Iraq, the US trump to avoid a dollar collapse

Sunday 30 March 2008 by CEPRID

Alberto Cruz CEPRID 30 - III - 08

Do you remember the proposal of Iran and Venezuela to OPEC in October 2007 on the need to open a debate in the organization about whether or not to continue using the dollar as the payment currency for a barrel of oil? That proposal which caused such a fuss among some people, describing Ahmedinejad and Chavez as histrionic, turns out to be up for formal discussion according to the organization’s president, Chakib Khelil. OPEC will do so at a time when Iran, one of its most important members, has already stopped all trading in dollars by setting up its own oil exchange. Likewise, Qatar has announced a reduction in its reserve of dollars in favour of other currencies like the Euro. The United Arab Emirates is expected to do the same in May this year.

With an exchange rate over US$1.51 against the Euro and a continuing depreciation against the Yen, the dollar is close to collapse. This is a theory that has been repeated for some time now (1) although it doesn’t mean we are in the twilight of the current economic system nor in the antechamber of a crisis in capitalism’s nerve centre. But we are witnessing a progressive weakening of the United States and this provokes movement, sometimes small but still significant, in what is really important : the progressive reduction of various countries’ dollar reserves (right now 64.8% of the world’s monetary reserves are held in dollars) and their transfer into other stronger currencies like Euros or Yen. That means fewer dollars in circulation and less financing for the US external debt of about 9 trillion dollars. In fact the dollar as the main currency for international trade and as the main reserve currency for different countries’ Central Banks has lost almost 7 percentage points since 1999, dropping from 71% of all reserves that year to the current 64.8% now, which indicates that more and more countries are reducing their dependency on the US currency.

China holds the key to the end of the system as we now it today. It is very unlikely that the Chinese might decide to dump their excess dollars (having at the moment 1.4 trillion dollars in their reserves) and so cause a worldwide economic depression. But that does not mean they are not beginning to trade in other currencies and in products vital to the working of the current economic system like oil. Referring to the weakness of the dollar, Ching Siwei, Vice-President of the Permanent Committee of the People’s National Congress said last November that China "is going to readjust and diversify its monetary policy in financial and economic transactions around the world because we prefer strong currencies".(2) Putting deeds to words, China is already buying oil in Euros from Iran, which provides 13% of China’s energy requirements.

So for the US to staunch this constant financial bleeding only one liferaft remains : Iraq. That means increasing oil production in that country at all costs, ensuring its definitive return to OPEC on the same terms as OPEC’s other members - since Iraq was paralyzed by the UN during the government of Saddam Hussein following the sanctions the country was subjected to - and above all, with Iraq’s presence, reinforcing Saudi Arabia, which is under more and more pressure from the oil cartel’s other member countries to stop using dollars as the only currency for oil transactions.

When Ahmadinejad and Chavez made their proposal, the Saudis were the most reluctant to accept it or even to discuss it and managed to avoid even a tangential reference to the issue in the final declaration of that OPEC summit. But the reality is much more obstinate. Maintaning the alliance with the US is ever more costly in political and economic terms. In Saudi Arabia current inflation rates are the highest since 1980, running currently at 7%. In the United Arab Emirates, inflation is even higher at 9.3%. (3) The reason is none other than the weakness of the dollar in economies completely dollarized as those countries’ are. That is what has led the Saudis finally to let their arm get twisted and to accept now a discussion about the dollar in the terms proposed by Venezuela and Iran.

"Normalizing" Iraq

And that is what the US is trying to stop, come what may. First, it is bolstering the presence of Iraq’s collaborationist Oil Minister, Hussein al-Sharistani, in each and every one of the preparatory meetings for the next OPEC summit meeting. Secondly, it is pressing for final approval of the Iraqi oil law, which would leave that strategic sector in the hands of the US oil multinationals. Thirdly, Bush carried out his recent regional tour - not for peace, as the mass opinion forming media broadcast - to directly threaten the Gulf countries against changing their reserve currency. Fourthly, the US is pressuring these countries not to establish trade links with Iran at a time when that country has just set up its oil exchange to operate in Euros rather than dollars.

I deliberately mention al-Sharistani as the principal collaborator. He is the choicest delicacy that Bush serves up to the rest of the world. Some think this is because al-Sharistani has in his power the contracts which will make possible the exploitation of Iraq’s oil reserves. Iraq has oil reserves similar to those of Saudi Arabia, although some experts think they are greater - and that is without counting the gas reserves. Iraq has five main fields in which it is reckoned there lie a billion barrels of oil. They are Kirkuk (in Kurdistan), Majoon (on the Iranian frontier), Rumiala (in the South), Quna (in the South near Basra also near the Iranian frontier), and Zubair (in the South-East). These data although well known are not for that reason less important to bear in mind, since, as Alan Greenspan, former Federal Reserve chief in the US, said in his memoirs, "the Iraq war is in large part about oil".

The presence of the Iraqi Oil Minister in the preparatory meetings for the next OPEC summit runs in parallel with the Bush administration’s effort to convince the world that it is proceeding with the political and military "normalization" of Iraq. Fantasy, as always, but supported enthusiastically by the information media functioning as shock troops. Despite the fact that the US has literally bought off a large part of the Iraqi insurgency with the creation of the "Awakening" militia - which serves to confront insurgents and as a buffer for the occupying soldiers - it has not managed to pacify the sector controlled by Muqtada al Sadr despite the Mahdi Army’s ceasefire holding firm and the one controlled by Sunni guerrillas, who carry on their struggle against collaborationists and occupiers. After almost a year of "normalization" armed attecks still occur throughout almost the whole country, not just against the occupying troops but against mercenaries - those "private security companies" - and collaborators.

Nonetheless, if one has to note a credit side to the US strategy, the attacks against oil pipelines have certainly dropped noticeably in the last few months and that has made Iraqi oil production rise to 2.4 million barrels a day, the highest level since the country was invaded five years ago. The US has come very close to completing its energy strategy. It had reckoned on ending 2007 with production at 2.8 million barrels a day in Iraq (4) and made it to 2.4 million. Now it is being more modest and reckons on 2.6 million barrels a day for 2008, although the ultimate target is to reach no less than 6 million barrels a day within the next four years according to what the Iraqi Oil Minister has said in an interview to the British Times newspaper. (5)

That would permit the US to break up OPEC from the inside, considerably increasing the number of barrels on the market and bringing down the price of oil to the amount the US considers "fair" : US$30. A figure that leaves out one important fact, namely, that it does not cost the same to extract a barrel of oil in Saudi Arabia or Iraq, to name the cheapest places, as in Venezuela or Iran, to name the dearest places. In Iran, it costs US$15 to extract a barrel of oil. So the proportionate profit of 1 to 6 in the Saudi case (a high quality oil which, from extraction to sale, is easy to find and cheap to produce) drops to 1 to 2 in the Iranian case since its oil is not good, sweet and cheap like that of the Saudis and the Iraqis.

On January 24th this year, al-Sharistani met in Amman, Jordan with the leading oil multinationals to discuss "technical assistance contracts", or in other words to share out the oil fields, pending approval of the Iraqi oil law by the Iraqi parliament. Guess who was the first company he met with? Exxon-Mobil, the very same company that is in litigation against Venezuela for the nationalization in 2007 of wells in the Orinoco oil belt. If one believes the newspaper reporting the event, a contract will be signed during this current month of March. And so that the contracts will be profitable and operational the US has to keep a large contingent of troops in Iraq permanently.

The Iraqi opposition

Al-Sharistani is playing the game the US wants, but one not desired by the huge majority of Iraqis. Even according to polls by the collaborationist local media, 70% of Iraqis are against what they consider the "handover of national sovereignty". Perhaps it is the only issue on which there is currently majority consensus in Iraq between the different sectors. At the moment, an evolution is taking place in alliances between the different political forces, especially between the Kurds and the Sunnis, as also among the Shi’ias.

The agreement between the Kurdistan Patriotic Union, the Kurdistan Democratic Party and the (Sunni) Iraqi Islamic Party reinforces the divisionist strategy propounded by the United States to federalize the country, something with which the (Shi’ia) Supreme Islamic Revolutionary Council agrees with and which has asked for the creation of an "autonomous region of the provinces of Nasseriya, Amarah and Najaf and other areas of eastern Baghdad like Diwaniyah, Samawa and Kut". Only a part of the anti-Occupation guerrillas and the forces of Muqtada al-Sadr oppose the federalization of Iraq. But the country is more divided than ever and that leaves the imperialist strategy a free hand.


(1) "Veinte céntimos" http://www.rebelion.org/noticia.php?id=44199

(2) Diario del Pueblo, November 8th 2007.

(3) Al Jazeera, February 25th 2008.

(4) "No es Iraq, es Venezuela" http://www.rebelion.org/noticia.php?id=39775

(5) The Asia Times, February 12th 2008.

Translation copyleft by tortilla con sal

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