Petrodollar warfare

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The phrase petrodollar warfare refers to a hypothesis that a hidden, driving force of United States foreign policy over recent decades has been the status of the United States dollar as the world's dominant reserve currency and as the currency in which oil is priced. The term was coined by William R. Clark, who has written a book with the same title. The phrase oil currency wars is sometimes used with the same meaning.

Supporters of this hypothesis believe that the value of the U.S. dollar is determined by the fact that many key commodities (particularly oil and natural gas) are denominated in dollars. They believe that if the denomination changes to another currency, such as the euro, many countries would sell dollars and cause the banks to shift their reserves because they would no longer need dollars to buy oil and gas. This would weaken the dollar relative to the euro (see supply and demand). The core of the hypothesis is that U.S. administrations are greatly motivated by fear of the consequences of a weaker dollar, particularly higher oil prices. This motivation is seen as underlying and explaining many aspects of U.S. foreign policy, including the ongoing Iraq War.

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[edit] The Hypothesis

Most oil sales throughout the world are denominated in United States dollars (USD).[1] According to proponents of the petrodollar warfare hypothesis, because most countries rely on oil imports, they are forced to maintain large stockpiles of dollars in order to continue imports. This causes demand for USDs to remain high, regardless of economic conditions in the United States. This in turn allegedly allows the US government to gain revenues through seignorage and by issuing bonds at lower interest rates than they otherwise would be able to. As a result the U.S. government can run higher budget deficits at a more sustainable level than can most other countries.

According to proponents of the petrodollar warfare hypothesis, it also means that the price of oil is more stable in the U.S. than anywhere else, since importers do not need to worry about exchange rate fluctuations. Since the U.S. imports a great deal of oil, its markets are heavily reliant on oil and its derivative products (jet fuel, diesel fuel, gasoline, etc.) for their energy needs. The price of oil can be an important political factor; American administrations are quite sensitive to the price of oil.

Political enemies of the United States therefore have some interest in seeing oil denominated in euros or other currencies. The EU could also theoretically accrue the same benefits if the euro replaced the dollar. However, the European economy could also be seriously damaged if the euro were to appreciate significantly against the dollar or other world currencies.

In 2000, Iraq converted all its oil transactions under the Oil for Food program to euros.[2] When U.S. invaded Iraq in 2003, it returned oil sales from the euro to the USD.[3]

After considerable delay, Iran has now opened an oil bourse which does not accept U.S. Dollars. Proponents of this theory fear that it will give added reason for the U.S. to topple the Iranian regime as a means to close the bourse and revert Iran's oil transaction currency to USDs.

In mid-2006 Venezuela indicated support of Iran's decision to offer global oil trade in the euro currency. (See: “Venezuela Backs Plan to Sell Oil in Euros” Associated Press, June 1, 2006)[4]

As a result they have limited ability to influence the denomination of sales one way or the other. A large number of traders would have to agree to a change in denomination before a change occurred.

Of particular concern is America's dependence on foreign oil. Many economists feel that the recent rise in oil prices is at least partially tied to the fall of the US dollar relative to most currencies. Since oil is priced in dollars, sellers have increased prices to compensate for their "real" loss of income. Economists generally agree that higher oil prices pose a risk of inflation, recession, or both. Inflation would almost certainly rise if the dollar were to depreciate heavily.

At least one U.S. Representative, Republican Ron Paul of Texas, has made very strong statements advancing similar views, using the phrase “dollar hegemony” to describe U.S. policy and proposing related reforms.[5]

[edit] Project Censored Awards in 2004 and 2006

The topic of oil currency warfare under the title U.S. Dollar vs. the Euro: Another Reason for the Invasion of Iraq won a 2003 Project Censored award in 2004.

"Iran’s New Oil Trade System Challenges U.S. Currency" won a 2006 Project Censored award in Top 25 Censored Stories for 2006 | Project Censored at www.projectcensored.org.

These two essays were written by the author of the book Petrodollar Warfare, William Clark.

[edit] See also

[edit] Further reading

  • Clark, William R.: Petrodollar Warfare : Oil, Iraq and the Future of the Dollar, New Society Publishers, 2005, ISBN 0-86571-514-9
  • Peter, Phillips (2003). The Top 25 Censored Stories: U.S. Dollar vs. the Euro: Another Reason for the Invasion of Iraq. New York: Seven Stories Press. 
  • Engdahl, F. William, A New American Century? Iraq and the hidden euro-dollar wars, Current Concerns, No 4, June 2003
  • Engdahl, F. William: A Century of War: Anglo-American oil politics and the New World Order, Pluto Press, 2004, ISBN 0-7453-2309 X

[edit] References

  1. ^ China Daily: Ahmadinejad: Remove US dollar as major oil trading currency
  2. ^ Iraq: Baghdad Moves To Euro
  3. ^ Carol Hoyos and Kevin Morrison, Iraq returns to the international oil market, Financial Times, June 5, 2003
  4. ^ http://www.chron.com/disp/story.mpl/ap/fn/3920101.html
  5. ^ The End of Dollar Hegemony at www.house.gov

[edit] Books

[edit] External links

[edit] Background

[edit] Pro views

[edit] Critical views

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