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12/29/2009 The Republic - Vancouver's Opinionated…

Cu rrent Issue • Ju ly 2 0 to Au gust 2 , 2 006 • No 1 43

The rise of the petroeuro

US sabre-rattling at Iran has less to do with global security and everything

to do with keeping the US dollar the medium of exchange in oil markets

By Dan Adleman

By now we’ve grown accustomed to

hearing about the confluence of
clandestine motives for America’s
invasion and occupation of Iraq.
Even many of the administration’s
staunchest supporters openly
acknowledge that Saddam was a dog
without teeth and that this ongoing
war has a lot more to do with
controlling the flow of oil and capital
in the Middle East (not to mention
buffering Israel against Iran) than
preventing a nuclear attack on
America. There are many
indications, however, that Hussein
did indeed pose a very grave threat
to the US—it just wasn’t a military
In November 2000, Hussein began…/135_dan_adleman.… 1/9
12/29/2009 The Republic - Vancouver's Opinionated…

demanding euros instead of

American dollars (“the currency of
the enemy state,” as Hussein called
it) for Iraqi oil. Aside from a brief
mention on CNN, the switch went
almost entirely unnoticed by
western media outlets. But the oil-
producing nations of the world took
notice. Shortly thereafter,
Venezuela, Russia, and Iran all
began to discuss shifting from the
petrodollar to the petroeuro.
According to Republican
Congressman Ron Paul of Texas, this
kind of shift could pose a fatal threat
to the vitality of the American
economy. But in order to understand
this abstruse concept of petrodollar
warfare, it’s important to go back
and retrace the emergence of the
American petrodollar as the world’s
pre-eminent reserve currency.
The right place to begin the story is
at the 1944 Bretton Woods
Conference, which set the
international gold standard whereby
the American dollar was pegged to
gold at $35 per ounce, launched the
IMF and World Bank to oversee
reconstruction and lend American
dollars to nations in need, and
established the greenback as the
backbone of international exchange.…/135_dan_adleman.… 2/9
12/29/2009 The Republic - Vancouver's Opinionated…

This new mechanism was in

everyone’s best interest as America’s
supremely robust economy provided
the stability that the rest of the
world required to pick up steam and
extricate itself from the morass of
WWII. Most industrialized nations
felt confident that as long as America
had plenty of gold in its vaults, the
global economic engine would keep
chugging along at an admirable
And so it went—until Uncle Sam’s
pathological escalation of the
Vietnam War resulted in a
skyrocketing deficit, and countries
like Britain and France, worrying
that the dollar would plummet as
America printed more and more
money to pay its exorbitant military
bills, began to lose faith in the
strength of the US currency. So they
started exchanging their dollars
back for gold, at $35 per ounce, and
as the dollars cascaded back into the
US, it wasn’t long before the strain
on America’s gold supply reached
crisis proportions. As a result, in
order to avoid being forced to empty
out Fort Knox, Nixon abandoned the
gold standard altogether, leaving the
dollar’s floating value to be
determined by market forces. The…/135_dan_adleman.… 3/9
12/29/2009 The Republic - Vancouver's Opinionated…

result was disastrous. The dollar

became volatile and inflation
spiralled out of control as wartime
debt continued to soar.
In 1974, Henry Kissinger, Nixon’s
Secretary of State, stepped in and
turned things around by establishing
what he referred to as “petrodollar
recycling.” First, the oil-producing
nations would have to agree to price
their oil exclusively in American
dollars. Kissinger accomplished this
goal through his intimate
relationship with the Saudi royal
family. The Saudis, OPEC’s top
producer, and America, its top
purchaser, unilaterally made the
greenback the sole “petrodollar.”
From that point onward, any nation
that wanted to purchase oil had to do
so in American dollars. Then, oil-
producing nations, such as Saudi
Arabia, bought US Treasury bonds
and deposited their surplus
American dollars in New York and
London Banks, which, through the
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IMF (which is also greenback-
denominated), lent these dollars out
to needy countries, which in turn
used a great deal of that money to
buy oil. (And now, not only do they
have to pay off their often usurious
loans in dollars, but they’re also…/135_dan_adleman.… 4/9
12/29/2009 The Republic - Vancouver's Opinionated…

often compelled to open up their

domestic economies to parasitic,
predominantly American, corporate
The windfall for the American
economy is astronomical since
almost every country in the world
needs to stockpile American
currency for purchases of oil. In
order to accomplish this, every
nation but the US has to do whatever
it can to sustain a large trade
surplus. America, on the other hand,
has the luxury of maintaining an
enormous trade deficit because, in
effect, the dollar is its greatest
export. In a nutshell, the US
produces dollars while the rest of
the world produces things that
dollars can buy. Moreover, the
wealthy nations become eager to
loan the US money through Treasury
Bonds. This way, they can collect
interest on their surplus American
dollars while having a means to
exercise leverage over the US by
owning its debt.
As William Clark points out in
Petrodollar Warfare, a book
recommended to anyone who wants
to grasp the issue better, America
profits at every turn. While getting
what can be interpreted as free oil…/135_dan_adleman.… 5/9
12/29/2009 The Republic - Vancouver's Opinionated…

(because America is the only nation

with a licence to print the world’s
petrocurrency, and it can print as
much as it likes), and a constant
influx of relatively easy-to-service
loans, its dollars are constantly
reinjected into the American
economy through the New York and
London banks.
At the end of the day, the dollar—as
the international reserve currency—
completely dominates the world
economy, accounting for almost 70%
of global transactions. And because
the American dollar is the world’s
economic lifeblood, the US can
sustain enormous deficits while
granting tax cuts to the rich and
perpetrating an absurdly expensive
Of course, as was the case during the
Vietnam era, there is a breaking
point. Even America can’t sustain
this kind of profligate spending
indefinitely. As the US prints more
and more money to service its needs,
the dollar is rapidly losing value
relative to the euro. And since EU
countries now import more OPEC oil
than the US does, the euro is
becoming an increasingly attractive
option for countries that want to
turn a profit while hitting the US…/135_dan_adleman.… 6/9
12/29/2009 The Republic - Vancouver's Opinionated…

where it hurts. In fact, in a very

short time, as a direct result of the
euro’s consistent appreciation,
Hussein’s Oil for Food reserve
leaped from $10 billion to €26
Fast-forward to the present. Now
Iran is opening an oil bourse (a fancy
word for “commodities exchange”)
in which oil will be sold in euros
rather than dollars. Venezuela’s
Hugo Chavez has also committed to
the petroeuro. Both of these
countries have recently cemented
tight relationships with China, the
world’s number two oil importer. Of
course, these gestures alone
wouldn’t likely bring Uncle Sam to
his knees. But they’re more than just
a slap to the face and may be the
beginning of a slippery slope that
threatens to end the dollar’s
hegemony over world trade.
Of course, this won’t happen
overnight. After all, the world
economy is engineered to receive
most of its nourishment from the
dollar. It’s as though we’re all
passengers in the same monster SUV
and the dollar is the gas that makes
it go. It would be absurd to suggest
that you could simply switch to some
other fuel source overnight. The…/135_dan_adleman.… 7/9
12/29/2009 The Republic - Vancouver's Opinionated…

whole thing would crash. And we,

the entire global community, would
suffer the consequences. But Iran
and Venezuela are doing some
serious tinkering with the engine,
and the Bush administration is doing
everything it can to destabilize their
So as the drumbeat for war escalates
and America and its pitbulls
continue to shake their fists at Iran
for its ostensible nuclear ambitions,
those of us who are a step removed
from the FoxNews sabre-rattling
rhetoric should do everything we can
to prevent the American (and
Canadian) public from being
hoodwinked into another senseless
war. By now it should be clear that,
like Operation Iraqi Liberation, a
war with Iran would have nothing to
do with keeping the American public
safe. If America attacks Iran, it will
be, among other reasons, to preempt
the emergence of a multipolar, more
democratic, world economy.

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we are trying to do both things at the same time.…/135_dan_adleman.… 8/9
12/29/2009 The Republic - Vancouver's Opinionated…
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