Once again - why we had to secure Iraq for U.S. interests

Yes, it was the oil. But the corrollary is the demand for U.S. dollars. And Saddam had started selling oil for euros.

In October 2000, Iraq persuaded the United Nations to allow Iraqi oil to be sold for euros instead of dollars, with effect from November 6. Iraq then converted its entire $10 billion "oil for food" reserve fund from dollars to euros. These events went unreported in the US media.

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Which may be what gets Venezuela "liberated" by U.S. troops, too. Chavez not only talks about selling oil for euros, he has created a bartering system that directly trades oil for goods, thereby cutting out the middle-man dollar. (And, if you haven't already guessed, Iran and Syria both want to sell oil for euros.)

Dollar hegemony was secured by the size of the US economy and the pricing of oil in dollars. But if a second currency were allowed into the oil market, it would soon become a general-purpose trading and reserve currency, especially if it were legal tender in an economy comparable in size to the USA.

And that, of course, is also why Double-face and crones have been so pointed in trying to drive a wedge between "Old Europe" and "New Europe".

The Euro Zone already has a bigger share of world trade than the USA. In particular, it imports more oil than the USA and is the main trading partner of the Middle East. It offers higher interest rates than the USA, but does not have a huge foreign debt or trade deficit. Member states must accept tight constraints on budget deficits, and the European Central Bank has an exceptionally strong mandate to preserve the purchasing power of its currency. These things inspire confidence in the euro. In 2002, the central banks of Russia, China, Taiwan and Canada converted some of their reserves from dollars to euros. The strength of the euro also encourages expansion of the EU and puts pressure on current members Denmark, Sweden and the UK to join the Euro Zone. In December 2002, ten new countries were accepted for EU membership with effect from May 2004. This will create a common market of 450 million people, which will buy more than half of OPEC's oil.

I suspect that the fall of Spain to the socialist anti-Iraq-war government is more of a concern on the European Union front than it is on the anti-war front. I don't think we really are that concerned about the loss of Spanish soldiers (in fact, one of the generals in Iraq was quoted as saying, we'll simply adjust). I think that's a bit of a cover for the real concern, which I see as all of Europe growing even stronger around the Euro and OPEC countries switching to that currency.

I could be wrong. But that's the way it looks from here.

If the euro becomes a global currency to rival the dollar, central banks and other traders will sell down their dollar reserves, causing the value of the dollar to plummet (and devaluing the debts of poor countries at the expense of their creditors). The unwanted dollars will be withdrawn from the US asset market and will flood the market for US goods and services. The US property market will deflate (so that poor Americans can more easily afford homes, at the expense of current property owners). The US stock market, being more volatile than the property market, will fall faster. The real prices of property and shares will fall further than the dollar prices because the dollar itself will be devalued. The additional dollars chasing US goods and services will fuel domestic inflation. They will also increase exports, reducing the current account deficit to compensate for the slowdown of foreign investment, and reducing domestic living standards as measured by consumption of goods and services. Inevitably, the Federal Reserve will raise interest rates in order to reduce the inflation, support the dollar, attract more foreign investment, and delay the day of reckoning on which America will have to export real goods and services to pay for its imports, service its foreign debt, and accumulate reserves of euros. But that will not rescue the landowners and shareholders and bond holders, because their assets can be devalued not only by reduced foreign investment, but also by higher interest rates.

And of course the price of oil in US dollars will increase; but this time there will be no compensating increase in the global demand for dollars.

For another look at the importance of the threat to sell oil for euros, see The Real Reason for the War in Iraq.