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The Proposed Iranian Oil Bourse

Abstract: the proposed Iranian Oil Bourse will accelerate the fall of the American Empire.

By Krassimir Petrov, Ph.D.

I. Economics of Empires

01/19/06 "Gold Eagle" -- -- A nation-state taxes its own citizens, while an empire taxes other nation-states. The history of empires, from Greek and Roman, to Ottoman and British, teaches that the economic foundation of every single empire is the taxation of other nations. The imperial ability to tax has always rested on a better and stronger economy, and as a consequence, a better and stronger military. One part of the subject taxes went to improve the living standards of the empire; the other part went to strengthen the military dominance necessary to enforce the collection of those taxes.

Historically, taxing the subject state has been in various forms-usually gold and silver, where those were considered money, but also slaves, soldiers, crops, cattle, or other agricultural and natural resources, whatever economic goods the empire demanded and the subject-state could deliver. Historically, imperial taxation has always been direct: the subject state handed over the economic goods directly to the empire.

For the first time in history, in the twentieth century, America was able to tax the world indirectly, through inflation. It did not enforce the direct payment of taxes like all of its predecessor empires did, but distributed instead its own fiat currency, the U.S. Dollar, to other nations in exchange for goods with the intended consequence of inflating and devaluing those dollars and paying back later each dollar with less economic goods-the difference capturing the U.S. imperial tax. Here is how this happened.

Early in the 20th century, the U.S. economy began to dominate the world economy. The U.S. dollar was tied to gold, so that the value of the dollar neither increased, nor decreased, but remained the same amount of gold. The Great Depression, with its preceding inflation from 1921 to 1929 and its subsequent ballooning government deficits, had substantially increased the amount of currency in circulation, and thus rendered the backing of U.S. dollars by gold impossible. This led Roosevelt to decouple the dollar from gold in 1932. Up to this point, the U.S. may have well dominated the world economy, but from an economic point of view, it was not an empire. The fixed value of the dollar did not allow the Americans to extract economic benefits from other countries by supplying them with dollars convertible to gold.

Economically, the American Empire was born with Bretton Woods in 1945. The U.S. dollar was not fully convertible to gold, but was made convertible to gold only to foreign governments. This established the dollar as the reserve currency of the world. It was possible, because during WWII, the United States had supplied its allies with provisions, demanding gold as payment, thus accumulating significant portion of the world's gold. An Empire would not have been possible if, following the Bretton Woods arrangement, the dollar supply was kept limited and within the availability of gold, so as to fully exchange back dollars for gold. However, the guns-and-butter policy of the 1960's was an imperial one: the dollar supply was relentlessly increased to finance Vietnam and LBJ's Great Society. Most of those dollars were handed over to foreigners in exchange for economic goods, without the prospect of buying them back at the same value. The increase in dollar holdings of foreigners via persistent U.S. trade deficits was tantamount to a tax-the classical inflation tax that a country imposes on its own citizens, this time around an inflation tax that U.S. imposed on rest of the world.

When in 1970-1971 foreigners demanded payment for their dollars in gold, The U.S. Government defaulted on its payment on August 15, 1971. While the popular spin told the story of "severing the link between the dollar and gold", in reality the denial to pay back in gold was an act of bankruptcy by the U.S. Government. Essentially, the U.S. declared itself an Empire. It had extracted an enormous amount of economic goods from the rest of the world, with no intention or ability to return those goods, and the world was powerless to respond- the world was taxed and it could not do anything about it.

From that point on, to sustain the American Empire and to continue to tax the rest of the world, the United States had to force the world to continue to accept ever-depreciating dollars in exchange for economic goods and to have the world hold more and more of those depreciating dollars. It had to give the world an economic reason to hold them, and that reason was oil.

In 1971, as it became clearer and clearer that the U.S Government would not be able to buy back its dollars in gold, it made in 1972-73 an iron-clad arrangement with Saudi Arabia to support the power of the House of Saud in exchange for accepting only U.S. dollars for its oil. The rest of OPEC was to follow suit and also accept only dollars. Because the world had to buy oil from the Arab oil countries, it had the reason to hold dollars as payment for oil. Because the world needed ever increasing quantities of oil at ever increasing oil prices, the world's demand for dollars could only increase. Even though dollars could no longer be exchanged for gold, they were now exchangeable for oil.

The economic essence of this arrangement was that the dollar was now backed by oil. As long as that was the case, the world had to accumulate increasing amounts of dollars, because they needed those dollars to buy oil. As long as the dollar was the only acceptable payment for oil, its dominance in the world was assured, and the American Empire could continue to tax the rest of the world. If, for any reason, the dollar lost its oil backing, the American Empire would cease to exist. Thus, Imperial survival dictated that oil be sold only for dollars. It also dictated that oil reserves were spread around various sovereign states that weren't strong enough, politically or militarily, to demand payment for oil in something else. If someone demanded a different payment, he had to be convinced, either by political pressure or military means, to change his mind.

The man that actually did demand Euro for his oil was Saddam Hussein in 2000. At first, his demand was met with ridicule, later with neglect, but as it became clearer that he meant business, political pressure was exerted to change his mind. When other countries, like Iran, wanted payment in other currencies, most notably Euro and Yen, the danger to the dollar was clear and present, and a punitive action was in order. Bush's Shock-and-Awe in Iraq was not about Saddam's nuclear capabilities, about defending human rights, about spreading democracy, or even about seizing oil fields; it was about defending the dollar, ergo the American Empire. It was about setting an example that anyone who demanded payment in currencies other than U.S. Dollars would be likewise punished.

Many have criticized Bush for staging the war in Iraq in order to seize Iraqi oil fields. However, those critics can't explain why Bush would want to seize those fields-he could simply print dollars for nothing and use them to get all the oil in the world that he needs. He must have had some other reason to invade Iraq.

History teaches that an empire should go to war for one of two reasons: (1) to defend itself or (2) benefit from war; if not, as Paul Kennedy illustrates in his magisterial The Rise and Fall of the Great Powers, a military overstretch will drain its economic resources and precipitate its collapse. Economically speaking, in order for an empire to initiate and conduct a war, its benefits must outweigh its military and social costs. Benefits from Iraqi oil fields are hardly worth the long-term, multi-year military cost. Instead, Bush must have gone into Iraq to defend his Empire. Indeed, this is the case: two months after the United States invaded Iraq, the Oil for Food Program was terminated, the Iraqi Euro accounts were switched back to dollars, and oil was sold once again only for U.S. dollars. No longer could the world buy oil from Iraq with Euro. Global dollar supremacy was once again restored. Bush descended victoriously from a fighter jet and declared the mission accomplished-he had successfully defended the U.S. dollar, and thus the American Empire.

II. Iranian Oil Bourse

The Iranian government has finally developed the ultimate "nuclear" weapon that can swiftly destroy the financial system underpinning the American Empire. That weapon is the Iranian Oil Bourse slated to open in March 2006. It will be based on a euro-oil-trading mechanism that naturally implies payment for oil in Euro. In economic terms, this represents a much greater threat to the hegemony of the dollar than Saddam's, because it will allow anyone willing either to buy or to sell oil for Euro to transact on the exchange, thus circumventing the U.S. dollar altogether. If so, then it is likely that almost everyone will eagerly adopt this euro oil system:

The Europeans will not have to buy and hold dollars in order to secure their payment for oil, but would instead pay with their own currencies. The adoption of the euro for oil transactions will provide the European currency with a reserve status that will benefit the European at the expense of the Americans.
The Chinese and the Japanese will be especially eager to adopt the new exchange, because it will allow them to drastically lower their enormous dollar reserves and diversify with Euros, thus protecting themselves against the depreciation of the dollar. One portion of their dollars they will still want to hold onto; a second portion of their dollar holdings they may decide to dump outright; a third portion of their dollars they will decide to use up for future payments without replenishing those dollar holdings, but building up instead their euro reserves.
The Russians have inherent economic interest in adopting the Euro - the bulk of their trade is with European countries, with oil-exporting countries, with China, and with Japan. Adoption of the Euro will immediately take care of the first two blocs, and will over time facilitate trade with China and Japan. Also, the Russians seemingly detest holding depreciating dollars, for they have recently found a new religion with gold. Russians have also revived their nationalism, and if embracing the Euro will stab the Americans, they will gladly do it and smugly watch the Americans bleed.
The Arab oil-exporting countries will eagerly adopt the Euro as a means of diversifying against rising mountains of depreciating dollars. Just like the Russians, their trade is mostly with European countries, and therefore will prefer the European currency both for its stability and for avoiding currency risk, not to mention their jihad against the Infidel Enemy.
Only the British will find themselves between a rock and a hard place. They have had a strategic partnership with the U.S. forever, but have also had their natural pull from Europe. So far, they have had many reasons to stick with the winner. However, when they see their century-old partner falling, will they firmly stand behind him or will they deliver the coup de grace? Still, we should not forget that currently the two leading oil exchanges are the New York's NYMEX and the London's International Petroleum Exchange (IPE), even though both of them are effectively owned by the Americans. It seems more likely that the British will have to go down with the sinking ship, for otherwise they will be shooting themselves in the foot by hurting their own London IPE interests. It is here noteworthy that for all the rhetoric about the reasons for the surviving British Pound, the British most likely did not adopt the Euro namely because the Americans must have pressured them not to: otherwise the London IPE would have had to switch to Euros, thus mortally wounding the dollar and their strategic partner.

At any rate, no matter what the British decide, should the Iranian Oil Bourse accelerate, the interests that matter-those of Europeans, Chinese, Japanese, Russians, and Arabs-will eagerly adopt the Euro, thus sealing the fate of the dollar. Americans cannot allow this to happen, and if necessary, will use a vast array of strategies to halt or hobble the operation's exchange:

Sabotaging the Exchange-this could be a computer virus, network, communications, or server attack, various server security breaches, or a 9-11-type attack on main and backup facilities.
Coup d'état-this is by far the best long-term strategy available to the Americans.
Negotiating Acceptable Terms & Limitations-this is another excellent solution to the Americans. Of course, a government coup is clearly the preferred strategy, for it will ensure that the exchange does not operate at all and does not threaten American interests. However, if an attempted sabotage or coup d'etat fails, then negotiation is clearly the second-best available option.
Joint U.N. War Resolution-this will be, no doubt, hard to secure given the interests of all other member-states of the Security Council. Feverish rhetoric about Iranians developing nuclear weapons undoubtedly serves to prepare this course of action.
Unilateral Nuclear Strike-this is a terrible strategic choice for all the reasons associated with the next strategy, the Unilateral Total War. The Americans will likely use Israel to do their dirty nuclear job.
Unilateral Total War-this is obviously the worst strategic choice. First, the U.S. military resources have been already depleted with two wars. Secondly, the Americans will further alienate other powerful nations. Third, major dollar-holding countries may decide to quietly retaliate by dumping their own mountains of dollars, thus preventing the U.S. from further financing its militant ambitions. Finally, Iran has strategic alliances with other powerful nations that may trigger their involvement in war; Iran reputedly has such alliance with China, India, and Russia, known as the Shanghai Cooperative Group, a.k.a. Shanghai Coop and a separate pact with Syria.

Whatever the strategic choice, from a purely economic point of view, should the Iranian Oil Bourse gain momentum, it will be eagerly embraced by major economic powers and will precipitate the demise of the dollar. The collapsing dollar will dramatically accelerate U.S. inflation and will pressure upward U.S. long-term interest rates. At this point, the Fed will find itself between Scylla and Charybdis-between deflation and hyperinflation-it will be forced fast either to take its "classical medicine" by deflating, whereby it raises interest rates, thus inducing a major economic depression, a collapse in real estate, and an implosion in bond, stock, and derivative markets, with a total financial collapse, or alternatively, to take the Weimar way out by inflating, whereby it pegs the long-bond yield, raises the Helicopters and drowns the financial system in liquidity, bailing out numerous LTCMs and hyperinflating the economy.

The Austrian theory of money, credit, and business cycles teaches us that there is no in-between Scylla and Charybdis. Sooner or later, the monetary system must swing one way or the other, forcing the Fed to make its choice. No doubt, Commander-in-Chief Ben Bernanke, a renowned scholar of the Great Depression and an adept Black Hawk pilot, will choose inflation. Helicopter Ben, oblivious to Rothbard's America's Great Depression, has nonetheless mastered the lessons of the Great Depression and the annihilating power of deflations. The Maestro has taught him the panacea of every single financial problem-to inflate, come hell or high water. He has even taught the Japanese his own ingenious unconventional ways to battle the deflationary liquidity trap. Like his mentor, he has dreamed of battling a Kondratieff Winter. To avoid deflation, he will resort to the printing presses; he will recall all helicopters from the 800 overseas U.S. military bases; and, if necessary, he will monetize everything in sight. His ultimate accomplishment will be the hyperinflationary destruction of the American currency and from its ashes will rise the next reserve currency of the world-that barbarous relic called gold.

About the Author: Krassimir Petrov (Krassimir_Petrov@hotmail.com) has received his Ph. D. in economics from the Ohio State University and currently teaches Macroeconomics, International Finance, and Econometrics at the American University in Bulgaria. He is looking for a career in Dubai or the U. A. E.

Blair Criminalizes His Critics

by John Pilger
On Christmas Eve, I dropped in on Brian Haw, whose hunched, pacing figure was just visible through the freezing fog. For four and a half years, Brian has camped in Parliament Square with a graphic display of photographs that show the terror and suffering imposed on Iraqi children by British policies. The effectiveness of his action was demonstrated last April when the Blair government banned any expression of opposition within a kilometer of Parliament. The High Court subsequently ruled that, because his presence preceded the ban, Brian was an exception.


Day after day, night after night, season upon season, he remains a beacon, illuminating the great crime of Iraq and the cowardice of the House of Commons. As we talked, two women brought him a Christmas meal and mulled wine. They thanked him, shook his hand, and hurried on. He had never seen them before. "That's typical of the public," he said. A man in a pinstriped suit and tie emerged from the fog, carrying a small wreath. ""I intend to place this at the Cenotaph and read out the names of the dead in Iraq," he said to Brian, who cautioned him: "You'll spend the night in cells, mate." We watched him stride off and lay his wreath. His head bowed, he appeared to be whispering. Thirty years ago, I watched dissidents do something similar outside the walls of the Kremlin.


As night had covered him, he was lucky. On Dec. 7, Maya Evans, a vegan chef aged 25, was convicted of breaching the new Serious Organized Crime and Police Act by reading aloud at the Cenotaph the names of 97 British soldiers killed in Iraq. So serious was her crime that it required 14 policemen in two vans to arrest her. She was fined and given a criminal record for the rest of her life.


Freedom is dying.


Eighty-year-old John Catt served with the RAF in the Second World War. Last September, he was stopped by police in Brighton for wearing an "offensive" T-shirt, which suggested that Bush and Blair be tried for war crimes. He was arrested under the Terrorism Act and handcuffed, with his arms held behind his back. The official record of the arrest says the "purpose" of searching him was "terrorism" and the "grounds for intervention" were "carrying placard and T-shirt with anti-Blair info" (sic).


He is awaiting trial.


Such cases compare with others that remain secret and beyond any form of justice: those of the foreign nationals held at Belmarsh prison, who have never been charged, let alone put on trial. They are held "on suspicion." Some of the "evidence" against them, whatever it is, the Blair government has now admitted, could have been extracted under torture at Guantanamo and Abu Ghraib. They are political prisoners in all but name. They face the prospect of being spirited out of the country into the arms of a regime that may torture them to death. Their isolated families, including children, are quietly going mad.


And for what? From Sept. 11, 2001, to Sept. 30, 2005, a total of 895 people were arrested in Britain under the Terrorism Act. Only 23 have been convicted of offenses covered by the Act. As for real terrorists, the identity of two of the July 7 bombers, including the suspected mastermind, was known to MI5, and nothing was done. And Blair wants to give them more power. Having helped to devastate Iraq, he is now killing freedom in his own country.


Consider parallel events in the United States. Last October, an American surgeon, loved by his patients, was punished with 22 years in prison for founding a charity, Help the Needy, which helped children in Iraq stricken by an economic and humanitarian blockade imposed by America and Britain. In raising money for infants dying from diarrhea, Dr. Rafil Dhafir broke a siege that, according to UNICEF, had caused the deaths of half a million under the age of five. The then attorney general of the United States, John Ashcroft, called Dr. Dhafir, a Muslim, a "terrorist," a description mocked by even the judge in his politically motivated travesty of a trial.


The Dhafir case is not extraordinary. In the same month, three U.S. Circuit Court judges ruled in favor of the Bush regime's "right" to imprison an American citizen "indefinitely" without charging him with a crime. This was the case of Joseph Padilla, a petty criminal who allegedly visited Pakistan before he was arrested at Chicago airport three and a half years ago. He was never charged, and no evidence has ever been presented against him. Now mired in legal complexity, the case puts George W. Bush above the law and outlaws the Bill of Rights. Indeed, on Nov. 14, the U.S. Senate effectively voted to ban habeas corpus by passing an amendment that overturned a Supreme Court ruling allowing Guantanamo prisoners access to a federal court. Thus, the touchstone of America's most celebrated freedom was scrapped. Without habeas corpus, a government can simply lock away its opponents and implement a dictatorship.


A related, insidious tyranny is being imposed across the world. For all his troubles in Iraq, Bush has carried out the recommendations of a messianic conspiracy theory called the Project for a New American Century. Written by his ideological sponsors shortly before he came to power, it foresaw his administration as a military dictatorship behind a democratic façade: "the cavalry on a new American frontier" guided by a blend of paranoia and megalomania. More than 700 American bases are now placed strategically in compliant countries, notably at the gateways to the sources of fossil fuels and encircling the Middle East and Central Asia. "Preemptive" aggression is policy, including the use of nuclear weapons. The chemical warfare industry has been reinvigorated. Missile treaties have been torn up. Space has been militarized. The powers of the president have never been greater. The judicial system has been subverted, along with civil liberties. The former senior CIA analyst Ray McGovern, who once prepared the White House daily briefing, told me that the authors of the PNAC and those now occupying positions of executive power used to be known in Washington as "the crazies." He said, "We should now be very worried about fascism."


In his epic acceptance of the Nobel Prize in Literature on Dec. 7, Harold Pinter spoke of "a vast tapestry of lies, upon which we feed." He asked why "the systematic brutality, the widespread atrocities, the ruthless suppression of independent thought" of Stalinist Russia was well known in the West while American state crimes were merely "superficially recorded, let alone documented, let alone acknowledged."


A silence has reigned. Across the world, the extinction and suffering of countless human beings can be attributed to rampant American power, "but you wouldn't know it," said Pinter. "It never happened. Nothing ever happened. Even while it was happening it wasn't happening. It didn't matter. It was of no interest."


To its credit, the Guardian in London published every word of Pinter's warning. To its shame, though unsurprising, the state television broadcaster ignored it. All that Newsnight flatulence about the arts, all that recycled preening for the cameras at Booker prize-giving events, yet the BBC could not make room for Britain's greatest living dramatist, so honored, to tell the truth.


For the BBC, it simply never happened, just as the killing of half a million children by America's medieval siege of Iraq during the 1990s never happened, just as the Dhafir and Padilla trials and the Senate vote, banning freedom, never happened. The political prisoners of Belmarsh barely exist; and a big, brave posse of Metropolitan police never swept away Maya Evans as she publicly grieved for British soldiers killed in the cause of nothing, except rotten power.


Bereft of irony, but with a snigger, the BBC newsreader Fiona Bruce introduced, as news, a Christmas propaganda film about Bush's dogs. That happened. Now imagine Bruce reading the following: "Here is delayed news, just in. From 1945 to 2005, the United States attempted to overthrow 50 governments, many of them democracies, and to crush 30 popular movements fighting tyrannical regimes. In the process, 25 countries were bombed, causing the loss of several million lives and the despair of millions more." (Thanks to William Blum's Rogue State, Common Courage Press, 2005).


The icon of horror of Saddam Hussein's rule is a 1988 film of petrified bodies in the Kurdish town of Halabja, killed in a chemical weapons attack. The attack has been referred to a great deal by Bush and Blair and the film shown a great deal by the BBC. At the time, as I know from personal experience, the Foreign Office tried to cover up the crime at Halabja. The Americans tried to blame it on Iran. Today, in an age of images, there are no images of the chemical weapons attack on Fallujah in November 2004. This allowed the Americans to deny it until they were caught out recently by investigators using the Internet. For the BBC, American atrocities simply do not happen.


In 1999, while filming in Washington and Iraq, I learned the true scale of bombing in what the Americans and British then called Iraq's "no-fly zones." During the 18 months to Jan. 14, 1999, U.S. aircraft flew 24,000 combat missions over Iraq; almost every mission was bombing or strafing. "We're down to the last outhouse," a U.S. official protested. "There are still some things left [to bomb], but not many." That was six years ago. In recent months, the air assault on Iraq has multiplied; the effect on the ground cannot be imagined. For the BBC, it has not happened.


The black farce extends to those pseudo-humanitarians in the media and elsewhere, who themselves have never seen the effects of cluster bombs and air-burst shells, yet continue to invoke the crimes of Saddam to justify the the nightmare in Iraq and to protect a quisling prime minister who has sold out his country and made the world more dangerous. Curiously, some of them insist on describing themselves as "liberals" and "left of center," even "anti-fascists." They want some respectability, I suppose. This is understandable, given that the league table of carnage of Saddam Hussein was overtaken long ago by that of their hero in Downing Street, who will next support an attack on Iran.


This cannot change until we, in the West, look in the mirror and confront the true aims and narcissism of the power applied in our name: its extremes and terrorism. The traditional double standard no longer works; there are now millions like Brian Haw, Maya Evans, John Catt, and the man in the pinstriped suit, with his wreath. Looking in the mirror means understanding that a violent and undemocratic order is being imposed by those whose actions are little different from the actions of fascists. The difference used to be distance. Now they are bringing it home.