A New Kind of Warfare:Global Economic Hegemony:

By Kaleem Hussain
(LLB, LLM- in International Economic Law from Warwick University, UK)

 An Interview with Dr Krassimir Petrov,Ph.D (Teaches Macroeconomics, International Finance & Econometrics at the American University in Bulgaria).

Afghanistan, Iraq and now Iran and potentially Syria on the cards for a military intervention, I was intrigued to find out what exactly is driving the neo-conservatives in the echelons of power at the Whitehouse and the few coalition allies to the U.S. to continue their strategy of potential military strikes despite what is universally accepted has been a disastrous foreign policy in Iraq.


I interviewed Dr. Krassimir Petrov who has recently wrote an article titled “The Proposed Iranian Oil Bourse” to enlighten me on this subject. The interview focused on two articles, namely the one cited above and by W.R. Clark titled “Petrodollar Warfare: Dollars, Euros & The Upcoming Iranian Oil Bourse.” The response is a combination of statements from the articles and Dr. Krassimir Petrov’s own opinions on the questions asked.

The questions were framed as a result of what the authors have highlighted is the setting up of a proposed Iranian Oil Bourse due to become operational from March 2006. The word “bourse” refers to a stock exchange for securities trading, and is derived from the French Stock Exchange in Paris. The Tehran Government has plans to begin competing with New York’s NYMEX and London’s IPE using a Euro based international oil trading mechanism. You may ask, why is this of any significance?

Well, in the year 2000, Iraq had decided that it was no longer going to accept dollars for oil being sold under the UN’s Oil For-Food Program and decided to switch to the Euro as Iraq’s oil export currency. The result was a military strike by the U.S. and it’s allies and subsequently in ample time the dollar was restored as Iraq’s oil export currency.

The authors feel that this was one of the main reasons for attacking Iraq to maintain the U.S. dollar as the monopoly currency for the critical international oil market. What this signifies is that without some sort of U.S. intervention and if the Iranian oil bourse goes ahead, the Euro is going to establish a firm foothold in the international oil trade market. Under the rubric of what is seen as the potential nuclear threat of Iran in future years, W.D. Clark states in his article that given the U.S. debt levels and taking into consideration the neo-conservative project of U.S. global domination, Tehran’s intentions “constitute an obvious encroachment on dollar supremacy in the crucial international oil market.” With international pressure mounting on the Iranian Government, it was under these circumstances that I posed the questions to Dr. Krassimir Petrov.

Q1/ In light of the above articles, are we witnessing a “new kind of warfare,” namely that of “economic warfare”?

Dr. Krassimir Petrov: War always has an economic stance to it. Nations would not go to war if they were not to benefit economically from their pursuits. Hence, why in my article I coined the phrase under economics of empires “a nation state taxes it’s own citizens while an empire taxes other nation sates.” As W.R. Clark succinctly states in his article “there are unspoken macroeconomic drivers underlying the second stage of petrodollar warfare, Iran’s upcoming Oil Bourse.” Dr. K. Petrov suggests that the imperial ability to tax has been at the core for building a stronger economy and consequently a better and stronger military. 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. Dr. K Petrov suggested that, historically taxation had always been direct, where the subject state handed over the economic goods directly to the empire, but for the first time in history, during the twentieth century, America was able to tax the world indirectly, through inflation fostering the creation of a new U.S. imperial tax. 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.

In August 15, 1971, The U.S. Government had defaulted on its payments when foreigners demanded payment for their dollars in gold. The popular “spin” at the time was that the U.S. was 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 in order to foster the aims of what it had declared as its 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. At that juncture, in order to sustain the American empire and continue to tax the world, the U.S. had to force the rest of the world to hold ever depreciating American dollars in exchange for economic goods. It had to give the rest of the world a viable reason to hold these ever depreciating dollars. The reason it gave was oil.

The answer Dr. K. Petrov gave to the first question was an overwhelming yes based on economic, military and imperialistic goals.

Q2/ The U.S. and Saudi Governments have previously signed a Iron Clad Agreement. If the Euro is successful as a currency for oil exportation, what other nations are likely to benefit in the future and could we witness a disenfranchisement in terms of the relationship the U.S. has with the House of Saud?

Dr. Krassimir Petrov: 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.

Dr. Krassimir Petrov: The U.S Government has supported the Saudi government for many years both economically and militarily. If the Iron Clad Agreement was no longer viable, I am sure that the U.S Government would use all its economic and military power to restore its ascendancy in the region. The other nations that would benefit, would be the likes of China, Russia & the Asian countries. Many countries in the region would cherish the opportunity to curtail the U.S. monopoly in this area. Although many and I included would like to see the day when these oil rich nations disenfranchise themselves from the U.S. and the dollar, the likelihood of it happening in the foreseeable future is very minimal.

Q3/ Do you feel that nuclear proliferation agenda by Iran is being used as an excuse by the U.S. and it's coalition allies to achieve their economic and political goals in the region?

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 and 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.

Dr. Krassimir Petrov: Dr K. Petrov started by referring to the above extract in his article with reference to what took place with Iraq previously. The notion that Iraq had weapons of mass destruction was in fact a great distortion of the real reason why military intervention was carried out. Dr. K. Petrov then reiterated the statement that history teaches us that an empire goes to war to either (1) defend itself or (2) benefit from war and the Iranian situation is no different. The situation in Iran is that they are 10 years away from potentially having nuclear weapons. Whereas, North Korea is many years ahead of Iran in terms of it’s nuclear agenda and we are not hearing any signals about a potential military reprisal against them. Based on recent evidence in Iraq, the current policy is merely a culmination of what has already passed with future projections of an attack on Syria also on the cards.

Q4/ Why was the Euro as a currency introduced into the global market?

Dr. Krassimir Petrov: The idea of introducing the Euro as a currency into the international financial markets

was given credence in the early 1990’s. The main reason was to establish a currency that could compete with the dollar in the global economy. By having a strong Euro

operating in the oil market will dramatically shift the balance of power as the main oil exporting countries will begin to evaluate their options in this market with the EU and in relation to their balance of payments.

Q5/ What is the realistic probability of the Iranian Bourse operating successfully from March 2006 onwards?
Dr. Krassimir Petrov:

According to the reports I have, there is nothing suggesting at this moment in time that the Iranian Oil Bourse will not become operational from March 2006 onwards.

Q6/ At this stage when pressure is being put on Iran by the UN Security Council and the U.S. Government, what compromise is there on a economic front with references to the Iranian oil bourse & preventing a potential military attack on Iran?

Dr. Krassimir Petrov: The U.S. and it’s international allies do not really wish to engage in a military battle with Iran at this juncture in light of what has happened in Iraq. However, when you suggest a compromise that would be beneficial to the U.S., the only viable compromise would be for the Iranian Oil Bourse not to go ahead. Otherwise, the repercussions as the precedent from Iraq shows is an increasing likelihood of a military reprisal. This is further reiterated in the opening statement of W.D. Clark’s article on “Petrodollar Warfare” where he cited the following passage from a speech made by President G.W. Bush “This notion that the United States is getting ready to attack Iran is simply ridiculous...Having said that, all options are on the table."

The End of Dollar Hegemony: Analysis of Congressman Ron. Paul’s speech before the U.S. House of Representatives.

During the interview, Dr K. Petrov also directed me to a recent speech by Hon. Ron Paul of Texas titled “The End of Dollar Hegemony” before the U.S. House of Representatives to endorse his findings over the years. Congressman Ron Paul gallantly presented his case underlying with relative precision how if the U.S does not change it’s ways in terms of the economic, diplomatic & military policies in certain parts of the world, the end of dollar hegemony could be on the cards as it is replaced by another currency or gold as the leading standard bearer in the global markets. The speech by R. Paul very much continues the legacy and the picture that has been painted by Dr. K. Petrov and W.D. Clark in terms of the policies and strategies that the U.S. has historically used to maintain the dollar as the dominant currency on the world markets. The “bullish” confidence that has formed the benchmark in preserving the dollar boasted well for financing extravagance by conquering foreign lands, which in return meant less strains on domestic labour and productivity as it reaped the benefits not only gold but slaves (cheap labour) all contributing towards the economic and military might of the American empire. These foreign excursions also provided more ample opportunities to tax people & nation states, all assisting in preserving the dominance of the empire. Based on this historical observation, R. Paul states that when the wealth of nations had been sapped and gold no longer could be maintained, the military prowess of the empire subsequently also plummeted. Today, the principles are the same but the process is different. Paper money has replaced gold as the currency of the realm, but the goals remain essentially the same, namely to “compel foreign countries to produce and subsidize the country with military superiority and control over the monetary printing presses.”


The Other side of the Coin

R. Paul suggests that since printing money is nothing short of counterfeiting, military ascendancy is paramount for its successful operation. However, the drawback is that such a policy tramples on the character of the counterfeiting nation depleting the incentive to save and produce, propelling increasing debts and welfare instability.

At the stage when paper money is rejected, or when gold runs out, wealth accumulation and political stability are lost. The term “dollar diplomacy” in the late 19th century was rephrased with “dollar hegemony” during the second half of the 20th century. The Federal Reserve System from 1913-1971, WW II created a simple formula, which was increasing the money supply of dollars and military might equalled a virtual monopoly on global economic trade with the dollar acting as the catalyst in the system. The 1944 Bretton Woods agreement had solidified this dominance making the purchase of dollars holding equal a footing as gold with a purchase power at 1/35th ounce of gold which was illegal for American Citizens to own. As R. Paul mentions, this was a policy that was destined to fail as in the following years the U.S. increased the supply of dollars without gold backing. This unseemly adventure came to an end on Aug 15, 1971, when Nixon closed the gold window.


Preserving the Dollar Hegemony

R. Paul’s article highlights how the U.S. agreement with OPEC to price oil in U.S dollars exclusively for all worldwide transactions gave the dollar a pivotal position in the global currency market as the dollar would now be extricable linked to oil. In exchange, U.S. protection was guaranteed towards the oil rich nations and the dollar gained in relative strength allowing the U.S. to export “monetary inflation” and buy oil and other goods at a discount rate fostering further the quest for dollar hegemony.

However, the key points that R. Paul highlights in the article is that the OPEC arrangement was not as strong and stable as the Bretton Woods arrangement or the gold standard of the late 19th century. This volatility was highlighted when in the 1970’s the dollar nearly collapsed and extortionate interest rates of 21% were required to bring stability back into the system. To this date, central banks and international commercial banks have preserved the strength of the dollar giving it similar footing to that of gold.


Economic Warfare: A New Kind of Warfare?

Congressman R. Paul points out that the artificial demand for the dollar along with the military might places the U.S. in the unique position to the rule the world without hindering its own domestic resources or deficits. This cosy relationship can’t last!

In the past 5 years, the dollar has been devalued in terms of gold by more than fifty percent. The above analysis has shown, that if anyone does challenge the status quo in terms of the link between the dollar and oil e.g. Saddam Hussein (2000), the powers that be will use all economic and military means to remove that challenge (regime change) at whatever costs, including at times illegitimate authorisation as in Iraq. In 2001, Venezuela’s ambassador to Russia spoke of Venezuela switching to the Euro for all their oil sales. This was immediately thwarted with economic pressure from the U.S.. The U.S. foreign policy in recent years has heightened tensions and increased resentment amongst majority Muslim nations around the world. This does not hold well when it comes to U.S. credibility and diplomacy in the international arena. R. Paul states that the $ 2.trillion never ending war must be paid for one way or another. Dollar hegemony provides the vehicle to do just that.

The key is to propel the dollar dependency among states, so that they remain “allies to the fraud” and hence keep the dollars artificial value high. If Iran does go ahead with the planned Iranian Oil Bourse from March 2006, if previous precedents is to go by, she will be subjected to the same economic and military pressures until a regime change has been put firmly in place in the region. As R. Paul highlights, using force to compel people to accept money without real value can only work in the short run.

Economic law is based on fiduciary exchange of goods with real value as opposed to the superficial values system the dollar hegemony project is promoting. It seems that the tide is slowly changing, when we will see the oil rich nations bartering in currencies other than the dollar. Although, the authors of the three main articles in this analyses would cherish seeing that day, the immediate likelihood is that the neo-conservative U.S. global economic dollar hegemonic project will continue using both political and military pressure to foster this global agenda.


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