Stephen Harper's Big Thingey

John Ibbitson at the G&M has a new big idea :

"This could be Stephen Harper's Big Thing."
"a revolutionary new agreement that would transform both Canada and the U.S., truly launching the continent into the 21st century."
"This is the perfect time to do something big. This is the time for a North American environmental, security and economic accord."

Well, bully for you for finally coming out, John.
After years of pissing about, defending the very jelly bean-ness of the Security and Prosperity Partnership - It's not about deep integration; it's just about efficiency! It's not scary! Oh noes, it's dying because of those whiny nationalists and conspiracy theorists! - you finally get down to it.
And what a great name you have chosen for it - The Big Idea.

Coincidentally, "The Big Idea" was also the name coined by the C.D. Howe Institute in 2002 for their Shaping the Future of the North American Economic Space: A Framework for Action, but I'm sure they'll be happy to hear you want to revive it. Their report, which later resurfaced as "The Task Force on the Future of North America", suggested that Canada could successfully woo the US into deeper integration with us if only we would just join their war on terra and offer them free access to our water and oil.

What? You say your Big Idea proposes that too? :

"Canada should propose a harmonized, universal, continental market, coupled with massive joint investment aimed at reducing the environmental impact of the oil sands, in exchange for guarantees that the U.S. gets all the oil."

All the oil?
Why it seems only yesterday, John, you were complaining that conspiracy theorists were killing the SPP with crazy ideas like that:

"While on the Canadian side, Ms. Barlow maintains that "deep integration," as she likes to call it, is "quite literally about eliminating Canada's ability to determine independent regulatory standards, environmental protections, energy security, foreign, military, immigration and other policies."

And now here you are - recommending those very same ideas yourself as the best way for Steve to consolidate his legacy. And you've got more:

"Let's not stop there. Let's propose a joint security agreement to prescreen goods and people coming into the continent. Let's set a joint tariff.
Let's remove national protections on cultural and financial services."

Because I ask you - what could be better timing for Canada right now than to hitch our wagon to US security agreements and finances?

Congratulations, John. As the only journalist invited to the last SPP leaders' meet-up, you have finally proven your worth to them.
And a big idea shout-out to the G&M too, for having the guts to go public with this. We always knew you had it in you.

Cross-posted at Creekside

War....what is it good for?

BBC uncovers lost Iraq billions
"A BBC investigation estimates that around $23bn (£11.75bn) may have been lost, stolen or just not properly accounted for in Iraq.
For the first time, the extent to which some private contractors have profited from the conflict and rebuilding has been researched by the BBC's Panorama using US and Iraqi government sources.
A US gagging order is preventing discussion of the allegations.
The order applies to 70 court cases against some of the top US companies.

While George Bush remains in the White House, it is unlikely the gagging orders will be lifted.
To date, no major US contractor faces trial for fraud or mismanagement in Iraq."

* * * * * *

Global Dashboard : Audit results of Iraq’s 2007 oil sales and revenue flow conducted by Ernst & Young questioned 13.8 million barrels of oil produced but unaccounted for last year; a continued lack of metering throughout the oil value chain; $849 million deposited the wrong place ....

* * * * * *
File under : bringing democracy to the Middle East, the war on terror, weapons of mass destruction, links to al-Qaeda, defending the national security of the U.S., yellowcake uranium, etc.

Bush's strong dollar may well be dead

You may recall that Bush's economic policy, whatever that was, was based on his insistence that a "strong dollar" was the basis for all things American. The only problem is, that in order for a currency to be strong there has to be a basis for that strength.

The strength of the US dollar has been dependent, during the Bush administration, on it being held as a financial reserve and it being used as a primary trading currency. Oil is the commodity and for nearly half a century, oil was traded in US dollars.

Der Spiegel interviewed OPEC Secretary-General Abdalla Salem el-Badri and what he had to say should give everyone a moment of thought.

First is what OPEC thinks of high oil prices.

SPIEGEL: Mr. Secretary-General, the price of a barrel of crude oil hit the $100 mark for the first time in early January. While consumers are burdened with high prices, the producers are busy filling their pockets. Did you celebrate at OPEC on that day?

El-Badri: No, why should we? We are interested in reasonable prices. We want stability. Besides, the average price per barrel was $69 last year. Only a very small amount of oil was traded at above $100, and only for a very short time. It is a gamble. It was a single dealer who miscalculated and lost money as a result.

Yes, well, there is the problem that there are still high prices at the pumps and from the trucks delivering diesel as home heating oil.

El-Badri : ... that is your interpretation. We also have the drop in the dollar value against the euro as well as the final bottlenecks in US oil refining. Then you may see any price.

It's not here... it's there. What El-Badri is saying is that they are pumping as much as they always did. There seems to be a choke point at the refinery system in the US. Not to mention the fact that the US government, advised by whatever wingnut think-tank of the day says it's absolutely necessary, is filling old salt mines with crude which you will never see.

There is a nugget in this interview however, which should put the US government in a flat spin.

SPIEGEL: You paint a rather rosy picture. But isn't OPEC also affected by the diverging interests of its members? Wasn't there a substantial dispute at your last major meeting -- one that pitted Iran and Venezuela, with their ideas about high prices and their anti-Western agenda, against the "moderates"?

El-Badri : We leave politics up to the individual member nations. OPEC is an economic organization. Besides, it wasn't a real dispute. We speak with one voice. However, we did have a lively discussion in November over whether and how we should generally shift from the reserve currency, the dollar, to the euro for purposes of trading. Some of our member nations have enormous dollar reserves, while others sell in dollars and buy in euros.

SPIEGEL: And are you in favor of abandoning the practice of trading in dollars as Venezuela and Iran have demanded?

El-Badri : The euro is currently the world's strongest currency. A change can be made, but it will take some time. It took many years for the dollar to become a dominant currency in the oil business. But in the future it will not be that difficult to change.

Any questions?

While I wrote this, the above was Cheryl's work. She caught the Der Spiegel article and noted the salient points.

It Was Always About Oil: The Iran extra.

Why are Bush and the neocons continuing to beat war drums on Iran? Simple. The strength of the US dollar and the trading of US dollars for oil. Libby at Newshoggers reacted with some understandable shock and asks:

I used to hear a lot of speculation that the real reason we invaded Iraq was because Saddam was proposing the same sort of scheme. Could this be why the administration continues to overstate the threat of Iran?

What scheme, you ask? Well, Iran has just announced that they will not take US dollars for crude oil.

Major crude producer Iran has completely stopped carrying out its oil transactions in dollars, Oil Minister Gholam Hossein Nozari said on Saturday, labelling the greenback an "unreliable" currency.

"At the moment, selling oil in dollars has been completely halted, in line with the policy of selling crude in non-dollar currencies," Nozari was quoted as saying by the ISNA news agency.

"The dollar is an unreliable currency, considering its devaluation and the oil exporters' losses," he added.

The world's fourth largest oil exporter, Iran has massively reduced its dependence on the dollar over the past year in the face of US pressures on its financial system and the fall in the dollar.

So let's go back a little ways and look at what happened in Iraq. I posted this in January.

In October, 2000 Saddam took the radical decision to move the currency of petroleum sales under the Oil-For-Food program from US dollars to Euros. He went even further by having the UN Oil-For-Food reserve fund converted to Euros. While many analysts suggested this would cost Iraq hundreds of millions of dollars in lost revenue most did not forecast the steady gain of the Euro against the US dollar. By January, 2003, Iraq’s original UN reserve fund of 10 billion dollars US had expanded to 26 billion Euros (24.8 billion US dollars). The currency conversion advantage recognized by Iraq was not lost on OPEC. Nor was it lost on the Bush administration. If OPEC started to move, however slowly, to Euros the US dollar would lose its supremacy in the world and the US economy would suffer. Imported goods, relatively cheap as long as the US dollar remained the dominant oil-trading currency, would shoot up in price. Britain shared in the concern. The UK trades oil for US dollars and one of the two major international oil exchanges is based in London, England. The slowness of Britain in converting to Euros as a national currency leaves them holding US dollar reserves. As a net importer of oil this works for them on the world market – unless major suppliers convert to Euros. Iraq, however, had tipped over the can and Saddam’s decision to convert from petro-dollars to petro-euros, even if it was purely emotional, had two major effects: it caused a strengthening of the Euro against the US dollar, impacting the US economy and, it put him and Iraq in a somewhat better light with the Europeans whose multi-national currency he was now using. The fact that a dollar to euro conversion had already taken place in Iraq gave the US and the UK nightmares.

It was after that happened, and Saddam had converted Iraq's oil trading currency, that the Bush administration started to rumble on about Iraq being militarily dangerous.

Far from being a scheme Saddam proposed, he actually took it one further and made the conversion complete by booking Iraq's oil revenues in Euros instead of US dollars.

We are all very well aware that before the al Qaeda attack on the US and before Afghanistan had ever made any significant appearance on the Bush administration radar, Bush and the neocons were formulating plans to remove Saddam from power.

Thus began the portrayal of Iraq as a military threat to the region and the world. The truth is, Iraq was militarily neutered and represented no threat at all. The intelligence used to support the neocon assertion to the contrary was, as we now know, cherry-picked, twisted and manufactured.

What Iraq represented was an economic threat. Not that Saddam's minimal oil production was having any serious effect on overall global supply, but that his conversion to Euros was providing an example for other OPEC producers. If others followed his path, the effect on the US dollar would be crippling.

The US relies on crude oil being traded in US dollars. It's a part of their economy. As a nation with a huge balance of trade deficit the only way the dollar retains any strength is if other countries hold US currency reserves. By making the US dollar the booked crude oil trading currency, the dollar retains strength. The consumer economy of the United States continues to hum along nicely because the US dollar, the strength of which requires other countries to demand them for payment and then use them to purchase other commodities, is the dominant global currency based solely on its demand outside the United States. Without that global demand the strength of the US dollar would plummet to a level which reflects US industrial output and its enormous debt.

Iran is now making the same moves Saddam made. This time however, Iran is not an insignificant player. At over 1.5 gigabarrels of production per year, Iran's conversion of currency is already having an effect on the US dollar. With the world's second largest known reserve of conventionally extracted crude oil (Canada has the second largest reserve if non-conventional extraction is the measure) Iran has an impact on both the global supply and the US dollar.

Despite the fact that the US prohibits the import of Iranian crude oil into the States, the US continued to reap the reward of a strong dollar as long as all other importers were required to book and pay for Iranian crude oil in US funds.

There is another similarity with Iraq that is causing the Bush administration to continue suggesting that Iran needs to be bombed/invaded/regime-changed.

Iraq had severe limitations imposed on it after the 1991 Gulf War. Since that time, Iraq has never reached its potential in oil production. European oil companies had started to make inroads in Saddam's Iraq in terms of rebuilding oil production infrastructure. Once sanctions had been eased on Iraq, (and they eventually would have been), it would leave European oil companies with exclusive access to the world's third largest conventional crude supply in a country that traded, not in US dollars, but in Euros. The next logical step would be the introduction of an oil exchange, without the US dollar as the trading currency.

Iran is in a similar situation. Its oil production infrastructure is in terrible condition. Since the fall of the Shah, Iran's oil output has fallen sharply and never recovered. To rebuild its oil infrastructure it would be a sure bet that Iran would turn to almost any country other than the United States. Iran has been working feverishly to set up an oil bourse which trades in a currency other than the US dollar.

With already declaring that the US dollar is no longer an acceptable exchange for Iranian crude oil, Iran is starting to look very much like Iraq did in 2000/2001.

A Bush administration target.

Afghanistan, oil, Unocal and the Caspian connection

The next person who says we're in Afghanistan for the women needs to read this.

West End Bound puts a finer point on it.

This easy-to-connect-the-dots synopsis of the lead-up to a major fiasco is great. It reads like a Michael Moore expose of insider ulterior motives. Even Alan Greenspan is now verbalizing it was all about the oil.

All about the oil? How can that be? Afghanistan doesn't have any oil that we know of.

The truth is, it was about putting oil in the right hands and giving the US and UK big oil companies control of oil coming out of the Caspian Basin. To do that, they needed Afghanistan and they couldn't get it as long as the Taliban was in control.

Richard W. Behan's article at Alternet is a compelling piece. It puts together the pieces that make it clear Afghanistan was on the target list of PNAC and the Bush administration from the start. A weak country with a tribal government, the Bushites were more than willing to bomb it out of existence. What becomes very clear is that whether 9/11 had happened or not, Afghanistan was to receive US military attention.

There are portions of Behan's assertions which I have some difficulty with. The Karzai/Unocal connection is still questionable, however, there are two points which easily dismiss that loose connection and point clearly at the fact that the US, the multinational oil company Unocal and the US oil lobby were slathering over the route through Afghanistan for an oil pipeline which would guarantee control of the delivery of the Caspian Basin oil reserves.

The first point is that Unocal had clearly stated, as early as 1998, that Afghanistan was the prefered route for an oil pipeline from the Caspian oil producers, but that they could not pursue it as long as the Taliban remained in control. Unocal vice-president, John J. Maresca, who would later become the the special US ambassador to Afghanistan, made Unocal's desires clear during US congressional hearings.

[A] route through Afghanistan appears to be the best option with the fewest technical obstacles. It is the shortest route to the sea and has relatively favorable terrain for a pipeline. The route through Afghanistan is the one that would bring Central Asian oil closest to Asian markets and thus would be the cheapest in terms of transporting the oil.

Unocal envisions the creation of a Central Asian Oil Pipeline Consortium. The pipeline would become an integral part of a regional oil pipeline system that will utilize and gather oil from existing pipeline infrastructure in Turkmenistan, Uzbekistan, Kazakhstan and Russia.

The 1,040-mile-long oil pipeline would begin near the town of Chardzhou, in northern Turkmenistan, and extend southeasterly through Afghanistan to an export terminal that would be constructed on the Pakistan coast on the Arabian Sea. Only about 440 miles of the pipeline would be in Afghanistan.

This 42-inch-diameter pipeline will have a shipping capacity of one million barrels of oil per day. Estimated cost of the project -- which is similar in scope to the Trans Alaska Pipeline -- is about US$2.5 billion.

There is considerable international and regional political interest in this pipeline. Asian crude oil importers, particularly from Japan, are looking to Central Asia and the Caspian as a new strategic source of supply to satisfy their desire for resource diversity. The pipeline benefits Central Asian countries because it would allow them to sell their oil in expanding and highly prospective hard currency markets. The pipeline would benefit Afghanistan, which would receive revenues from transport tariffs, and would promote stability and encourage trade and economic development. Although Unocal has not negotiated with any one group, and does not favor any group, we have had contacts with and briefings for all of them. We know that the different factions in Afghanistan understand the importance of the pipeline project for their country, and have expressed their support of it.

The second point is that the US had conducted face-to-face meetings with the Taliban government of Afghanistan and threatened them with a US military incursion before September 11th, 2001.

Christina Rocca, Director of Asian Affairs at the State Department, secretly meets the Taliban ambassador in Islamabad, apparently in a last ditch attempt to secure a pipeline deal. Rocca was previously in charge of contacts with Islamic guerrilla groups at the CIA, and oversaw the delivery of Stinger missiles to Afghan mujaheddin in the 1980s.

If there is a third point, it is this: Argentina's Bridas had signed a deal with the Taliban to build a pipeline through Afghanistan. The effect was to effectively cut of US and British oil companies from access to oil originating in the Caspian Basin. The only way to change this was to effect a military takeover of Afghanistan, toppling the Taliban regime and render any deal they had made null and void.

And a fourth point. The oil from the Caspian Basin producers was not OPEC. If the oil from the Caspian Basin could be secured by way of delivery to market through Afghanistan it would put a crimp on OPEC. In terms of busting OPEC completely, directly securing one of the largest oil reserves in the world would serve that purpose nicely. The one country which had large reserves, was producing well below its potential and was governed by a leader the world at large would be happy to be rid of was, Iraq.

Behan's assertion that Afghanistan was targeted by the Bush administration before 9/11 makes complete sense when the history is reviewed. He doesn't however, go quite far enough. When Unocal was pleading with the US government to find a way to get rid of the Taliban in 1998, they stated that the alternative route to deliver Caspian Basin oil was through Iran. A toppling of that regime with a US erected government would provide the oil companies with access to huge untapped oil reserves and a secured tap on Caspian oil. In short, a double knock-out.

Everyone might want to review why NATO and Canada are in Afghanistan. You can spread a "values" argument around as much as you like. It doesn't wash.

We are in Afghanistan for the same reason the Bush administration is in Iraq. Both are connected.

Oil.

The Iraq/Iran pipline deal is a GO! (Whaddaya mean you didn't know about that?)

While the Cheney administration tries to demonize Iran while telling us how the still placenta-covered democracy in Iraq is blossoming, (and will eventually spread its contagious freedom all over the Middle-East), Iran, the bad and Iraq, the good, are making deals with each other.

Iran and Iraq signed an agreement to build pipelines for the transfer of Iraqi crude oil and oil products, the state-run said on Saturday quoting the Oil Ministry.

The 32-inch (81-centimetre) pipeline will bring crude from the southern Iraqi port of Basra to the southwestern Iranian port of Abadan. There will be a separately 16-inch one for oil products.

Under the deal, Iran would buy 100,000 barrels of Iraqi crude to be refined in the southern port of Bandar Abbas, then sell the product back to Iraq. The accord would have no upper limit on quantities.

The report did not say when the pipeline will be built or who will pay for it. In August 2006, Tehran and Baghdad signed a memorandum of understanding for Iran to refine 100,000 barrels per day of Iraqi crude in return for two million litres per day of refined products.

One would think Iraq, which was a major oil producer would have its own infrastructure for refining crude into product.

Iraq has the world's third-largest proven reserves of crude but has faced chronic shortages of refined products ever since the US-led invasion of 2003, as insurgents have targeted its oil infrastructure. The Iraqi government has been forced to import refined products from a number of neighbouring countries.

Oh yeah. That. Another improvement resulting from the US invasion of Iraq. Life just keeps getting better for those people, doesn't it?

The agreement was signed on Friday by visiting Iraqi Oil Minister Hussein al-Shahristani and his Iranian counterpart, Kazem Vaziri Hamaneh.

Sharistani's visit to Tehran comes two days after one by Iraqi Prime Minister Nuri al-Maliki, in which he had talks with officials that reinforced growing bilateral ties.

So, lemme get this straight. You put the lime in the coconut (Sorry). Iraq is all buddy-buddy with Iran, which Cheney would like to bomb. Iran will have an interest in an Iraq oil export venture. Iran will provide a service to Iraq which Iraq used to be able to perform itself until the US invaded and the terraists, which didn't exist until the US occupation of Iraq, started taking out refineries, (which were protected by Coalition of the Willing Spaniards and Italians, until they left). If Cheney gets his way and pulls the trigger, (on Iran - not a hunting partner), Iraq will probably experience a severe petroleum product shortage.

Why didn't we learn about this on CNN or FOX?

It Was Always About The Oil: Follow the bouncing money (Part 3)

This is Part 3 of a multi-part post. Part 1 and Part 2 are here. Part 4 will be posted in two weeks.

In part 2 the effect of Iraq’s decision to convert the currency of oil sales from US dollars to Euros was mentioned. In doing so, Saddam’s Iraq generated a windfall as the Euro gained strength against the US dollar.

While many analysts suggested this would cost Iraq hundreds of millions of dollars in lost revenue most did not forecast the steady gain of the Euro against the US dollar. By January, 2003, Iraq’s original UN reserve fund of 10 billion dollars US had expanded to 26 billion Euros (24.8 billion US dollars).

The effect of this move by Iraq, which had been relegated to limited oil production by UN sanctions, sent shockwaves through the economies of both the United States and Britain. What was clearly apparent was that if the world oil market started to shift to Euros to purchase oil, the US economy could collapse.

That may sound a little rash, however it must be understood that the US dollar, which has supremacy as the world’s reserve currency, is now facing stiff competition from the Euro. And, until Saddam flipped Iraq’s oil sales and Iraq’s UN reserve fund into Euros, the US dollar was the only currency with which oil was purchased and sold.

To understand how this affects the US economy it must first be understood that the US has a massive trade deficit. The US imports 66 percent more than it exports, a figure which has been rapidly accelerating since the ascendancy of the Bush administration. As a share of the US Gross Domestic Product, the US trade imbalance constitutes 6.8 percent. Most countries would collapse under the economic pressure of half those figures.

However, as Coilin Nunan wrote in 2004, as long as most of the world’s trade flows through the US dollar, the US enjoys a position of economic strength, even if it doesn’t produce goods for export.

US currency accounts for approximately two thirds of all official exchange reserves. More than four-fifths of all foreign exchange transactions and half of all world exports are denominated in dollars. In addition, all IMF loans are denominated in dollars.

But the more dollars there are circulating outside the US, or invested by foreign owners in American assets, the more the rest of the world has had to provide the US with goods and services in exchange for these dollars. The dollars cost the US next to nothing to produce, so the fact that the world uses the currency in this way means that the US is importing vast quantities of goods and services virtually for free.

Since so many foreign-owned dollars are not spent on American goods and services, the US is able to run a huge trade deficit year after year without apparently any major economic consequences.

Nunan’s figures are now out of date since, in fact, the US dollar is no longer the solitary global reserve currency. The Euro has grown in popularity and the central banks of many countries hold reserves of both US dollars and Euros.

The one commodity exchange that assured a dominant US dollar was oil. Both the New York Mercantile Exchange and the International Petroleum Exchange in London trade oil exclusively in US dollars. Since oil is the primary commodity of any industrialized country, continued oil trading using the US dollar as currency guaranteed US economic strength.

In 1975, after Nixon had taken the US dollar off the gold-standard, Henry Kissinger established the US-Saudi Arabia Joint Commission on Economic Cooperation. While, on the surface this looked like a diplomatic effort to soften the hard feelings of an OPEC instituted 400 percent increase in the price of crude oil, there was a lot more to it. The Saudis agreed to buy US Treasury bonds with their petro-dollars, thus flooding world reserves with US currency, and forced OPEC to agree to sell oil in no other currency but US dollars. In return, the US secretly armed Saudi Arabia.

The United States, even though it is the world’s largest oil importer, had economic control over world oil trading. Industrialized countries needed oil. In most countries, that meant buying it. The only way to buy oil was with US dollars. Until Iraq broke the OPEC agreement in November, 2000 and shifted oil sales to Euros.

One of the reasons the European Community created the Euro was to develop a second global reserve currency. Since its inception there have been moves to lodge it in the central banks of industrialized countries. However, it was over-valued in its early days and with corrections it fell against the US dollar. Once the economies of Europe had settled in to the new currency it started to slowly rise. Europe maintained higher interest rates than the US and steady growth started to make the Euro attractive. When Iraq denominated oil sales in Euros all of OPEC, particularly Iran, noticed.

When the Bush administration invaded and occupied Iraq one of the first pieces of business was to convert Iraq’s oil sales back to US dollars. The move, while ravaging Iraq’s reserve funds, improved the standing of the US dollar. It also put one of the world’s largest known petroleum reserves back on a US dollar standard.

Iran announced in March, 2005, that it would open its own commodity exchange and trade oil in a variety of currencies, primarily the Euro. Since 2003 Iran has been requiring payments for oil exported to European and Asian consignees in Euros. Combined with the fact that the Russians have started trading oil in Euros, it has given the willies to the economists in the US government and across the US industrial complex. Since the oil price on the two major exchanges is still denominated in US dollars whatever cash and carry currency is used is almost irrelevant since conversion is necessary. But, if Iran creates a new oil bourse of its own it could set a new price marker and it would most certainly be Euros. The US dollar would sink badly.

OPEC, instead of having to utilize the NYMX or IPE to sell their petroleum would have another alternative – Iran. That means they could mix the currency they demand and there is every reason to believe they would trade with Europe in Euros only.

Philip Giraldi, a former CIA counter-terrorism analyst wrote this in August 2005, in American Conservative:

The Pentagon, acting under instructions from Vice President Dick Cheney's office, has tasked the United States Strategic Command (STRATCOM) with drawing up a contingency plan to be employed in response to another 9/11-type terrorist attack on the United States. The plan includes a large-scale air assault on Iran employing both conventional and tactical nuclear weapons. Within Iran there are more than 450 major strategic targets, including numerous suspected nuclear-weapons-program development sites. Many of the targets are hardened or are deep underground and could not be taken out by conventional weapons, hence the nuclear option. As in the case of Iraq, the response is not conditional on Iran actually being involved in the act of terrorism directed against the United States. Several senior Air Force officers involved in the planning are reportedly appalled at the implications of what they are doing – that Iran is being set up for an unprovoked nuclear attack – but no one is prepared to damage his career by posing any objections.

The question as to why Cheney would want to take out Iran, even if they are not involved in any terrorist event, is answered by William Clark.

Perhaps one of the answers relates to the same obfuscated reasons why the U.S. launched an unprovoked invasion to topple the Iraq government – macroeconomics and the desperate desire to maintain U.S. economic supremacy. In essence, petrodollar hegemoy is eroding, which will ultimately force the U.S. to significantly change its current tax, debt, trade, and energy policies, all of which are severely unbalanced. World oil production is reportedly “flat out,” and yet the neoconservatives are apparently willing to undertake huge strategic and tactical risks in the Persian Gulf. Why? Quite simply – their stated goal is U.S. global domination – at any cost.

The shifting of Iraq back to US dollars is only one part of the issue. Saudi Arabia, as was mentioned in part 2, has a large part to play in the US involvement in Iraq. In demanding the US provide protection against invasion and maintain readily available forces able to secure the giant Saudi Ghawar oil fields against both external and internal threats, the Saudis are able to hold out a unique threat out to the Bush administration: Without threatening to cut off oil supplies or even reduce production the House of Saud has simply to sell oil for Euros or convert their US held assets to Euros and the US economy will immediately begin to suffer.

China has been reducing its US dollar reserves in the last year. Part of this would be a hedge against the possible fall of the US dollar and part of it would be to possess the currency reserve necessary to purchase OPEC oil should Euros become the dominant petro-currency. That has the effect of panicking US economists. More nerves start to shatter when, at the beginning of the 2007, financial papers reported that the Euro had outpaced the US dollar as the most widely used cash for international transactions. The US dollar still sits at about 65% held in foreign central bank reserves, but that is a drop from the past and the Euro now holds 25% of that statistic.

The consumptive US economy has transformed itself into something non-productive. China is the shop floor of a good deal of US manufacturing interests. What makes that possible is the fact that China has held US dollars in its reserves. If it significantly reduces its US dollar reserves in favour of Euros, all those cheap “Made in China” goods will suddenly become very expensive. The US standard of living will crash.

China has another problem. The Yuan is appreciating against the US dollar, despite being pegged. With US dollar reserves in excess of $1 trillion, the sinking dollar is causing the actual value of reserves to shrink. There have been moves to create a third global reserve currency known as the Asian Currency Unit. Iran has already indicated that it will trade in ACUs once the currency system is established. That would further serve to shatter the US dollar and the US economy.

The confluence of “Big Oil” demanding that they be allowed to extract Iraqi oil reserves with as much freedom as possible and the threat against US economic supremacy has caused the short-sighted neo-con establishment to resort to what they view as the easiest solution to their immediate problem: military force.

The US, in an attempt to break the back of OPEC and maintain global economic supremacy has only one short-term option – be in direct control of as much Middle East oil as possible. Controlling Iraq’s oil and manipulating the currency denomination of oil sales however, won’t be enough. There’s more.

The US is now meddling with the economies of the friendly Gulf states. In consonance with other Bush endeavours, it has a familiar ring to it: Operation Enduring Free Trade.

To be continued... (Watch for Part 4 in the weeks ahead)

While this post is filed under Dave's name, Cheryl shares an equal credit in its production as a series having contributed an enormous amount of research.

It Was Always About Oil: The crossing lines (Part 2)

This is Part 2 of a multi-part post. Part 1 is here. Part 3 will appear in a few days.

The Bush administration, having dumped a majority of the responsibility for the security of Afghanistan on an unsuspecting NATO, had certain imperatives. First was the situation by which Iraq, under Saddam’s rule, had entered into technical service agreements (TSCs) with companies and countries other than the US and UK “big four” which could not be executed as long as UN sanctions remained in place. However, Iraq, under considerable pressure, was starting to weaken in its resolve not to allow UN weapons inspectors do a complete survey of Iraq’s weapons facilities. Compliance with UN Security Council Resolution 1284 would have been the first move necessary to remove sanctions and allow Iraq to resume a more normal trade in oil. With sanctions removed, previously arranged TSCs could be put in place, shutting out US and UK oil interests.

Iraq had already demonstrated significant influence over oil markets when, in November 1999, Saddam had shut down oil production causing world petroleum prices to spike to a level not seen since the 1991 Gulf War. There was no guarantee that he would not do it again or that he would refuse to sell oil to all but a few selected customers. Exclusivity, which did not include the US and UK, would have a deleterious effect on world oil prices.

In October, 2000 Saddam took the radical decision to move the currency of petroleum sales under the Oil-For-Food program from US dollars to Euros. He went even further by having the UN Oil-For-Food reserve fund converted to Euros. While many analysts suggested this would cost Iraq hundreds of millions of dollars in lost revenue most did not forecast the steady gain of the Euro against the US dollar. By January, 2003, Iraq’s original UN reserve fund of 10 billion dollars US had expanded to 26 billion Euros (24.8 billion US dollars). The currency conversion advantage recognized by Iraq was not lost on OPEC. Nor was it lost on the Bush administration. If OPEC started to move, however slowly, to Euros the US dollar would lose its supremacy in the world and the US economy would suffer. Imported goods, relatively cheap as long as the US dollar remained the dominant oil-trading currency, would shoot up in price.

Britain shared in the concern. The UK trades oil for US dollars and one of the two major international oil exchanges is based in London, England. The slowness of Britain in converting to Euros as a national currency leaves them holding US dollar reserves. As a net importer of oil this works for them on the world market – unless major suppliers convert to Euros.

Iraq, however, had tipped over the can and Saddam’s decision to convert from petro-dollars to petro-euros, even if it was purely emotional, had two major effects: it caused a strengthening of the Euro against the US dollar, impacting the US economy and, it put him and Iraq in a somewhat better light with the Europeans whose multi-national currency he was now using.

The fact that a dollar to euro conversion had already taken place in Iraq gave the US and the UK nightmares. It is, in fact, so critically relevant to the US/UK invasion of Iraq that it will be covered, in depth, in the next installment.

To further complicate things the US was having a problem with Saudi Arabia. The House of Saud was faced with internal dissent over several issues but high on the list was the presence of US military bases. The US explained their presence by pointing out the need to defend the giant Saudi Ghawar oil fields against foreign incursions (Iraq, Syria, etc.). The truth was actually much simpler. The US presence in Saudi Arabia was an acknowledgement that the House of Saud might come under assault from within and the US needed to protect that same giant oil field from the results of a possible coup d’etat. The House of Saud was very well aware of the fact that a nearby US military presence, in strength, helped preserve their rule. However, US military presence in Saudi Arabia itself was a major irritant to a vast segment of the Saudi population. The Saudis had a solution to this Catch-22. If the US invaded Iraq and established major military bases that would put the coup-deterring force right next door. To the Bush administration this was perfect. The movement of forces from Saudi Arabia, ostensibly temporary, to Iraq, where they would become permanent was an economic multiplier. From Iraq, they could defend a massive supply of oil. It is this need for a permanent US military presence in the Persian Gulf to prop up the House of Saud that one thing starts to become clear – the Saudi government, not the Israelis, as many would like to believe, has a great influence on Bush administration Middle-East policy and has been calling many of the shots.

The power base in Washington DC had a limited lifespan. They had control of the White House with a non-thinking, incurious, easily-led man, (who would be the Commissioner of Baseball if he’d gotten his way); Congress was Republican controlled and compliant; and, a majority of the American public was in the mood to continue a foreign expedition against any country which could be portrayed as a danger to US security. But all of that could end once memories faded. Bush, lacking the ambition necessary for the seat he occupied, had barely squeaked into office and, if it had not been for the September 11th attacks, would likely not have survived more than one term.

And there was always the niggling problem that, at any time, somebody could get rid of Saddam before the US and UK could act. There was little time to waste. And not one of the reasons stated above could be used to make a case against Iraq. The Bush administration went into spin mode inventing much of what they needed to feed the American public and the world. They cherry-picked intelligence, redacted any summaries which portrayed Iraq as a weakened military power, and put on display an array of defectors and Iraqi exiles who were more than happy to feed the Bush administration line.

On September 17, 2002, Iraq opened the doors to UN weapons inspection teams led by Hans Blix. This was some of the worst possible news for the Bush administration and on October 7, 2002, George W. Bush, in a speech, laid out the US case for war against Iraq. Far from indicating that UN weapons inspections would be permitted to proceed, Bush filled his speech with fear-mongering rhetoric, absolute falsehoods, imaginary linkages between Saddam and al Qaeda, and references to Iraqi weapons programs that had long since been dismantled. It was intended to subvert Blix’s inspections. What worried the Bush administration most was the possibility that Blix would find no weapons of mass destruction or worse, would find conclusive evidence that any such weapons had long been destroyed or disabled. Bush worked to pre-empt Blix’s positioning of an advanced weapons inspection team in Iraq by October 15, 2002. In fact, the Bush administration already knew the status of Saddam’s weapons. They withheld information that had come from inside Iraq, by way of a CIA back channel, from Iraq’s foreign minister.

What was also known was the state of Iraq’s oil industry. In 1998 the UN had contracted a Dutch company, Saybolt, to complete a study of Iraq’s oil production. Saybolt reported that Iraq was only able to produce 1.8 million barrels per day of crude oil for export. That amounted to less than $20 billion in annual oil revenues. “Lamentable,” was the word the UN secretary-general used to describe the situation.

Yet the Bush administration, with full knowledge of the Saybolt study, suggested that Iraq’s oil production would finance that country’s reconstruction. Paul Wolfowitz stated that Iraq’s oil revenues could be brought “from $50 billion to $100 billion over the course of the next two or three years.” The only way that could happen is if Iraq’s oil production infrastructure was rebuilt. The only way that could happen is if major oil companies came in and did the job. The only way that would happen is if they had a major stake in Iraqi oil reserves. Attracting any of the “Big Four” US and UK companies would mean offering something more substantial than technical service contracts. Since any increase in Iraqi production would likely cause the price of oil to drop significantly, to achieve revenue of even $50 billion a year Iraq’s oil production would have to almost triple. The “Big Four” would show little interest if Iraq’s oil production remained nationalized and concessions would make outright plunder far too obvious. What would be an obvious fit would be production sharing agreements (PSAs). But even then, the numbers Wolfowitz was tossing around seemed more than wildly optimistic. Oil industry experts felt that the earliest Iraq could achieve Wolfowitz’s predictions would be 2011, if nothing went wrong. In truth, it didn’t matter to any of the neo-cons whether Iraq’s production increased at all. What mattered is that the US and UK, and their respective oil industries, would be sitting on Iraq’s reserves with PSAs which would lock down control of the resource. It would also give the US a de-facto seat at the OPEC table through an Iraqi surrogate.

Iraq, under pressure to pass an oil law, has been working behind closed doors. The new Iraqi Constitution not only allows foreign investment in oil production, it makes it mandatory. An additional provision allows foreign companies to take all their profits out of the country, something which L. Paul Bremmer, as administrator of the Coalition Provisional Authority, forced on the Iraqis and which was transferred, without alteration, to the Constitution. And, while there have been serious efforts to produce an oil law which would see Iraq’s reserves and production fully nationalized, US and British meddling in the constitutional process saw any chance of that eliminated.

Oil industry publications are slathering over the prospect of PSAs in Iraq and for a good reason. Production Sharing Agreements are the next best thing to a privatized oil industry without requiring oil companies to actually do anything for, perhaps, years.

As the London-based study group Platform states in a 2005 report, when it comes to PSAs the devil is in the details. The author of that report, Greg Muttit, said in 2006:

Such contracts are often used in countries with small or difficult oilfields, or where high-risk exploration is required. They are not generally used in countries like Iraq, where there are large fields which are already known and which are cheap to extract. For example, they are not used in Iran, Kuwait or Saudi Arabia, all of which maintain state control of oil. In fact, of the top seven countries with the largest oil reserves, only Russia – which has the World’s seventh largest – has any PSAs. Russia signed three PSAs in the early 1990s, during its own rapid political and economic transition, but has signed no more since then. Those PSAs have been so controversial, due to the poor deal they give the state, that it is unlikely any more will be signed. Now some of the very same people who pushed PSAs in Russia and the other former Soviet states of Kazakhstan and Azerbaijan are advocating their use in Iraq.

He further points out:

Part of the appeal of PSAs is that they give the appearance of sovereignty over natural resources: the state is described as “owner” of the resource, and the foreign company as its “contractor”. However, in practice, most oil industry analysts acknowledge that the terms of the contract can be written so as to have exactly the same effect as a more traditional privatisation, giving the company management control, and potentially huge profits. And with PSAs commonly lasting for 30 or 40 years, or even longer, decisions made now could sow the seeds of economic and political difficulties for decades to come.

In negotiations with the major oil companies Iraq can easily be held out as “high risk”. It is politically unstable and while traditional difficulties in exploration and extraction are non-existent in Iraq, the hazards to equipment and crews will give cause for the oil companies to demand a higher share of the resource. Even if the current insurgency was brought to an end, the mere potential of sectarian violence will give the oil companies a negotiating edge. And that could lead to much longer term PSAs.

As was pointed out in part one, oil companies with PSAs could spend years not extracting oil in Iraq and simply sit on their agreed reserves. The signed agreements themselves will increase the stock prices of the oil companies and slower production will keep the price of oil high. Additionally, PSAs, giving the appearance of state control, assure Iraq’s continued presence in OPEC and, despite the blustering of some neo-con think tanks demanding the privatization of Iraq oil fields as a means of breaking the back of OPEC, Bush, Cheney and the major oil companies want OPEC to survive as a means to keep oil prices up.

Whether great quantities of oil flow from the Iraq oil fields or not is of little consequence to the Bush administration. Control was the key. By having a permanent military presence in Iraq and with oil companies in control of reserves, the US controls Iraq’s oil.

And while it was always about oil, oil is money. Without US control of a major oil supply, and the potential to pump it, the US dollar is on shaky ground. In fact, the US dollar, without a guarantee of US dominance of Iraq, could crash.

To be continued.... (watch for part 3 in the days ahead)

Part 3

While this post is filed under Dave's name, Cheryl shares an equal credit in its production as a series having contributed an enormous amount of research.

It Was Always About Oil: The dots (Part 1)

This is Part 1 of a two multi-part post. Part 2 will appear in a few days.

Joshua Gallu, in Spiegel Online provides a look at the fallout that will likely occur from Iraq’s new hydrocarbons law.

The Iraqi government is working on a new hydrocarbons law that will set the course for the country's oil sector and determine where its vast revenues will flow. The consequences for such a law in such a state are huge. Not only could it determine the future shape of the Iraqi federation -- as regional governments battle with Baghdad's central authority over rights to the riches -- but it could put much of Iraqi oil into the hands of foreign oil companies.

[…]

Nevertheless, the draft law lays the ground work for private oil companies to take large stakes in Iraq's oil. The new law would allow the controversial partnerships known as 'production sharing agreements' (PSA). Oil companies favor PSAs, because they limit the risk of cost overruns while giving greater potential for profit. PSAs tend to be massive legal agreements, designed to replace a weak or missing legal framework -- which is helpful for a country like Iraq that lacks the laws needed to attract investment.
It's also dangerous. It means governments are legally committing themselves to oil deals that they've negotiated from a position of weakness. And, the contracts typically span decades. Companies argue they need long-term legal security to justify huge investments in risky countries; the current draft recommends 15 to 20 years.
Nevertheless, Iraq carries little exploratory risk -- OPEC estimates Iraq sits atop some 115 billion barrels of reserves and only a small fraction of its oil fields are in use. By signing oil deals with Iraq, oil companies could account for those reserves in their books without setting foot in the country -- that alone is enough to boost the company's stock. And, by negotiating deals while Iraq is unstable, companies could lock in a risk premium that may be much lower five or ten years from now.

The Bush/Blair administrations are always quick to respond to questions regarding Iraq’s oil stating that the invasion was not about the oil.

That, as most of us have come to believe, is an outright lie. It’s all about the oil, but more specifically, it’s about who controls it as a strategic resource, who profits from its production and how to outmaneuver a cartel which has enough influence to damage western economies with a less than herculian effort.

A better understanding of what is happening now comes from looking briefly at what Iraq was doing prior to the US invasion. Iraq had nationalized its oil industry in 1972 and allowed some foreign companies to participate by way of technical service contracts. (This has been the standard for most of the oil-rich nations of the Gulf region since the 1970s.) Essentially, TSCs were let to foreign oil companies for specific work for which they received payment. The foreign companies had no concessions in the oil fields and had no claim over the oil they produced. If they wanted it, they had to buy it. US and British oil companies were shut out of Iraq entirely.

After the 1991 Gulf War Iraq, faced with international sanctions, saw a marked production drop-off. The Food-For-Oil program allowed Iraq to export oil but severe, and necessary, limitations prevented them from expanding oil production to levels which allowed them to participate fully in the rewards gained by membership in OPEC.

Late in Saddam’s regime contracts were struck with several oil companies primarily from France, Russia and China. The problem for those companies was UN sanctions which prevented the execution of those contracts. The US and UK continued to apply pressure to maintain sanctions against Iraq if, for no other reason than to prevent France, Russia and China from gaining a foothold in the second largest proven oil reserves in the world and possibly, (if the western desert produces what is expected), the largest reserve of light-sweet-crude ever known. Worse, from the US and UK standpoint, four of the world’s dominant oil companies, Exxon-Mobil, Chevron, BP-Amoco and Royal Dutch Shell were excluded from Iraq totally.

While sanctions worked in preventing French, Russian and Chinese activity in Iraq, it also shifted more power into the hands of OPEC and prevented the US and UK “big four” from exploiting the super-giant fields of Iraq. Further, there was other pressure on the UN to ease sanctions, particularly if Saddam, individually, could be replaced.

That would have been an utter disaster for the US and UK. Eliminating Saddam and leaving the structure and form of his government in place, along with all previous laws, would have allowed the contracts with foreign oil companies to become operative; it would have done nothing to curtail OPEC power; and, it would have continued to exclude the US and UK based “big four” while giving preferred access to countries like China.

Pretend for a moment that September 11, 2001 went by without incident. The situation with regards Iraq was already a problem. If Saddam suddenly lost power in Iraq by whatever means, a possibility which increased with each passing month, the US and UK rationale for continued sanctions would vanish with him, to their detriment.

The only way to exercise any control over Iraq’s massive oil reserves would be to, not only get rid of Saddam, but eliminate all vestiges of his government and render null and void any and all agreements made under his regime. The only way into Iraq’s oil reserves was to completely retool Iraq as a state and do it such a way that the standard practice of the Gulf states, nationalized oil production and OPEC quotas, could be avoided. That meant invade, conquer and occupy. And, it had to be done relatively quickly, before Saddam’s ability to exert control over an increasingly dissatisfied population evaporated or someone took the $2.95 solution with a bullet.

Whether 9/11 had happened or not, Bush/Cheney had every intention of invading Iraq before their only reason not to, disappeared. The attacks on New York and Washington, a real reason to go to war, sent the US into a deep state of national grief which transmuted into a comprehensive national anger. While the Bush administration would exploit that grief and anger to their advantage, Afghanistan was hardly the preferred target. In fact, Afghanistan was the fly in the ointment. Any plans for Iraq would have to be delayed until Afghanistan was dealt with. If there was a bright side it is that the world was solidly on-side and would support a US military response in South Asia.

It’s worth looking at the conduct of operations in Afghanistan for a moment since there is more than a hint of how inconvenient that particular event was to the Bush administration plans. In fact, Afghanistan threw the Bush administration off its stride. If the neo-cons simply wanted a war, they now had one. But it wasn’t the war they wanted. And they were literally screwed. Osama bin Laden had robbed them of the timeline which would put the US firmly in control of Iraq.

The US escalated to an attack on Afghanistan at what could be considered to be a normal pace. The appropriate options, with sufficient deadlines, were offered to the Taliban government. The failure of the Taliban to respond appropriately, (hand over Osama bin Laden and company), forced an assault. The assault and initial campaign for Afghanistan went exceptionally well. The Taliban was forced out the seats of power and the ground campaign was well organized and coordinated. The problem, however, was that the basic strategy employed by General Tommy Franks (dictated by Rumsfeld) was fatally flawed. Rather than make a direct attack on al Qaeda with US forces and NATO attachments, it was decided to take out the Taliban, before going after al Qaeda, employing Afghan war-lords and their private armies. Al Qaeda was given the opportunity to escape to the complex at Tora Bora and enlist the paid assistance of local villagers and some of the war-lords themselves.

The sealing off and capture of Tora Bora was crucial if al Qaeda and Osama bin Laden were to be captured or killed. Except that Tora Bora was never sealed off. It was extensively bombed from one side and the US military made a mistake which would come back to haunt forces in the future. It relied on dubious war-lords, many of whom despised each other, to conduct a majority of the operation. Special Forces units which were in Tora Bora were ordered to hold back and allow an amalgam of Afghan private armies to catch up to them. The Khyber Pass, which was supposed to be closed down on the Pakistan side of the border by the Pakistani army, remained wide open. On the Afghan side of the border the Khyber Pass was ignored. It is not a leap of strategic thinking to understand that the one clear escape route needed to be closed, but the very air-mobile US military did nothing to block that avenue of escape.

It is a point where military analysts had to look at the employment of war-lords and fickle allies over prosecuting the attack on Afghanistan with well-trained, well-equipped, US and NATO forces (and other allied organized forces). Anyone with a minor amount of knowledge of the area would know that utilizing war-lords as a surrogate army would eventually lead to them exercising their power, and not in a good way, in a re-emergent Afghanistan. It could be argued that holding back massed mechanized ground forces reduced US and allied casualties, but that alone is not a sufficient reason. The truth appears to come from the rings of the Pentagon and the West Wing of the White House. That massed US military might was needed elsewhere to execute a plan of attack in a place other than Afghanistan: Iraq.

The need to attack and occupy Afghanistan was a surprise to the Bush administration. It interfered with existing plans for Iraq and the need to mobilize a hefty land force was expensive and inconvenient. Bells should have started ringing when Bush started calling for NATO to provide an extensive security and assistance force from the time Afghanistan was consolidated. There appeared to be an anxious desire to get right out of the place and hand the job of occupation over to others. Afghanistan was clearly an unwanted distraction from something much more important and much more urgent on the Bush administration’s agenda. It had to be. Bush had carte blanche from the American people, and indeed the world, to pulverize Afghanistan, occupy it and take as much time as necessary to rebuild it as a compliant state. Yet, he seemed to be in a rush. That rush would eventually leave the mission in Afghanistan unfinished with the Taliban intact and NATO struggling to achieve a level of security the US had left unattended.

Why then would the Bush administration leave such an overwhelming security concern such as Afghanistan in such disarray and shift its focus back to Iraq? And why would Britain suddenly take such a resolute position alongside the US on Iraq?

Simple, really.

The United States, the third largest producer of oil in the world at 8.7 million barrels a day (and declining), was consuming over 20 million barrels a day. Britain was forecasting that she would become a net importer of oil by 2004, her production peak having been reached in 1999 as the North Sea reserves declined.

To be continued.... (watch for part 2 in the days ahead)

Part 2

Part 3