Why the USA can't leave Iraq
By Christopher King
Christopher King argues that, with its economy in rapid decline and with oil increasingly in short supply, the US will not only endeavour to remain in control of Iraqi oil, but will also attempt to seize Iran’s oilfields and that, moreover, the US people will support this in order to preserve their living standard.
Have you noticed that the US anti-war debate has begun to resemble Congress’s attitude to Iraq and Iran? There’s mild criticism of the Bush administration’s devastation of Iraq but the president does whatever he wants in Iraq and makes absurd accusations against Iran unchallenged. Debate concentrates on mistakes made rather than asking why such immense costs are being expended in the first instance. More than most Americans, the anti-war movement examines the Iraq war in detail and it is realizing consciously what the US political class already know. There are no mistakes. The US is staring over a cliff and is going to go over. It cannot leave Iraq. If he can find a plausible reason, President Bush will be allowed to invade Iran as well. Everyone will then pretend that it’s all another tragic mistake.
Two factors make up the cliff that America nears:
* Simple supply and demand: the depletion of oil reserves, the necessity for the oil producers to conserve supplies and the inevitable effects of oil price rises on the world’s most intensive oil user (see What the US Congress knows about Iraq and Iran).
* The US dollar’s status as the world’s reserve currency. This requires some explanation.
A reserve currency is one that all countries will accept for trade purposes. It is really a substitute for gold because there is not enough gold to underpin the world’s currencies. It is particularly useful for trading oil, which is normally priced in dollars. Most countries also hold much of their foreign currency reserves in dollars both for this purpose and because the US has been regarded as a politically and financially stable country.
Unhappily, the US is running a trade and current account deficit, that is, it pays other countries more dollars in trade and services than it receives. The US is essentially a business running at a loss. You might wonder where it gets the dollars to pay for the difference between cash received and cash paid. Firstly, it uses the capital inflows from foreign investors. This is like spending borrowed money because investors are entitled to take their money back. Secondly, it can print money. That’s right. To get a billion dollars cash, the government simply prints the banknotes or interest bearing treasury notes for any amount it needs. These are purchased both within the US and by foreign investors and governments who can use them for trade generally, not necessarily with the US.
Now, it is not always a bad thing to print money; indeed, in an expanding economy it is essential to increase the “money supply”. Unfortunately, the US economy is not expanding. The money supply increase is to support increased borrowing, both domestic and foreign. It is of concern to many that in March 2006 the US Federal Reserve Bank ceased publishing M3 data, which is the broad measure of money supply. The fear is that this was to hide an inflationary borrowing.
Inflation in a reserve currency is a bad thing. Other governments’ reserves are devalued – they need more dollars to buy the same amount of oil and anything else priced in dollars. They might think it better to keep their foreign exchange reserves in euros, yen or a basket that corresponds more to their trade pattern. Investors don’t like inflation because both their capital investment and earnings are worth less. They will look for a more stable home for their investments.
There are particular concerns in the case of the USA:
* The level of government debt is now 9.5 trillion dollars with interest payable of about 450 billion dollars per year. This can only come from taxation (depressing the economy) or printing more money (fuelling inflation).
* The US economy is arguably contracting. Figures for jobs and GNP do not necessarily provide an accurate picture. The types of jobs and distribution of income, for example, need to be taken into account.
* Much US manufacturing has shifted off-shore or closed down. The industrial base is weak; industry is increasingly uncompetitive against China, India and other Asian countries. US financial and other services are highly vulnerable to European and Asian competition.
* The recent sub-prime mortgage problems, crash in house prices and massive increase in liquidity in response from the Federal Reserve bring into question the Federal Reserve’s monetary competence (money supply and interest rate policy).
* Government borrowing against present and future expenditure commitments is unsustainable. The USA is living beyond its means, according to David Walker, recently retired US Comptroller-General who is the government’s top accountant (see video at the end of this article). This calls into question the US government’s fiscal competence (taxation and government spending policy).
* Due to increasing competition for a diminishing supply, oil is being bartered or direct access agreements are being made between states. This undermines the petrodollar (dollars reserved for or involved in oil transactions).
* Oil is being priced in currencies other than the US dollar and large-scale oil barter schemes are being established between Venezuela-South America and Iran-China/Japan, also undermining the petrodollar.
There is plenty here to worry international investors and holders of dollar reserves – and they are worried. The change in the dollar’s value demonstrates this:
1 April 2002: = 1.14 euro
1 April 2008: = 0.64 euro
Over this period, foreign governments and international investors have seen their dollar reserves, US investments and earnings lose 43 per cent against the euro, 33 per cent against the yen and 18 per cent against the rupee. This means that a manufacturer holding euros at present has an oil-buying advantage of 43 per cent over an American manufacturer, compared with their positions in 2002. The same is true of other commodities priced in dollars. This is why some governments are selling their dollar reserves.
If oil ceases to be traded in dollars, an important reason for the dollar’s reserve currency status will have disappeared and if it should lose reserve status, the US will find few foreign buyers for its paper debt. If foreign investors disinvest in the US as well, its economy could well collapse.
It does not increase international confidence in the US government’s financial policies and regulatory systems that the US has in the last few years exported to other countries many billions of dollars in worthless sub-prime mortgage “securities”. Nor does it help that debt supports its high profile wars in Iraq and Afghanistan as well as the threatened war against Iran.
Here we come to the imperative for the US to seize the Iraqi and Iranian oilfields. With its own oil nearing exhaustion, it cannot in future afford to purchase the enormous proportion of the world’s oil production on which its living standards are based. Its industrial production is uncompetitive, currency depreciating, finances supported by debt and, recently, its banks and investment houses have been supported by printed money in defiance of its much vaunted free market principles. The US needs an alternative philosophy and finds that it does not have one. It needs to change but cannot bring itself to change.
If the US fails to put its economy and finances into a fit state for world competition it could be paying 500 dollars per barrel, perhaps 1,000 dollars per barrel for oil in five or 10 years time. This is why it cannot leave Iraq and why direct control of the Iranian oilfields are also desirable. Of course its actions in Iraq are themselves creating instability.
I have previously suggested from circumstantial evidence that the US is stealing Iraqi oil and falsifying the statistics. In fact, no statistics for the past five years of US occupation exist. The Iraqi oil fields and export terminals have been unmetered for this period. (See the 2007 report of the International and Advisory Monitoring Board (IAMB) on Iraq, operating under United Nations Security Council Resolution 1483. The published production and export statistics have no validity whatever. One may reasonably conjecture that the trading records are of similar quality. The IAMB also reports that barter agreements for oil are not accounted for by the Development Fund for Iraq as required by UN Security Council Resolution 1483. In terms of even the most basic standards of accounting and accountability this can only be called scandalous and criminal. It makes a mockery of the US government’s claims to be developing Iraq and reveals the simple truth behind the invasion of Iraq. The invasion was a strategic plan to seize oil supplies that the US government will soon be in no position to purchase.
We have tended to think that the American people have been deceived by the Bush administration’s lies. It appears that, although initially this was the case, America has realized the truth but cannot admit its complicity. It cares about its high living standards and American deaths, not Iraqi or Afghan poverty and deaths. The American people do not recognize themselves in the mirror. They evidently see only fantasy images, unrelated to reality, derived from films. The reality that others see is horrific. If President Bush can engineer an excuse and a plan involving low American casualties, America will permit him to invade Iran as well – and pretend that it did not know the truth.
Christopher King is a retired consultant and lecturer in management and marketing. He lives in London, UK.