once again on oil, euros, etc

From: michael a. lebowitz (mlebowit@SFU.CA)
Date: Sun Aug 08 2004 - 21:53:00 EDT

John Chapman
Wednesday July 28, 2004
The Guardian

There were only two credible reasons for invading Iraq: control over oil and
preservation of the dollar as the world's reserve currency. Yet the government
has kept silent on these factors, instead treating us to the intriguing
distractions of the Hutton and Butler reports.
Butler's overall finding of a "group think" failure was pure charity.
Absurdities like the 45-minute claim were adopted by high-level officials and
ministers because those concerned recognised the substantial reason for war 
- oil.
WMD provided only the bureaucratic argument: the real reason was that Iraq was
swimming in oil.

Some may still believe the eve-of-war contention by Donald Rumsfeld that "We
won't take forces and go around the world and try to take other people's oil
... That's not how democracies operate." Maybe others will go along with
Blair's post-war contention: "There is no way whatsoever, if oil were the 
that it would not have been infinitely easier to cut a deal with Saddam."

But senior civil servants are not so naive. On the eve of the Butler report,
I attended the 40th anniversary of the Mandarins cricket club. I was taken
aside by a knighted civil servant to discuss my contention in a Guardian 
earlier this year that Sir Humphrey was no longer independent. I had then
attacked the deceits in the WMD report, and this impressive official and I
discussed the geopolitical issues of Iraq and Saudi Arabia, and US 
unwillingness to
build nuclear power stations and curb petrol consumption, rather than go to

Saddam controlled a country at the centre of the Gulf, a region with a
quarter of world oil production in 2003, and containing more than 60% of 
the world's
known reserves. With 115bn barrels of oil reserves, and perhaps as much again
in the 90% of the country not yet explored, Iraq has capacity second only to
Saudi Arabia. The US, in contrast, is the world's largest net importer of oil.
Last year the US Department of Energy forecast that imports will cover 70% of
domestic demand by 2025.

By invading Iraq, Bush has taken over the Iraqi oil fields, and persuaded the
UN to lift production limits imposed after the Kuwait war. Production may
rise to 3m barrels a day by year end, about double 2002 levels. More oil 
bring down Opec-led prices, and if Iraqi oil production rose to 6m barrels a
day, Bush could even attack the Opec oil-pricing cartel.

Control over Iraqi oil should improve security of supplies to the US, and
possibly the UK, with the development and exploration contracts between Saddam
and China, France, India, Indonesia and Russia being set aside in favour of US
and possibly British companies. And a US military presence in Iraq is an
insurance policy against any extremists in Iran and Saudi Arabia.

Overseeing Iraqi oil supplies, and maybe soon supplies from other Gulf
countries, would enable the US to use oil as power. In 1990, the then oil 
man, Dick
Cheney, wrote that: "Whoever controls the flow of Persian Gulf oil has a
stranglehold not only on our economy but also on the other countries of the 
as well."

In the 70s, the US agreed with Saudi Arabia that Opec oil should be traded in
dollars. American governments have since been able to print dollars to cover
huge trading deficits, with the further benefit of those dollars being placed
in the US money markets. In return, the US allowed the Opec countries to
operate a production and pricing cartel.

Over the past 15 years, the overall US deficit with the rest of the world has
risen to $2,700bn - an abuse of its privileged currency position. Although
about 80% of foreign exchange and half of world trade is in dollars, the euro
provides a realistic alternative. Euro countries also have a bigger share of
world trade, and of trade with Opec countries, than the US.

In 1999, Iran mooted pricing its oil in euros, and in late 2000 Saddam made
the switch for Iraqi oil. In early 2002 Bush placed Iran and Iraq in the axis
of evil. If the other Opec countries had followed Saddam's move to euros, the
consequences for Bush could have been huge. Worldwide switches out of the
dollar, on top of the already huge deficit, would have led to a plummeting 
a runaway from US markets and dramatic upheavals in the US.

Bush had many reasons to invade Iraq, but why did Blair join him? He might
have squared his conscience by looking at UK oil prospects. In 1968, when 
Sea oil was in its infancy, as private secretary to the minister of power I
wrote a report on oil policy, advocating changes like the setting up of a
British national oil company (as was done). My proposals found little 
favour with
the BP/Shell-supporting officials, but Richard Marsh, the then minister, 
them and the petroleum division was expanded into an operations division and
a planning division.

Sadly, when I was promoted out of private office the free-trading petroleum
officials conspired to block my posting to the planning division, where I 
surely have advocated a prudent exploitation of North Sea resources to reduce
our dependence on the likes of Iraq. UK North Sea oil output peaked in 1999,
and has since fallen by one-sixth. Exports now barely cover imports, and we
shall shortly be a net oil importer. Supporting Bush might have been justified
on geo-strategic grounds.

Oil and the dollar were the real reasons for the attack on Iraq, with WMD as
the public reason now exposed as woefully inadequate. Should we now look at
Bush and Blair as brilliant strategists whose actions will improve the 
of our oil supplies, or as international conmen? Should we support them if
they sweep into Iran and perhaps Saudi Arabia, or should there be a regime 
in the UK and US instead?

If the latter, we should follow that up by adopting the pious aims of UN
oversight of world oil exploitation within a world energy plan, and the
replacement of the dollar with a new reserve currency based on a basket of 

· John Chapman is a former assistant secretary in the civil service, in which
he served from 1963-96


Michael A. Lebowitz

Professor Emeritus

Economics Department

Simon Fraser University

Burnaby, B.C., Canada V5A 1S6

Currently based in Venezuela. Can be reached at

Residencias Anauco Suites

Departamento 601

Parque Central, Zona Postal 1010, Oficina 1

Caracas, Venezuela

(58-212) 573-4111

fax: (58-212) 573-7724

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