Neo-Conned! Again

by D Liam O'Huallachain

  Eurasia Versus the Anglo-American Island Power

  This fight over petro-dollars and petro-euros, which started in Iraq, is by no means over, despite the apparent victory there of the United States. The euro was created by French geopolitical strategists to establish a multipolar world after the collapse of the Soviet Union. The aim was to balance the overwhelming dominance of the U.S. in world affairs. Significantly, French strategists rely on a British geopolitical strategist, namely, Sir Halford J. Mackinder,1 to develop their rival-power alternative to the U.S.

  In February of 2003, a French intelligence-connected newsletter, Intelligence Online, published a piece called, “The Strategy Behind the Paris-Berlin-Moscow Tie.” Referring to the UN Security Council bloc of France-Germany-Russia which tried to prevent the U.S.-British war in Iraq, the Paris report notes the recent efforts of European and other powers to create a counter-power to that of the United States. Referring to the new ties of France with Germany and more recently with Putin, they note:

  [A] new logic and even dynamic seems to have emerged. An alliance between Paris, Moscow and Berlin, running from the Atlantic to Asia, could foreshadow a limit to U.S. power. For the first time since the beginning of the 20th century, the notion of a world heartland – the nightmare of British strategists – has crept back into international relations.1

  Mackinder, the father of British geopolitics, wrote in his remarkable paper, “The Geographical Pivot of History,” written for the Royal Geographical Society and delivered thereto on January 25, 1904, that the only possible threat to the naval supremacy of Britain would be the control of the Eurasian heartland, from Normandy, France, to Vladivostok, Russia, by a single power or united bloc. British diplomacy until 1914 was based on preventing any such Eurasian threat. At that time the threat was the expansion policy of the German Kaiser eastwards with the Baghdad Railway and the buildup of the German Navy under Tirpitz. World War I was the result. Referring to the ongoing efforts of the British and later the Americans to prevent a Eurasian combination as rival, the Paris intelligence report stressed:

  That strategic approach [i.e., to create Eurasian heartland unity] lies at the origin of all clashes between Continental powers and maritime powers [U.K., U.S. and Japan] …. It is Washington's supremacy over the seas that, even now, dictates London's unshakeable support for the U.S. and the alliance between Tony Blair and Bush.

  Another well-connected French journal, ReseauVoltaire.net, wrote on the eve of the Iraq war that the dollar was “the Achilles heel of the USA.”2An understatement, to put it mildly.

  Iraq Was Planned Long Before

  This threat of a euro policy emerging among France, Iraq, and other countries led some leading circles in the U.S. policy establishment to begin thinking of preempting threats to the petro-dollar system well before Bush was even President. While Perle, Wolfowitz, and other key neoconserva-tives played a leading role in developing a strategy to preserve the faltering system, a new consensus was also being shaped around major figures of the traditional cold war establishment, such as Rumsfeld and Cheney.

  In September 2000, during the first Bush presidential campaign, a small Washington think-tank – the Project for a New American Century – released a major policy study: “Rebuilding America's Defenses: Strategies, Forces, and Resources for a New Century.” The report is useful to better understand present administration policy in many areas. On Iraq it states:

  The United States has sought for decades to play a more permanent role in Gulf regional security. While the unresolved conflict with Iraq provides the immediate justification, the need for a substantial American force presence in the Gulf transcends the issue of the regime of Saddam Hussein.

  This PNAC paper is the essential basis for the September 2002 “National Security Strategy of the United States of America.” The PNAC's paper supports a

  blueprint for maintaining global U.S. pre-eminence, precluding the rise of a great power rival, and shaping the international security order in line with American principles and interests. The American Grand Strategy must be pursued as far into the future as possible.

  Further, the U.S. must, “discourage advanced industrial nations from challenging our leadership or even aspiring to a larger regional or global role.”

  The PNAC membership in 2000 reads like a roster of the Bush administration today. It included Cheney and his wife Lynne Cheney; neoconservative Cheney aide Lewis Libby; Donald Rumsfeld; and Rumsfeld's former deputy, Paul Wolfowitz. It also included NSC Middle East head, Elliott Abrams; John Bolton of the State Department;1 Richard Perle; and William Kristol. Former Lockheed-Martin vice president, Bruce Jackson, and ex-CIA head James Woolsey were also on board, along with Norman Podhoretz, another founding neocon. Woolsey and Podhoretz speak openly of being currently involved in “World War IV.”

  It is becoming increasingly clear to many that the war in Iraq is about preserving a bankrupt “American-Century” model of global dominance. It is also clear that Iraq is not the end. What is not yet clear and must be openly debated around the world is how to replace the failed petro-dollar order with a just, new system for global economic prosperity and security.

  U.S. “Dollarizes” Post-war Iraq

  With no fanfare and little media attention, shortly after the fall of Baghdad Washington moved to reestablish the dollar as the currency of Iraq and to take full control over the Iraqi economy. France and other European members of the UN feebly tried to keep a UN weapons inspection program in place to allow the UN to continue supervision of the “Oil-for-Food” Program. The Pentagon and the U.S. State Department rode roughshod over the UN and brought the dollar back as currency in postwar Iraq. Indeed, Washington flew planeloads of dollars into the country to pay Iraqi civil servants, just to be certain the dollar reigned supreme in the new Iraq.

  The brief struggle between “old Europe” and the U.S.-U.K. coalition was covered in a Newsweek story carried only on the Internet, detailing the American desire to do away with “Oil-for-Food” and its related bureaucratic requirement coupling the disarmament of Iraq to euro-denominated oil sales. The stakes on both sides were amply explained, as were the “cover stories” for the opposing positions.

  Nobody in an official capacity on either side of the Atlantic wants to say … in so many words [that “it's the dollar vs. the euro”]. We say that the war isn't over, that it's our job – and only our job – to continue the search for weapons of mass destruction and to bring stability to Iraq with an interim government. The Europeans and the United Nations insist that they should resume the task of searching for WMDs. Until that issue is settled, they say, international sanctions can't formally end. (France is only proposing to “suspend” them.)

  In fact, the dispute isn't about WMDs at all. It's about something else entirely: who gets to sell – and buy – Iraqi oil, and what form of currency will be used to denominate the value of the sales. That decision, in turn, will help decide who controls Iraq, which, in turn, will represent yet another skirmish in a growing global economic conflict. We want a secular, American-influenced pan-ethnic entity of some kind to control the massive oil fields (Iraq's vast but only real source of wealth). We want that entity to be permitted to sell the oil to whomever it wants, denominated in dollars. We want those revenues – which would quickly mount into the billions – to be funneled into the rebuilding of the country, essentially (at least initially) by American companies. Somewhere along the line, British, Australian and perhaps even Polish companies would get cut in (Poland provided troops). President Bush doesn't dare sell the war as a job generator, but it may, in fact, produce more than a few.

  The Europeans and the United Nations want the inspections regime to resume because as long as it is in place, the UN “Oil-for-Food” Program remains in effect. Not only does France benefit directly – its banks hold the deposits and its companies have been involved in the oil sales – the entire EU does as well, if for no other reason than many of the recent sales were counted no
t in dollars but in euros. The United Nations benefits because it has collected more than a billion dollars in fees for administering the program. As long as the 1990 sanctions remain in effect, Iraq can't “legally” sell its oil on the world market. At least, to this point, tankers won't load it without UN permission, because they can't get insurance for doing so.

  Sometime in the next few weeks, push will come to shove. There are storage tanks full of Iraqi crude waiting in Turkish ports …. Meanwhile, if the rest of the world tries to block any and all Iraq oil sales, it's possible that American companies will find a way to become the customer of first and last resort.

  And we'll pay in dollars.1

  On May 22, 2003, push came to shove, and the UN passed Resolution 1483, on Washington's demand, creating a U.S.-British administered “Development Fund for Iraq.” In practical terms, that resolution quietly ended the “Oil-for-Food” Program and reverted Iraqi oil sales from euros back to dollars.2 The following month, the Financial Times reported that Iraq was “back into the international oil market for the first time since the war,” moving to sell 10 million barrels of oil to the highest bidder, and “switch[ing] the transaction back to dollars – the international currency of oil sales.”

  As noted earlier, one prominent City of London banker this author spoke with at that time related, off-the-record, that City bankers were confident that the threat to the dollar as currency for world oil trade was over, now that Iraqi oil would again sell for dollars, and that Washington had demonstrated with its military “shock and awe” what might happen to other oil-rich regimes considering bolting from the dollar. Yet, two years later, the issue remains far from settled.

  Iraq Was Not the End

  The central banks of China and Japan, the second and third largest importers of oil after the United States, also hold the world's largest reserves of dollars. China holds more than $540 billion in dollars, mostly in the form of U.S. Treasury bonds and notes, to earn interest. Japan holds even more. Officially, as of the end of 2004, both central banks held a combined $1.3 trillion in U.S. dollars. The Central Bank of Russia, largely owing to its significant export of oil and gas amid rising prices, held some $121 billion in dollar reserves at the end of 2004. Each of those central banks openly warned Washington to stop talking down the dollar, and each central bank, in the last weeks of 2004, suggested that a decision to shift out of dollar reserves into a greater share of euros was being considered.

  On December 6, 2004, the Bank for International Settlements of Basle, Switzerland, a central bank umbrella organization, reported what it termed a “subtle but noticeable shift” reducing their dollar deposits in favor of euros. “Since the third quarter of 2001,” the BIS report stated, “oil revenue seems to have been channeled increasingly into euro and other currency deposits.”1In an article published the same day, the Financial Times reported that “[m]embers of the Organisation of Petroleum Exporting Countries have cut the proportion of deposits held in dollars from 75 per cent in the third quarter of 2001 to 61.5 per cent.” The piece went on to explain that

  Middle Eastern central banks have reportedly switched reserves from dollars to euros and sterling to avoid incurring losses as the dollar has fallen and prepare for a shift away from pricing oil exports in dollars alone.2

  Private Middle East investors are believed to be worried about the prospect of U.S.-held assets being frozen as part of the war on terror, leading to accelerated dollar-selling after the re-election of President George W. Bush.

  The BIS data, in the organisation's quarterly review, state that OPEC countries' stock of dollar-denominated deposits has fallen by 4 per cent in cash terms since 2002 in spite of OPEC revenues' surging to record levels this year.3

  A senior banker at BNP Paribas bank, interestingly the same bank which had held the custody account in euros for Iraq under the “Oil-for-Food” Program, also told the Financial Times, “After the re-election of George Bush, the Middle East started to sell dollars like crazy due to the fears of assets being frozen.”

  Yet the selling of dollar assets alone is not a mortal threat to dollar hegemony. What is such a threat, however, is the potential loss of the role of the dollar as the sole currency for world oil trade, as Washington fully realizes.

  It is instructive to review the world map in terms of Washington's statements as to its wishes for possible “regime change.” Venezuela, which had repeatedly supported the shift of OPEC oil trade to euros, has been named by a number of hawks close to the Bush administration as a priority. Sudan has been as well, and there China has built a major oil pipeline to secure urgently needed oil imports.1 The intense involvement of Washington in the outcome of the Ukraine Presidential elections in November 2004 and the re-run in December reportedly had much to do with the central role of Ukraine as a transit point for Russian oil and gas, and Eurasian political domination by Washington.2

  Even more ominously, Iran quietly began accepting euros for its oil exports to the E.U. in the spring of 2003,3 and has publicly discussed the creation of an oil-trading market for OPEC and the Middle East, which “could threaten the supremacy of London's International Petroleum Exchange,”4 and which would most likely be denominated in euros.5 It is common knowledge at this point that the country remains high on the regime-change hit list of the Pentagon and White House.

  When U.S. civilian administrator Paul Bremer III left Iraq in July 2004, as head of the U.S.-created Coalition Provisional Authority, he handed nominal control of Iraq to an interim Iraqi caretaker regime under former CIA asset Iyad Allawi.

  Before leaving, Bremer, on orders from Washington, signed into force some 100 new laws. The purpose was to ensure that any future Iraqi regime remain faithful to U.S. economic wishes, and that Washington would control every aspect of Iraqi national sovereignty. The laws, known as the 100 Orders, dramatically reorganized Iraq's economy on American-mandated “free-market” lines. They ordered the privatization of some 200 state companies, and allowed 100% foreign ownership of Iraqi businesses, coupled with the unrestricted ability to withdraw profits, tax-free, from Iraq.

  No future Iraqi government, however elected, can undo the U.S. laws. To ensure so, Bremer named U.S.-chosen administrators to oversee every State Ministry for a period of 5 years. Little wonder that some Iraqis were skeptical about the outcome of the “elections.”

  Now, as Iraq continues in more-or-less a state of internal chaos, and the American “regime-change” hit list is being refined (and potentially acted upon), it is more important than ever to rethink the entire post-war monetary order anew. The present French-German-Russian alliance, to create a counterweight to the United States, requires not merely a French-led version of the petro-dollar system, i.e., some petro-euro system that continues the bankrupt “American Century” with only a French accent and euros replacing dollars. That would only continue to destroy living standards across the world, adding to both human waste and soaring unemployment in industrial as well as developing nations. We must entirely rethink what began briefly with some economists during the 1998 Asian crisis. We must develop the basis of a new monetary system, one which supports human development and does not destroy it.

  1. Wiesbaden: Edition Steinherz, 2002. The English translation of the book is available in a new edition: A Century of War: Anglo-American Oil Politics and the New World Order (London: Pluto Press, Ltd., 2004). Chapters 9 and 10 detail the creation and impact of the petro-dollar recycling scheme and the secret 1973 Saltsjoebaden meeting of the Bilderberg group in preparing the oil shock.

  1. An interesting narrative – though it is just one perspective – of how this U.S.-Saudi cooperation was brought about can be found on pp. 81–96 of John Perkins's book, Confessions of an Economic Hit Man (San Francisco: Berrett-Koehler Publishers, Inc., 2004).—Ed.

  2. Letter dated March 26, 2001, from the Chairman of the Security Council Committee established by resolution 661 (1990) concerning the situation between Iraq and Kuwait, Security Council document S/200
1/321, and Charles Recknagel, “Iraq: Baghdad Moves to Euro,” Radio Free Europe/Radio Liberty, November 1, 2000, online.

  3. The wire was picked up for about 48 hours by CNN and other media and promptly vanished from the headlines. Since William Clark's article, “The Real But Unspoken Reasons for the Upcoming Iraq War” appeared on the Internet on February 2, 2003, a lively online discussion of the oil-euro factor has taken place, but outside occasional references in the London Guardian, little in the mainstream media has been said of this strategic-background factor in the Washington decision to move against Iraq.

  1. The preliminary figure for the current account deficit for the year 2004, as reported by the Bureau of Economic Analysis, was $665.9 billion. Some suggest that the most recent figures, based upon the first part of 2005, indicate an annual rate of current account deficit of up to 7% of GDP, or about $700 billion.—Ed.

  2. As of December, 2004, the total debt of the U.S. (personal, business, and government - local, state, and federal) was over 400% of GDP! The external portion of that debt as a percentage of GDP was up to 24% as of the end of 2003 – somewhere around $3 trillion - and is projected to be 64% by 2014.—Ed.

  3. This figure of the daily capital inflow requirement over the last several years has been reported variously as anywhere between $1.2 and 5 billion.—Ed.