Petrodollar Warfare & Collapse of U.S. Dollar Imperialism Report

Introduction

The term “petrodollar” is a macroeconomic term that is little understood and even less discussed in the major news media today. Exactly how a petrodollar exchange system has helped maintain the US dollar as the world’s reserve currency is a general theme in my book and will be the focus of this special report. As William Clark suggests in his book Petrodollar Warfare, the current “war on terror” has been exploited by the neocons in an effort to establish permanent US military bases in the Persian Gulf and also “dissuade” other nations from switching their crude oil contracts into an emerging euro currency. In what is now being called the first oil currency war of the 21st century, the Iraqi War in 2003 was more about protecting US dollar imperialism and preventing a “petroeuro exchange system” than the alleged threat of WMDs or terrorist links to Osama bin Laden and his al-Qaeda network. As William Clark is careful to point out, Saddam Hussein had begun to price Iraqi oil contracts in euros starting in November 2000 and the US government was determined to put a stop to this crude/euro currency peg, which they successfully did in the summer of 2003. As Clark mentions:

Not surprisingly, the US corporate media has not run a single news story on the reconversion of Iraq’s oil exports from petroeuros to petrodollars….This hidden fact [has] helped illuminate one of the crucial, yet over-looked macroeconomic rationales for the 2003 Iraqi War. Another goal of the neoconservatives was to use the “war on terror” as the publicly expressed premise in an attempt to dissolve OPEC’s decision-making process, thus ultimately frustrating the cartel’s inevitable switch to pricing oil in euros (emphasis added).[1]

As indicated here, the threat of a “petroeuro” pricing structure among OPEC members is noteworthy and will be addressed in a later section. The fact that only the foreign press carried this “reconversion” from petroeuros to petrodollars is both revealing and disconcerting. Since 1980 the US media industry has been deregulated and now consists of five corporate conglomerates which control about 90% of the information flow in America. There is NBC (General Electric), ABC (Disney Co.), CBS (Viacom), FOX (News Corp.), and CNN (AOL Time Warner). Is it possible that all five major networks could have missed the geostrategic importance of invoicing Iraq’s vast oil reserves back into US dollars? Or was former CIA Director William Colby right when he commented that “the CIA owns everyone of any significance in the major media?”

In this special intelligence report we will examine the hidden forces and facts behind the War in Iraq and how the politics of oil and big finance will impact the future of our nation. As Daniel Yergin notes in his monumental 900-page book The Prize, the history and quest for oil “concerns itself with the powerful, impersonal forces of economics and technology and with the strategies and cunning of businessmen and politicians.”[2] Concerning the latter observation, there can be little doubt that America’s corporate-military-industrial-petroleum executives and their political operatives have benefited greatly from the lucrative petrodollar exchange system that has influenced our fiscal and foreign policy since 1974. What is currently at stake is the literal survival of US dollar hegemony in world markets and the majority of Americans still have no idea that an epic currency war is currently being waged on two continents. As Thomas Jefferson once warned we cannot expect to remain ignorant about macroeconomic and geopolitical trends of this magnitude and expect to preserve our basic liberties and way of life. “While the economic advantages accruing to American elites from US dollar hegemony have been mostly hidden from view,” remarks Richard Heinberg, author of The Party’s Over: Oil, War and the Fate of Industrial Societies, “the impending end of dollar supremacy will affect everyone in obvious, painful ways.”[3]

I want to stress that what you are about to read is true and imminently serious. We now know that our political leaders and the corporate media have lied and obfuscated about the real reasons for our involvement in the Middle East. They have appealed to our sense of patriotism and the need to protect our “freedoms” and “national security,” but this has proven to be a deceptive cover. The real threat to our national security is the stability of our monetary system. Our ideological enemies know that we are vulnerable on this point and they intend to do us financial harm. This is the truth that you need to know and how it will affect you and your loved ones. As George Orwell once said, “In an age of universal deceit, telling the truth is a revolutionary act.” I urge you to familiarize yourself with this important topic and share this information with others. You are free to distribute this special report or you can contact our office for additional copies of this 20-page report. I also encourage you to consider some contingency planning and hedge strategies which I have included at the end of this report.

 Defining the Petrodollar Exchange System

So what is the petrodollar exchange system? This is basically a complicated monetary arrangement that was developed in the early 1970s to effectively recycle our trade deficits back into US capital markets and major banks. For reasons that I will discuss in the next section, the US dollar was established as the world’s reserve currency following WWII with a nominal guarantee that foreigners could exchange these dollars for gold specie. By 1970 the US had reached peak oil production and began importing oil from OPEC.[4] In addition to exporting dollars for oil we also had mounting trade deficits due to the Vietnam War and an expansionist Welfare State that was contributing to our escalating national debt being monetized by the Federal Reserve. By 1971 foreigners began to bring pressure upon the US to exchange their huge US currency reserves for gold at the Federal Reserve Bank of New York (our defacto central bank). In August of that same year President Nixon suspended gold payment on these foreign accounts and created a truly fiat currency on global markets. This had the net effect of contributing to a steady loose fiscal policy in the US, and every financial chart that documents our nation’s annual budget and trade account deficits can be traced back to this general period.

Although the US managed to maintain the US dollar as the unofficial reserve currency for world trade our US dollar imperialism has created an excessive amount of US currency held in offshore banks. These large exchange reserves are formally known as “eurodollars” and represent US dollars that are held in foreign banks, or foreign branches of US banks. This term is not to be confused with the EU “euro currency unit” now being used exclusively within the Eurozone. This term first originated in the London financial district in the postwar period to represent US dollar deposits not converted to local currency units throughout Europe which were being used to purchase oil in the US and repay US loans, thus avoiding a double currency conversion and not pushing up their local currencies. Today, eurodollars refer to all US dollar deposits held by foreign banks or central banks in order to service dollar-denominated debt to US banks, help sustain the exchange value of their own currencies and purchase commodities on world markets – particularly crude oil in the Middle East.

By 1973 the CIA and US monetary authorities were getting concerned about the “one-way flow” of eurodollars being held by offshore banks to purchase crude oil from the OPEC cartel. Since the US dollar was used as a worldwide currency OPEC members preferred to invoice their crude oil contracts in dollars as a practical exigency. This economic distortion, however, was causing enormous exchange currency reserves to accumulate in member bank accounts. These currency reserves came to be known as “petrodollars,” a term that was coined by economics professor Ibrahim Oweiss at Georgetown University. In October of 1973 the world experienced its first “oil price shock” when war broke out between Israel and Arab states. The Yom Kippur War lasted 20 days and resulted in a 70% increase in the price of crude oil from $2.90 to $5.12 a barrel. Because of US support for Israel OPEC members imposed an oil embargo upon the US and further raised crude oil to $11.65 a barrel by December 1973, a full 400% increase! According to analysts this period netted the single largest profit margin for oil refineries in US history and there is considerable evidence to suggest that this conflict and outcome was not only anticipated but actually planned. We now know that the annual Bilderberg meeting held from May 11-13, 1973 in Saltsjobaden, Switzerland was hosted by Henry Kissinger and attended by select politicians, oil executives and bankers from the US and London financial districts. According to official documents obtained, “the balance of payments of [oil] consuming countries” was a major concern because “the financial resources of the oil producing countries could completely disorganize and undermine the world monetary system.”[5] It was proposed at this clandestine meeting that a way should be devised to “recycle” petrodollars back into capital and financial markets in the US to help support the US dollar.

Following the OPEC oil embargo in March 1974, US Treasury Secretary William E. Simon, along with Assistant Secretary Jack F. Bennett, signed a secret accord in Riyadh with the royal Saudi Arabian Monetary Authority (SAMA) to lay the framework for a new petrodollar exchange system. Bennett had been partly responsible for Nixon’s earlier decision to “close the gold window” and would later become a director of Exxon. On June 8, 1974 the US-Saudi Arabian Joint Commission on Economic Cooperation was established by US Secretary of State Henry Kissinger in cooperation with the US Treasury and the New York Fed (Congress was never informed about this). The creation of this commission was to promote “industrialization” in the Saudi kingdom, but “the real reason for its creation was to cement long-term ties between the two countries and to ensure that Saudi Arabia would spend its newfound wealth in the United States,” notes Steven Emerson in his book The American House of Saud: The Secret Petrodollar Connection.[6] The official mandate from this commission cited the need for “cooperation in the field of finance” and the further need “to establish a new relationship through the Federal Reserve Bank of New York.” In summary, Saudi Arabia agreed to accept only US dollars for crude oil on commodity exchanges and then use a portion of these petrodollars to purchase US Treasury securities through the NY Fed. In exchange for this cooperation the US agreed to provide military protection and secret arms sales along with massive economic development in the kingdom.

An interesting provision of this agreement was the fact that the Saudi government insisted that the US suppress any disclosure of their investments in America. To accommodate the royal family, US Treasury Secretary Simon created the Office of Saudi Arabian Affairs within the Treasury Department – the only such office ever created for any foreign country. By February 1975 the entire exchange system was agreed upon by both parties and the Saudi king had even convinced all member states of OPEC to invoice all of their crude oil contracts in a strict dollar peg instead of higher yielding currencies like the German mark and Japanese yen. To assure that things worked smoothly a young Wall Street investment banker from the London-based Eurobond firm of White, Weld & Co. had been chosen to oversee this profitable recycling enterprise. David Mulford “was sent to Saudi Arabia to become the principal ‘investment advisor’ to SAMA,” writes energy consultant Bill Engdahl, “he was to guide the Saudi petrodollar investments to the correct banks, naturally in London and New York. The Bilderberg scheme was operating just as planned.”[7] Mulford held this post until 1983 and is currently the US ambassador to India (as seen in this photo) and is actively involved in guiding Indian assets into the New York-London financial nexus.

So how profitable was this recycling enterprise you ask? Beginning in 1974 the Saudis sank billions into the US bond market and fully 70% of all OPEC revenues were invested abroad in stocks, bonds, real estate and other capital markets. Approximately $35 billion was deposited in prime New York and London banks with ties to the Arabian American Oil Company (Aramco) which was then fully owned and operated by Exxon, Mobile, Chevron and Texaco. These banks included David Rockefeller’s Chase Manhattan, Morgan Stanley, Citibank, Bank of America, Manufacturers Hanover and Lloyds of London, Barclays and Midland Bank (now a wholly owned subsidiary of HSBC Holdings). It is generally understood that the Group of Six (G-6) nations were formed in 1975 to help support this new petrodollar exchange system. These six nations included the US, Britain, Japan, Germany, France and Italy (this was later enlarged to the G-7 to include Canada in 1976 and now the G-8 in 1998 to include Russia). Within months these huge oil profits to multinational banks had become so obvious that Congress formed the Senate Subcommittee on Multinational Corporations chaired by Senator Frank Church (D-ID). On April 17, 1975 this subcommittee sent a detailed questionnaire to 36 banks in the US to determine if their concentration of petrodollar revenues was putting “undue pressure” on American foreign policy. As Steven Emerson reports “…the banks for proprietary reasons and because they were fearful of antagonizing their Arab customers, refused to comply.” I think it is safe to say that the participants in this secret petrodollar connection wished to keep their relationships private and this kind of subterfuge is what they call “realpolitik” in the political sciences (or good old-fashioned greed).

Some have also referred to this US-Saudi connection as a kind of syndicate or protection/extortion racket. In other words, there is a contract between the US and Saudi Arabia in which the royal family (and other royals within OPEC) subsidize the US dollar and prop up the New York-London banking nexus which enables the Arabian sheiks and emirs to exploit their national treasuries in exchange for military protection, arms sales, economic development and untold luxuries for their personal pleasure (the largest yacht in the world, the al-Salamah, is owned by the royal family and has 8 decks and 82 rooms). As statistical analyst and economist Jim Willy states, “The US government runs the largest protection and extortion racket in modern history, perhaps ever.” In addition to the US pledge to patrol the Persian Gulf and protect the Saudi royal family the US defense industry has also enjoyed considerable profits. “With the money it earns from oil sales,” recounts ex-CIA officer Bob Baer in his book Sleeping With the Devil, “the Saudi royal family purchases arms from us to protect itself from within and without, but mostly from within [a veiled reference to the Muslim Brotherhood].”[8] From 1973 to 1978 the Saudi defense budget grew from $2.8 billion to $10.3 billion and today this figure is close to $26 billion (8th largest in the world). Saudi billions serve as a conduit for US defense contractors which rank in this order: Lockheed-Martin, Boeing, Northrup-Grumman, Raytheon, General Dynamics, L-3 Communications and Halliburton. These corporate contracts (along with all trade in the kingdom) are underwritten by the Export-Import Bank to protect against default, but this is hardly a problem since the petrodollar exchange system is constantly recycling oil-backed petrodollars. William Clark explains how this works:

For the past 30 years the US Federal Reserve has printed hundreds of billions of oil-backed petrodollars, which US consumers provide to other nations by purchasing imported goods. Then those nations use these dollars to purchase oil/energy from OPEC producers. These billions of surplus petrodollars are recycled from OPEC and invested back into the US via Treasury bills or other dollar-denominated assets, such as US stocks, bonds, and real estate.[9]