March 30, 2006

All the hoopla, posturing, saber-rattling and rhetoric about Iran and their nuclear threat to the world is smoke. Europe weighs in on the side of moderation, because Europe wants no easy excuse for America to attack Iran. More smoke.

The fire the Bush administration is trying to prevent is Iran’s pledge to create an Oil Bourse, based not on the dollar, as all world oil is sold, but the euro.

If that is allowed to happen, the dollar will tank, I mean really tank and the likelihood of American default on its debt is huge, probably unavoidable.

A little history. Krassimir Petrov history. A nation-state taxes its own citizens, while an empire taxes other nation-states, explains Petrov, authoring an article titled “The Proposed Iranian Oil Bourse.”

The United States had never been an empire, until 1971, when it pulled off a very special sort of coup against the rest of the world. We still don't think of ourselves in those terms. Foreign governments, demanding their loans to America be repaid in gold (as had been their singular option) were essentially told to stuff it.

No longer backing its currency with gold, the U.S. had to find a damned quick alternative or lose its monetary leadership. That alternative was oil. Every nation in the world consumed oil and if the currency of oil became the dollar, the American buck would be the standard against which world currencies were valued. We pulled it off.

Culminating in 1973, the U.S. entered into an iron-clad arrangement with Saudi Arabia to militarily support the Saudi Kingdom in exchange for Saudi Arabia accepting only U.S. dollars for its oil. Not all that tough a sell. We're going to allow you to become rich beyond your wildest dreams and protect that wealth for you, but only in dollars. Saudi was the tail that wagged the OPEC dog and OPEC had no choice but to go along.

And so, the single acceptable currency for buying oil throughout the world became the dollar. The world must therefore hold dollars, in ever increasing amounts as it used more oil at ever increasing prices. An upward spiral. Gold replaced by black gold as a backing for our currency.

As Petrov proves, we became an empire in ’73 because we ‘taxed’ the other nations of the world and have continued to tax them by providing dollars and redeeming them at ever declining value as inflation devalued our currency. A ’73 dollar borrowed is worth a good bit more than an ’83 dollar repaid.

It’s been a bonnie little scam, allowing us all sorts of economic magic tricks and is one of the biggest reasons America has been so relentlessly willing (and able) to go in debt.

Make sense now that we didn’t go in and mop up the Saudi’s after 9-11? Understandable that oil’s climb from $2 to $60 a barrel didn’t shake us up all that much? More demand for more dollars, redeemed with inflated currency. Is it a surprise that Saudi Prince Bandar had the keys to the Oval Office through several presidencies?

But, should Iran be allowed to actually go through with its marketing of oil for euros, that would heave a hell of a wrench into the machinery of American empire.

They would love to do it. And, all things being equal, Europe would love to see them do it. So, probably, would Asia. Asia would no longer be as captive a manufacturer of American-purchased goods as they are now. It’s pretty obvious that, other than our own self-interest, there’s not much support out there for continuing the dollar-oil relationship.

Except, of course, for our debt. Except for all things rarely being equal.

We owe truly fantastic amounts of money to various lender-nations, some $9 trillion at the moment and increasing like a winter thaw in mountain snow. Lenders must be edgy about repayment. Essentially, when we shrugged off their demand for gold in ’72, we declared ourselves bankrupt. We had guaranteed gold and reneged.

The Midas-grab at the Saudi deal was inspired brinksmanship and it placed us securely in a position of world (financial) dominance. Some would say to scratch the modifier.

The dollar hitting a wall, this time around, would no doubt bankrupt our nation. It’s doubtful the rest of the world could survive the ensuing financial destruction, as markets tumbled and various forms of indebtedness became worthless. Now, as before the ’29 crash, value and equity and security are merely perceptions, mirror-images on the ledgers of who-knows-who in who-knows-where? Piles of zeros and ones on numberless computers.

So, the goodwill in continuing this bonnie little scam is not entirely withheld by the players who could force an issue. Theirs are very nervous feet on very thin ice and the unintended consequences of a misstep could ignite a disaster of such proportion as to make our continuing empire seem quite benign.

The row with Iran is over oil-for-dollars rather than nuclear ambitions.

But what is not said may well bring a war over what is not backed away from. We have lots of military hardware in the area at the moment and a president with not all that much to lose. It may interest you to know that Saddam was headed in the direction of selling oil for euros before we suddenly took such interest in his WMD.

WMD is always tactical, but not always ordinance. Sometimes it’s currency.

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