Re: once again on oil, euros, etc

From: Howard Engelskirchen (howarde@TWCNY.RR.COM)
Date: Sun Aug 08 2004 - 23:02:19 EDT


Related to this is an article in this month's Le Monde Diplomatique on China's burgeoning thirst.
  ----- Original Message ----- 
  From: michael a. lebowitz 
  To: OPE-L@SUS.CSUCHICO.EDU 
  Sent: Sunday, August 08, 2004 9:53 PM
  Subject: [OPE-L] once again on oil, euros, etc





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 issue, 
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
article 
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 
war. 

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
should 
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 world 
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 dollar, 
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
North 
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,
pressed 
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
would 
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
security 
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 change 
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 national 
currencies. 

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

johnharoldchapman@hotmail.com 




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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