by Alan Caruba
20-03-06
It's bad enough that the Middle East has us over a barrel of oil thanks to
our continued dependency on access to its huge reservoirs of crude, but largely
unknown to most Americans, the Organization of Islamic Conference (OIC) and the
Islamic Development Bank have a long-term goal of replacing the dollar as the
reserve currency for world trade.
In March the Iranians will open an Iran Oil Bourse that will trade oil and
products in the euro, not the dollar. They will not be alone in pegging their
nation's currency to the euro. Syria already does and Venezuela, another major
oil producer, has announced plans to do so as well.
As David J. Jonsson, the author of Clash of Ideologies, pointed out in a
recent article, the United States "relies on approximately 70 % of all
foreign-exchange currency to be held in dollars because we sell Treasury debt
into that foreign-exchange market." A flight of foreign-exchange reserves away
from the dollar would depress its value and, conversely potentially increase the
value of the euro by 20 to 40 %.
This is extremely bad news for the United States and for the West in general.
While Americans focus on the shooting war in the Middle East, we are in an even
more serious economic war with an axis that spreads from South America to the
Middle East. Bear in mind that many South American nations have been electing
Socialist governments and that some Middle Eastern nations have flirted with
socialism for decades. The Baathist Party in Saddam's Iraq is an example of
this.
Calls for oil independence in the US have been heard and largely ignored for
the three decades we have known about the vast reserves in Alaska's ANWR or
those trapped in shale in Utah and Colorado. Congress has blocked ANWR drilling
and in known offshore reserves despite the increasingly volatile Middle Eastern
situation.
The economy of the United States is, in many ways, quite fragile. Just how broke
is America?
A new book, Empire of Debt: The Rise of an Epic Financial Crisis, by Addison
Wiggin and Bill Bonner, answers that question saying, "It is deeply unpleasant
to consider the fact that the US continues to rack up another $ 80 mm of debt
every hour, or that our trade deficit has hit an all time high of $ 725.8 bn."
That represents a significant vulnerability. The authors note that, "The
renowned Levy Institute estimates that the United States will owe foreigners $ 8
tn by 2008, a breathtaking 60 % of our gross domestic product."
That level of financial vulnerability is frightening enough, but key elements
of our economy are also vulnerable. As Jonsson points out, the high cost of
natural gas, the key component in the production of ammonia and urea, the
"fertilizers that drive the agricultural sector of the United States and the
rest of the Western nations", has caused the shutdown of ammonia production here
and seen it move to nations with lower costs such as those in the Middle East.
Today, more than half of the urea used for US agricultural production is
imported.
In the United Kingdom, nearly a third of its power generation depends on natural
gas. In 15 years, the UK will be dependent on Russia for 90 % of its imported
gas. Japan is almost totally dependent on imported energy sources and is heavily
invested in Iran's Azadegan oil field.
China has major investments in Iran, importing 13.6 % of its oil requirements
from that nation and, overall, 45 % of its oil imports from the Middle East. Add
to this the fact that China is investing in Canadian tar sands projects and
building an oil pipeline from Canada to China, thus competing for the Canadian
oil the US will receive.
At present, three-quarters of China's currency reserves are invested in US
Treasury bills and other dollar-dominated assets. If the dollar begins to slip
in value versus the euro, guess where China's money will go. Currently, its
reserves "are growing at an average rate of $ 15 bn every month."
The strategy is there for anyone to see. Control the oil and eliminate the
dollar as the world's currency of choice. The Islamic-Socialist coalition is
well on its way to putting a choke-hold in the New York Mercantile Exchange and
London's International Petroleum Exchange, currently the world's leading
commodity markets for energy. Jonsson calls it "the currency bomb."
About the only good news is that such efforts have been tried in the past and
failed. This time, though, European nations will, thanks to the Iranian Oil
Bourse, not have to buy and hold dollars to secure the payment for oil. Right
now, thanks to the indebtedness of the US, many in the financial world are
anticipating a devaluation of the dollar. Jonsson believes it could fall as much
as 40 % or more, if that occurs.
If the United States does not embark on an aggressive program to find and
develop its own energy sources, and to develop its own production of liquid
fuels, natural gas, and fertilizers, it is going to find itself in deep trouble.
The good news is that we have centuries of coal and still untapped oil and gas
hydrates. We could accelerate the building of more nuclear energy facilities.
We could do much to insure a greater degree of energy independence if we have
the will and foresight to do so. However, the federal budget for fiscal 2007
"cuts overall funding for natural gas research" in order get the independent oil
and natural gas companies to pick up the tab. "President Bush is proposing to
zero out the entire natural gas technology program, which includes gas
hydrates." This is the same President who told the nation that America is
"addicted to oil."
America is at a critical crossroads for its financial and energy policies
and, so far, it appears to be making some very bad choices. It seems to this
observer that it is depending heavily on its military strength to threaten
and/or transform the Middle East. That option may prove to be an illusion if
Iran is permitted to become a nuclear power.
Ultimately, as Jonsson points out, "If regimes like those in Iran, Venezuela,
Syria, Burma, Sudan and Nigeria have the benefit of $ 60 oil for ten years, the
democratic process, which occurred in post-Cold War years, will end. The
totalitarian regimes with the most repressive governments will control the
energy infrastructure and the access to freedom and liberty."
The American Empire is running out of cheap energy and easily borrowed money.
Alan Caruba writes a weekly column, "Warning Signs", posted on the Internet
site of The National Anxiety Centre.
Source: www.enterstageright.com