were the United States and Great Britain. Of course, these huge capital transfers were made in the name of the ruling clans.

Outfits like the Carlyle Group -” provided professional management of Saudi assets -” which some have estimated to have reached a value of $900 billion. Incidentally, The Carlyle group just happens to employ three major players involved in the ‘Liberation of Kuwait’ – Bush the elder, James Baker and John Major. The $900 billion mentioned earlier only accounts for Saudi investments in America’s capital markets. It does not take into consideration the royal family’s considerable holdings in England, Europe and Asia. Perhaps John Major and Tony Blair can give approximate estimates of Saudi and Kuwaiti funds invested in Great Britain. Those figures might help explain why an oil-exporting nation like Britain also has ‘vital national interests’ in the Gulf.

The single best kept financial secret in the world is the exact size of worldwide assets controlled by the Al Saud and Al Sabah clans. None of these Gulf leaders has ever had to explain to their subjects how exactly oil revenues are allocated. This wholesale confiscation and expatriation of national oil revenues is rarely a subject of debate in either the American or Arab media.

It is difficult to calculate how much money the Saudi royal clan skims from oil revenues before they reach the public purse. At current oil prices, revenues from Saudi crude should fetch around $180 billion this year. Yet, the government’s budget for 2005 is less than $80 billion. How can one account for the $100 billion difference. Is that the Royal family’s cut? One can never be certain because in the Kingdom of Oil -” such questions are considered subversive. They never get asked. And the ruling family reserves the right to decline answering such impertinent inquiries.

For all practical purposes, the public coffers in Saudi Arabia are also the family bank account of the Al Saud clan. Every member of the royal family -” estimated to number about 15,000 princes -” gets a monthly stipend in compensation for being a member of the Al Saud family. Do those stipends come out of the official national budget? Again, who knows?

Saudi Arabia exports around 10 million barrels a day and has a population of around 20 million. At $50 a barrel, per capita oil exports should be around $ 9,125 for every man, woman and child -” an excellent standard of living by world standards. And that amount does not reflect the substantial contribution of the private sector to the national economy. But, the citizens only see a fraction of their entitlements. There is simply no transparency in how oil revenues are allocated.

Unemployment in Saudi Arabia is at levels equivalent to American job-less rates during the Great Depression -” around 25%. With a relatively young population, an estimated half a million young Saudis enter the job market every year with diminishing prospects of gainful employment.

The vast majority of Saudi adults are perfectly aware that the ruling family systematically loots oil revenues. They know that a considerable portion of the proceeds from the sale of their non-renewable natural resources is expatriated to foreign shores -” mostly to American and British capital markets.

In broad daylight, the ruling Gulf monarchies openly engage in what can only be described as money laundering on an epic scale. The house of Al Saud makes Marcos seem like a petty thief. After all, this scam involves the illicit transfer of hundreds of billions of dollars. This money laundering operation is part of the reason we send our troops to kill and die in the region. Our policy makers have made a determination that protecting this illicit racket is in the national interests of the United States.

It should be noted that the Gulf monarchs were expatriating their fortunes before the United States got entangled in direct military intervention to ‘Liberate Kuwait’. Who can forget the sight of the Emir of Kuwait signing the initial down payment of $13 billion dollars in London while he was still in exile and his country was still occupied by the Iraqi army? He could do that -” because he already had a bank account in Great Britain.

Does this money-laundering racket contribute to our national economy? Sure it does. But, we can’t accurately determine exactly how much the American economy benefits -” because the size of the transfers are not part of the public record. After all, these are private transfers in the name of individual members of the royal clans.

But we should note that the Al Saud and Al Sabah clans do not donate their ill-gotten gains to the US Treasury or distribute it to American consumers. They use the money to buy tangible and intangible assets -” like real estate, stocks and corporate and government bonds. Technically, The Saudis and Kuwaitis are just regular foreign investors who put their money in America because it is a safe haven and because they expect to make a profit. It is always a good thing to have foreign investments pouring into the American capital market -” but at what price. If the cost of attracting these funds is to permanently station garrisons in the Gulf -” than just from a financial perspective, a case can be made that it is a losing proposition and does not serve the national interest.

Of course, certain economic interests like the Carlyle Group stand to lose plenty if their Saudi and Kuwaiti clients were to stop sending regular transfers of oil revenue receipts for ‘money management’. Cry me a river.

From a moral perspective, we stand accused of allowing the Saudi and Kuwaiti ruling families to economically rape their nations and stash their loot in America or Great Britain. That might bother some and not bother others. After all, it is the same exact service we were glad to provide for Marcos and Mobutu. The difference is that we never had to send young marines to Manila or Zaire to kill and die for this dubious privilege.

If regime change ever comes to Saudi Arabia -” the new governors are more than likely to file lawsuit to help track down and recover the assets of the Saudi clan. They can use the legal precedent set by the Philippines as a model and figure out how Manila got a hold of the funds expatriated by Marcos. This nightmare scenario might cause real concern among the power elite in Washington.

To determine if such a threat rises to the level of a national interest that warrants military intervention in the Gulf, we first need an approximate figure of the size of Saudi investments to do the math. In the event that we face such a crisis, the capital markets would no doubt react negatively – at least initially. But we survived 9/11 and we survived Pearl Harbor and we survived Vietnam. The sheer size of the American economy leads me to believe that we can absorb the shock. It would take time to track down the funds and it would take time for the courts to make a final determination. In the meantime, the Saudi assets would be frozen. If it appears that a new regime in Saudi Arabia might be rational -” we could always try to convince them to withdraw the funds in an orderly manner.

In any event, if that is why we are over there -” we should at least talk about it frankly. And we should tell the grunts that their mission is to keep us in the good graces of Saudi investors.

The link between trade deficits and oil pricing

When it comes to the national interests, the most important part of our deal with the Saudis and Kuwaitis is their agreement to price and sell their oil in American dollars. If it were not for our strategic alliance with these Gulf despots, the United States would not have the luxury of running outrageous trade deficits.

Every year since 1976, the American economy has run record deficits in the balance of trade with the rest of the world. During the last decade (1995 -“2004), the United States ran a cumulative trade deficit of three trillion dollars. The exact figure is $ 2,935 billion. That work’s out to roughly $10,000 for every man, woman and child.

The trade deficits just keep growing with no end in sight. Right wing economists have always dismissed alarm about the rising deficit by pointing to the size of the American economy -” which is currently about $11 trillion. The annual trade deficit was only $31 billion in 1991. In 1995, the trade deficit was $102 billion dollars -” still under 2% of GNP. By 2002, it was up to $ 435 billion -” around 4% of GNP. Last year, we ran a trade deficit of $617 billion -” 5.7% of GNP. And this year, the trade deficit is projected to grow to $715 billion. If we were a third world nation, we would be hauled into a bankruptcy court and the World Bank would show up at our front door with a mandatory five-year plan.

Consider the trade deficit figures for February 2005. In 28 days, Americans managed to import 161 billion dollars of goods and export only $100 billion. You don’t have to be an economist to figure out something is seriously out of whack. We managed to rack up a trade deficit of $61 billion in 28 days. You do the math. That works out to $2.17 billion a day -” or nearly 90 million dollars an hour. If you have normal sleep patterns -” eight hours a night -” the United States ran a $723 million deficit while you were sleeping. And it piled on another $100 million deficit while your were having breakfast and getting ready for work. Good morning, America. Are you ready for another 2.2 billion dollar spending spree?

The Dollar is our number one export commodity

To put things into focus, let’s begin by reducing February’s trade statistics to one single transaction. In February, the world sent us a fleet of ships loaded with all kinds of consumer goodies. After they unloaded -” they gave us a bill in the amount of $161 billion. We were obliged to settle the bill immediately. So, we gave them $100 billion dollars in military hardware, medicine and software and a box containing $61 billion in newly minted hundred dollar bills. On the surface, The transaction was a straightforward non-coercive business exchange.

We have been conducting business with the rest of the world in a similar fashion since 1976. In effect, we have been exporting hundreds of billions of dollars in American currency. The United States dollar is by far our single greatest export commodity. For some reason, the whole world has been more than happy to accept our green paper in exchange for real goods and services. What exactly is the economic environment that allows the United States to export so little and import so much?

Why Washington doesn’t worry about trade deficits

A trade deficit by its very definition is the measure of a country’s competitive strength or weakness. If you are importing more than you are exporting -” it means that the world finds your products inferior or expensive or both. Any casual stroll through almost any foreign capital reveals that American products are not on the shelves and American cars are not in the streets and the pedestrians are not wearing American textiles. Even if some products are sold under American labels – chances are some Asian company manufactured them under license. You might find a few Burger King franchises but the hamburgers and fries are cooked and served by their workers -” foreign labor. And a visitor to a Wal Mart in America will also discover that most of the products on the shelves are imported -” also manufactured by foreign labor.

We have huge trade deficits because we want their stuff and they don’t want what we produce. Mainly because our products require high priced labor content and American workers are very expensive by world standards. Most of them actually expect to work for a decent living wage.

So, why then is the United States government on a crusade to promote the virtues of free trade when we have managed to pile up consecutive uninterrupted trade deficits since 1976. Politicians are constantly promising that innovation and the sheer talent and productivity of the American worker will ultimately prevail and make our products more competitive. In the meantime, we are closing our factories while new ones are being constructed at a frantic pace in China and India. Even the technology sector is off-shoring American jobs to Banglore.

Alarmists were voicing concern about the exponential growth in the trade deficit when we started piling up $100 billion annual trade deficits in the early nineties. But nothing happened. We now manage to work up a $100 billion trade deficit in six weeks. Still, nothing happens.

So, why are we so hooked on free trade when our products can’t compete over here or over there? Because our government’s only concern is a rise in total international trade volumes that will create ever-increasing demand for the world’s favorite means of exchange -” the almighty dollar.

The United States is the only government in the world with the exclusive right to print and distribute American legal tender. The US mint is the biggest most important single industrial enterprise in the history of the world -” cranking out a commodity that fetches nearly $2 billion dollars a day in almost pure profit. The trade policy of the United States is primarily geared to making an international market for our number one export commodity -” the American dollar.

Why does the world lust for the dollar?

Until 1971, any foreigner could show up at the US treasury and exchange his dollars for gold at a fixed rate of exchange -” 32 dollars for one ounce of gold. Nixon put an end to the gold standard. Very few foreigners actually used the privilege -” but they slept better knowing that they could instantly convert American paper currency for a tangible amount of gold. Until the early seventies, the world craved dollars for a more sensible reason. They could be exchanged for American manufactured goods. Back then, foreign demand for American goods and services was high enough to generate trade surpluses.

Now, thanks to the Saudis and Kuwaitis, the world has additional reasons to crave American currency. Oil is priced in dollars and sold in dollars. Countries like China and Japan need American dollars not only to buy American products, but also to buy Gulf oil. The Saudis then take a healthy portion of their dollar revenues and invest them right back in the United States -” with the able assistance of firms like the Carlyle group.

When a normal country buys more from its trading partners than it sells -” it usually ends up making up the difference by selling real assets like banana plantations to foreign interests. Or it can issue government or corporate bonds -” in effect borrowing the money from foreign investors. Some of the currency we export eventually gets invested in American stocks, bonds and real estate. In fact, foreigners end up buying a considerable portion of US government bonds, which ironically helps finance the domestic budget deficits and keeps interest rates low. Given America’s low savings rate, without huge trade deficits -” we might have a harder time financing our budget deficits. This might seem like a good thing, until you stop to consider that we are passing trillions of dollars in debts to future generations. And those who clip the bond coupons will be foreigners -” like Japanese and German pension funds and the Al Saud and Al Sabah clans.

The United States is not just another normal country. It is an imperial power that controls vast reserves of Gulf oil and leverages its control to assure a steady demand for its chief export commodity – currency. Many countries are obliged to retain their reserves in dollars to insure their ability to import oil. That’s the reason they are called petro-dollars. Those dollars just drift around off shore and oil importing countries are obliged to chase them to assure future oil supplies. So, when Australia sells sheep to China, it asks for dollars. And when China sells textiles to Argentina it also demands dollars. Because eventually, they will all need American dollars to buy oil.

According to Swetha Narayanaswamy, an Indian economist, “More than four-fifths of all foreign exchange transactions and half of all the world exports are denominated in dollars, and U.S. currency accounts for about two-thirds of all official exchange reserves. The fact that billions of dollars worth of oil is priced in dollars ensures the world domination of the dollar.” American hegemony over the Gulf region -” guarantees that oil is sold in dollars -” which creates ‘dollar hegemony’ -” an economic environment that compels other countries around the world to maintain huge dollar reserves and to trade in dollars -” even when they have not intention of buying American made products.

This phenomenon might explain why the US government has not made a big deal about the extraordinary leap in the price of oil – which is 400% higher today than it was at the bottom of the market in 1998. These price increases have a beneficial side because they create a greater demand for petro-dollars at a time when America’s trade deficits are also sky rocketing.

What if the world purchased oil with other currencies?

The link between American trade deficits and our imperial project in the Gulf might seem over blown to some. But consider the following scenario. The House of Saud falls and is replaced by a regime of pan-Arab nationalists. The new rulers have no interest in smuggling oil revenues abroad. They decide to use the proceeds to build their own economies and improve the standard of living of the average citizen. Having no particular preference for the dollar, they start accepting other currencies in exchange for their oil. They continue to accept dollars -” but only the amounts they need to buy American goods and services. But they have no problem selling their oil for Yen or Euros or Australian dollars.

From petro-dollars to petro-dinars

Without a doubt, the first thing the new rulers in the Arabian Peninsula would do is changing the country’s name. May I suggest the Republic of South Arabia? The second thing they would do is alter the currency to reflect the country’s new identity.

The new governors might then put together a team of American educated economists to figure out how the United States used Gulf oil to create demand for the US dollar? They would quickly discover that the black gold under their native soil was the functional equivalent of the yellow gold in Fort Knox -” which was used to back the dollar until 1971. In effect, the American dollar has gone from a yellow gold standard to a black gold standard. A light goes off. What if they used their black gold to back up their own native currency? They decide to call it the petro-dinar. They set a permanent fixed price of 30 petro-dinars for a barrel of oil.

Initially, the new republic could issue enough petro-dinars to cover five years of oil supplies at current rates of production. Eventually, the amount of petro-dinars that can be issued would be tied to an acceptable and rational percentage of oil reserves. An independent international committee of geologists would monitor oil reserves and production levels to prevent the oil-exporting republic from exaggerating its reserves.

The Republic of South Arabia would allow the petro-dinar to float freely against other currencies. It would continue to accept any hard currency in exchange for oil. On any given day, if a barrel of oil is 60 US dollars -” it will still be 30 petro-dinars -” which would make the petro-dinar worth two dollars. If a barrel of oil costs 15 sterling -” a petro-dinar would be worth 50 pence. If the market price for a barrel of oil is 90 Euros – a petro-dinar could be exchanged for three Euros. Before long, oil-importing countries would find themselves accumulating petro-dinars instead of dollars to finance future oil supplies. Instead of speculating on NYMEX oil futures in New York -” investors and speculators would trade petro-dinar currency futures in Beirut.

With the emergence of a petro-dinar, the Gulf region could not only export oil -” they would also have the economic advantage of exporting currency.

This scenario would permanently remove any incentive for the United States to intervene in the affairs of Gulf oil producers. The most important rationale for the American imperial project would go up in smoke.

The radical concept of supporting the dollar with Gulf Crude

There is nothing radical about the concept of a petro-dinar. The only rational reason to hold the currency of another country is if you have plans to purchase goods and services produced by that country. It makes sense to hold Japanese yen if you want to buy a Toyota. It is rational to hold Australian dollars if you intend to purchase sheep or kangaroos from a trader in Sydney. The only sensible reason anyone should hold American dollars is to buy American made products.

If you want a really radical concept -” take a good look at the American imperial project in the Gulf. Approximately two millions Arabs, Iranians and Kurds met an early and violent death as a result of direct and indirect American intervention in the Gulf. Over five thousand American soldiers and civilians paid the ultimate price in the killing fields of Iraq and the World Trade Center. All of them perished to make a global market for US legal tender and to guarantee that oil revenues eventually made their way to New York and London capital markets.

What if a soldier’s tombstone in Arlington read “HE GAVE HIS LIFE SO AMERICA COULD BE FREE (to export petro-dollars)?” How many mothers would allow their sons to fight, kill or die for the fine print? How many working class American kids would volunteer for an army that protects their country’s currency instead of their country’s borders?

In the process of exporting our currency, the American government has pursued a ‘divide and conquer’ strategy that has incited Arabs against Kurds and Iranians against Arabs. In Iraq, Shia and Sunni Muslims are now at each other’s throats. Despots like Saddam and the Shah have been nurtured and America now flirts with theocrats and fundamentalists in the ‘New Iraq’. As a direct result of our radical ‘petro-dollar’ policy, we have made lethal enemies where we should only have trading partners. Meanwhile, The Saudi royal family -” perhaps the richest family in human history – gets richer while the whole region is pauperized.

Is this Gulf racket still a profitable venture?

Needless to say, The United States does not indulge in imperial projects simply because it has the power to establish and maintain off shore military bases. During the cold war, most military projects were directed at confronting real or perceived Soviet threats in Europe and Asia.

Until recently, direct military involvement in the Gulf was a relatively cost free enterprise and real benefits accrued to the American economy and the individual consumer. It was a nasty and bloody business with uncounted native victims -” but it made money. In the last decade, it allowed us the incredible luxury of exporting three thousand billion dollars of currency. A good portion of that money was ‘repatriated’ in the form of Saudi and Kuwaiti investments in American capital markets. But a vast pool of so-called petro-dollars is still floating around the world -” hoarded in the reserve accounts of foreign nations who know that the dollar is the only currency that can buy Gulf oil.

As things now stand, our governors continue to behave as if our imperial show of force in the Gulf continues to serve our national interests. From a strictly imperial point of view, they are simply wrong. Our tragic involvement in the Gulf might have been a profitable venture for the last seven decades -” albeit at the expense of the native population. But now it is a lose-lose proposition.

A cost benefit analysis of the American imperial project in the Gulf should convince even the most jingoistic American that this is no longer a profitable project. While the ‘liberation’ of Kuwait was basically a cost free proposition, our current entanglement in the Iraq has already cost $ 200 billion. Add to that the cost of Homeland Security and the economic losses sustained from the 9/11 attacks. And what is the dollar value of an American or an Iraqi life.

It should now be obvious to anyone familiar with simple arithmetic, that the overhead for our currency-exporting scam has been vastly underestimated. So, we need our governors to sit down with a pencil and paper and recalculate if the exponential increase in the costs of this imperial venture can still justify our military intervention in the region.

Things will only get worst if they procrastinate. Sooner or later, the world will expect us to increase our exports and provide real goods and services in exchange for the $3 billion in foreign goods that we consume every day. The illusion that we can print hundreds of billions of dollars, ship them abroad and only incur a printing charge is about to go up in smoke. We are about to discover that petro-dollars can actually be converted to regular dollars -” in the sense that they can be considered a means of exchange to buy American goods and services – not Gulf oil.

One of the reasons our currency is on skid row is that the world is saturated with petro-dollars as a result of our exploding trade deficits. Even at $50/ barrel, total Saudi oil exports will fetch under $200 billion dollars in 2005 -” about the same amount of money we have already spent on the Iraq war. Our projected $717 billion deficit -” not to mention the billions already hoarded in reserve accounts -” can no longer be soaked up by Gulf oil. When the foreign holders of all those petro-dollars realize that American currency can only buy American products -” the dollar will suffer further devaluation.

If petro-dollars come back to our shores and start chasing domestic products -” inflation will soar. As the dollar declines, it will also make imports more expensive. In classical economic theory, such a development would cause American consumers to switch to domestic products. They will be in for a rude surprise -” because we have closed down our manufacturing plants and shipped the jobs abroad -” laying off three million factory workers in the last four years.

Sooner or later, we will have to pay the piper. If doing so seems expensive today, it will only become a heavier burden next year. This much is certain -” our imperial project in the Gulf will never again generate profits -” now that our overhead has gone through the roof.

This war does not add up in dollars or sense

There was a time when America intervened directly in Asia and Latin America to secure economic advantages. Gun Boat diplomacy was a bread and butter policy. It made dollars and imperial sense. We don’t intervene directly in those regions anymore because risks are far higher than any potential rewards.

It is time to challenge the war party to produce a current account ‘profit/loss’ statement to justify our continued presence in the Gulf region. If they refuse, the anti-war movement should sharpen its pencils, take a good look at the numbers and prove that this imperial venture no longer serves the national interest. The special interests and narrow constituencies need to be held accountable for the accumulating losses.

It is never worthwhile to appeal to the common decency of the architects of our foreign policy. Decency is not an imperial value. The blood soaked killing fields of the Middle East will never cost them a minute of sleep. What we need now is a little old fashioned MBA accounting. What can be further gained and at what cost. If the imperial project in the Gulf is no longer profitable -” we should just close shop and let the Al Saud clan hire another group of mercenaries to protect their oil plantations.

It is easy enough to make a moral case against a disastrous foreign policy that has cost so much in American and Middle Eastern blood and no small amount of treasure. Still, imperial habits are hard to break. It took the British Empire fifty years to figure out that Hobson was right.

At some point, intervention and empire cease to be economically rational, even from the perspective of die-hard cold-blooded imperialists. Eventually, they degenerate into a costly tradition. We conquer because we can. We continue to fight a war because we haven’t finished it. It was Napoleon who once observed that "Great empires die of indigestion". We have reached that point in the Gulf. It’s time to pack up and leave. The sooner we do it, the cheaper it will be.

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Please, click here to read :: Part One ::

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