Deserts, dollars and oil

February 2, 2007

Petrodollar Warfare

By William Clark

New Society Publishers, 2005

$29.95 267pages

William Clark is one of a growing list of authors to tackle the epic subject of peak oil and its myriad implications for society. Petrodollar Warfare focuses on the link between oil and US dollars, the strength this has given the US dollar, and the fact that rival imperial powers covet the "special relationship" between the Organisation of Petroleum Exporting Countries (OPEC) and the US.

Clark paints a diverse picture, drawing together the historical process of peak oil, the reciprocal relationship between US backed oil producers, the CIA, and US banks, and the recent emergence of a particularly sinister "proto-fascist" pressure from sections within the US ruling class.

Petrodollar Warfare provides a context to recent power plays in the oil rich Middle East. Towards the end of World War II, the US dollar was decided upon as the new, stable currency for global trade. Under the Bretton Woods agreement of 1944, US dollars were guaranteed redeemable for gold bullion at any time, a safeguard against hyperinflation and devaluation in the still fragile global capitalist economy. Richard Nixon later dissolved the Bretton Woods agreement, because US gold reserves were under threat of being bought out en masse. But since world oil producers still insisted upon US dollars for their oil, the dodgy "just print more" currency (no longer anchored to gold), could not simply be abandoned as an international standard.

Euro versus US dollar

The general thrust of Clark's book is to emphasize this point: that whether or not US corporations physically dominate oil extraction and distribution, as long as the trade of oil is conducted in US dollars, US investment banks will be guaranteed plenty of turnover. The same would apply European banks if global oil trades were shifted to euros. Clark argues that the US invaded Iraq to send a strong message to OPEC nations: do not flirt with the idea of a shift away from using the US dollar as your sole trading currency. Parallel to this was the goal of physically securing Iraqi wells for US oil corporations.

Baathist Iraq started selling its oil in euros in September 2000, an example which could have had disastrous consequences for the US economy if other OPEC states were to follow suit. As soon as the US took Baghdad in 2003, Iraqi oil sales were reverted to dollars. But Clark believes the invasion of Iraq merely delayed an inevitable OPEC shift from US dollars to euros (or a basket of currencies including the euro). Arab OPEC nations sell more oil to European Union nations than to the US, and have strong trade links (other than oil) with the EU. EU and OPEC nations both stand to gain from removing, or at least reducing, the influence of the debt-ridden and increasingly aggressive middle man known as Uncle Sam.

Peak oil + EROEI

Compounding the rivalry between the US and EU is peak oil, which will create a crisis as global demand for oil eclipses supply. Once discovered, oilfields produce a greater amount of oil, as more and larger wells tap into the pressurised pocket of crude beneath the earth. The "peaking" of an oilfield occurs when the draining of oil from the field eventually depressurises it, causing the oil to flow out of it progressively slower. This "peak" is the greatest rate of flow that an oil field or group of oilfields will produce during its active life. US domestic oil production peaked in 1970. Global oil production may peak within the next three years. Oil prices will inevitably escalate.

Rival capitalists can and will ensure their superior buying power secures their supply of oil as the commodity begins to dry up. This "imminent scenario" has rival capitalist hegemons salivating over the prospect of having their currency and petroleum companies in the driving seat as global oil production peaks and the price takes off.

Clark takes care to scientifically disprove two popular myths about peak oil: that significant new oilfields are yet to be found, or that heavy crude will take over as light crude runs out. Exploratory "wildcat" oil drilling slackened off during the 1970s and experienced a slight resurgence in the early 1980s until it became very obvious that there were no major new oilfield discoveries to be made. And the Energy Return On Energy Invested (EROEI) for heavy oil extraction and refinery is negative — it takes more energy to extract oil from shale and sand deposits than is returned by the process, something that even moronic capitalists recognise as a fruitless waste.

The argument Clark advances is at once illuminating and disturbing: that the primary reason the US invaded Iraq was to prevent rival (primarily French and Russian) banking and oil corporations from pumping Iraqi oil and selling it in Euros. Clark goes on to describe an interesting extension of this dynamic: Iran's new International Oil Bourse (trade bank), already open and set to begin trading in crude oil sometime in the next 18 months. The IOB could facilitate a large-scale transition of OPEC oil trades to euros by acting as a Eurasian rival to the New York Mercantile Exchange (NYMEX) and London International Petroleum Exchange (IPE).

Clark also examines Republican and neoconservative ideology including the Project for a New American Century (PNAC) and the social theories of Leo Strauss. Clark describes Strauss as the "philosophical father of the neoconservatives".

Strauss strikes me as a cheap right-wing imitation of Marx; with such enlightened and well-considered theorems as that of "the wise elite and the vulgar many", the latter of whom "are lovers of wealth and pleasure", are "selfish, slothful and indolent" and "can be inspired to rise above their brutish existence only by fear of impending death or catastrophe".The book explores the psychological manipulation the US ruling establishment used to stifle popular opposition to the invasion of Iraq, like repeated claims in 2002 that US cities were under imminent nuclear threat.

The threat of peak oil poses a choice. Either join the oil war of rival capitalist blocs (which, as Clark points out, would in itself be a tremendous waste of fossil fuel) or band together and demand peace and a sustainable, fair society, since this is what most people want. Clark's strength is his ability to analyse the emerging crisis, not his sagely solutions. His solutions in essence boil down to calling for "good willed diplomacy" on the part of the same elite interests behind the invasion of Iraq and do not take account of mass action. Nor does Clark seem to believe a revolutionary reshaping of our political system is a necessary prerequisite for any substantial shift away from fossil-fuel dependency. He does however, make some interesting points such as the ironic fact that the US would actually increase its "homeland security" by diverting a significant portion of its oversize defence budget to reducing its dependency on imported fossil fuels. Petrodollar Warfare is a graphic analysis of the specific imperial motives for the invasion of Iraq, and the nature of intra-capitalist oil wars. Highly recommended.

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