[Editor's note: I originally wrote this as an email to the normal blog writer and his wacky band of hopelessly liberal family/friends, prompted by reading a recent Ron Paul essay which I will link at the bottom. Just so you don't think the guy who wrote "Freedom will Set you Free" fell off the flag-waving Bush-voting bandwagon, we are two different people who normally agree 94.9% of the time. The writer asked me to post this here, so this is not an attempt to steal his glory - although I do think this is an attempt on his part to justify a further delay in writing more posts.]
This is not as exciting as global warming or Cindy Sheehan or Karl Rove, but consider this:
1) Currently oil is traded in US dollars, tying our currency to the major world commodity. Quote:
"Oil can be bought from OPEC only if you have dollars. Non-oil producing countries, such as most underdeveloped countries and Japan, first have to sell their goods to earn dollars with which they can purchase oil. If they cannot earn enough dollars, then they have to borrow dollars from the WB/IMF, which have to be paid back, with interest, in dollars. This creates a great demand for dollars outside the U.S. In contrast, the U.S. only has to print dollar bills in exchange for goods. Even for its own oil imports, the U.S. can print dollar bills without exporting or selling its goods. For instance, in 2003 the current U.S. account deficit and external debt has been running at more than $500 billion. Put in simple terms, the U.S. will receive $500 billion more in goods and services from other countries than it will provide them. The imported goods are paid by printing dollar bills, i.e., "fiat" dollars."
2) In 2000, Iraq (with the approval of the UN) switched to trading its oil in Euros. At the time it was seen as a political statement that would cost Iraq revenue (as the Euro was valued at .82 cents on the dollar). However, since 2000 the dollar has declined in value vs the Euro and the move actually made Iraq wealthier. Well, until it was invaded.
3) The move by Iraq, and threatened move to the Euro by other oil-producing countries, is a threat to the dominance of the US dollar:
"If OPEC oil could be sold in other currencies, e.g. the euro, then U.S. economic dominance-dollar imperialism or hegemony-would be seriously challenged. More and more oil importing countries would acquire the euro as their "reserve," its value would increase, and a larger amount of trade would be transacted and denominated in euros. In such circumstances, the value of the dollar would most likely go down, some speculate between 20-40 percent."
4) Now with that in mind, read Ron Paul's essay below. The simplistic argument that the Iraq war was over oil was laughed off by those who tried to spin this as a moral war vs. those who hate us because we are free. And while that probably plays a part, it doesn't make sense when looking at the big picture (why Iraq, why does Bush hold hands with Saudi kings, etc). In most things "follow the money" seems the right way to look. This turns the argument back to Iraq invasion being about oil, but does so in a way that to me makes the most sense of all. The US government, unable to consider fiscally responsible spending which would stop the devaluation of the dollar and shut down the Federal Reserve printing presses from trying to make something from nothing, has to look to other more violent and oppressive means of maintaining it's position - including giving a major threat to any other oil-producing country to not move to the Euro. Iraq made the perfect target (history of animosity, former ally, 2nd largest oil reserve, first to make Euro jump), getting rid of a little thorn in their side (Saddam) while also getting rid of a major thorn (Euro-backed oil) and sending a strong message to other nations. This allows them to parade the 'spread of democracy' and the removal of a rights-violating tyrant, while at the same time stopping something that was a greater threat to the US dollar. It's probably just a matter of time, since China is also moving to a mixed reserve currency (dollar and euro), and we can't invade every nation on Earth. The next time you complain about gas prices realize the rest of the world pays about $5/gallon - and if/when the Euro becomes the dominant currency, we will too.
5) All is not lost however, although a depression in the US will be very painful - a devalued dollar means our exported goods will be cheaper, which would be a boon to many industries - if the government doesn't panic and institute more regulations to strangle them. Fingers crossed.
More info:
http://www.theglobalist.com/DBWeb/StoryId.aspx?StoryId=3193
http://archives.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut/
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Ron Paul essay - Borrowing, Spending, and Counterfeiting
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