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Al Diablito aldiablito@hotmail.com
Tue, 14 Jan 2003 19:43:35 -0500

International Perspective, by Marshall Auerback

Occupying The Iraqi Oil Fields, Or How America Restores Its International 
Credit Rating
January 14, 2003
"Western oil interests closely influence military and diplomatic policies, 
and it is no accident that while American companies are competing for access 
to oil in Central Asia, the U.S. is building up military bases across the 
region." – Anthony Sampson, “West's Greed for Oil Fuels Saddam Fever,”  The 
Observer, August 11, 2002

Talk of empire is everywhere, yet seldom has the word been applied in the 
context of American foreign policy. That is beginning to change.  A recent 
essay in the New York Times Magazine by Michael Ignatieff makes the 
connection explicit: “Ever since George Washington warned his countrymen 
against foreign entanglements, empire abroad has been seen as the republic's 
permanent temptation and its potential nemesis. Yet what word but ‘empire’ 
describes the awesome thing that America is becoming? It is the only nation 
that polices the world through five global military commands; maintains more 
than a million men and women at arms on four continents; deploys carrier 
battle groups on watch in every ocean; guarantees the survival of countries 
from Israel to South Korea; drives the wheels of global trade and commerce; 
and fills the hearts and minds of an entire planet with its dreams and 
desires.” (“The Burden”, Jan. 5, 2003)

Whether one casts this dominance as a benign or malign force is a subject of 
active debate, but the reality of Ignatieff’s observation is unassailable.  
Ever since Wilson, there has in fact been a messianic imperial strain in US 
foreign policy while 'frantically avoiding recognition of the imperialism 
that we in fact exercise,' as the theologian Reinhold Niebuhr said in 1960.  
Speaking before the House of Representatives Sub-Committee on National 
Security, Veteran Affairs and International Relations Committee on 
Government Reform last June, Pentagon strategist Franklin “Chuck” Spinney 
illustrated that US defence spending exceeded the next 20 largest defence 
budgets in aggregate. These are the needs typical of empire, not a 
republican nation state.  The newly promulgated Bush defence doctrine 
suggests an attempt to retain this dominant position and ensure that 
American military power will be strong enough to dissuade potential 
adversaries from ever trying to challenge the military supremacy of the 
United States – again, a strategic doctrine which owes more to imperial 
antecedents, than the security requirements of the nation state.

Iraq lays bare the realities of America’s new role. As Ignatieff notes, this 
is essentially an imperial operation that would commit a reluctant republic 
to become the guarantor of peace, stability, democratization and oil 
supplies in a combustible region of Islamic peoples stretching from Egypt to 

Unstated is another motive: the mobilization against Iraq has given the 
United States a renewed opportunity to expand its power and influence in the 
region -- this time potentially to use its new Persian Gulf bases to 
establish even more bases in the ancient territories between the Tigris and 
Euphrates rivers in Iraq. More importantly, were the oil fields seized as a 
by-product of this invasion, it would give America a de facto seat in OPEC, 
with the control of a huge cash generating asset required to fund its 
massive domestic and overseas debt build-up. Starve Saddam of his revenues, 
lay siege to him and his Republican Guards in Baghdad, and recycle the oil 
proceeds (in dollars of course) to buttress the war effort, engage in nation 
building, and service ever increasing American debts – a “seize and siege” 
strategy, if you will.

American taxpayers face record-breaking debt, record-breaking trade 
deficits, reduced government services, a crumbling and under-funded 
infrastructure, and three major public-sector programs – Social Security, 
Medicare and Medicaid – expected to double as a share of the economy, 
putting unimaginable pressure on tax rates, the economy and the budget.  And 
that’s before taking into account the financial burden of waging a faraway 
war.  What empires lavish abroad, they cannot spend on good republican 
government at home: on hospitals or roads or schools. A distended military 
budget only aggravates America's continuing failure to uphold its liberal 
democratic principles at home.

So what has been the policy response to this?

On the tax front, the Bush Administration is planning to propose as the 
centrepiece of its “growth package” a large deduction on the taxes that they 
pay on dividends they receive from corporations.  The Administration 
estimates that its fiscal proposals will reduce tax revenue and increase 
expenditures by $674 billion over the period 2003-2013. There have been 
partisan debates centred around the ultimate cost and efficacy of these tax 
breaks, but what is clear from the magnitude of the proposal is that any 
notion of fiscal rectitude or concerns about balanced budgets (much in 
evidence preceding the first Bush tax package) have gone out the window.

Similarly, from a monetary perspective, Federal Reserve Governor Ben 
Bernanke has already told us that in a fiat-based currency system 
underpinned by the US dollar, the US monetary authorities ultimately face no 
external constraint in their attempts to avoid deflation. All the central 
bank needs is a printing press. The Fed can be the marginal buyer of all the 
debt the Treasury can issue any time it so chooses at any interest rate it 
chooses. The Fed, as the monopoly supplier of fiat money, faces no budget 
constraint save its own sense of prudential balance sheet growth and 
composition. None whatsoever.

As he and his colleagues have recently hinted, the Greenspan Fed may have 
more instruments to keep the credit spigot open longer than most of us 
realise.  That does not imply that private indebtedness can rise 
indefinitely; it only suggest that it may take a significant further rise in 
private indebtedness to lead to what Charles Kindleberger has termed “a 
credit revulsion”.  At its most extreme, once "the logic of the printing 
press" is both exposed and engaged, if the Fed fails to bluff private 
foreign and domestic investors correctly, there is a very good chance that 
America could be well on the road to ruin of the dollar, and fiat currency 
systems in general would be exposed and perhaps critically undermined

Americans and the country’s foreign creditors are slowly awakening to the 
realization that the country is rushing toward a dangerous political future 
for which the nation and its allies appear perilously unprepared, 
accompanied by a well-founded suspicion that Washington’s finances also 
teeter on a precipice, as does the economy’s capacity to recover any 
semblance of robustness for anyone other than the long-favoured few.

Because foreigners with past euphoric expectations bought a huge volume of 
U.S. stocks in the Bubble period and have yet to sell, and because the 
unsustainable U.S. current account deficit makes the U.S. dollar vulnerable, 
the U.S. economy is now very vulnerable to cross border flows.  
Consequently, the risks of a derivative/speculative unwind dollar/financial 
crisis along the lines of that experienced in Mexico in 1994, emerging Asia 
and Russia in 1998, or Argentina in 2002 remains exceedingly high.

How to solve this problem? What are Bush’s real intentions? Simple: 
construct a military plan in Iraq which achieves the objective of “regime 
change” and disarmament whilst concomitantly becoming a self-financing 
proposition. Occupy the Iraqi oil fields. Forget about attacking Baghdad and 
dealing with the political fall-out of American soldiers being transported 
home in body bags.  Enact the 21st century equivalent of a mediaeval siege.

A glance backward is the easiest way to see why oil and the dollar 
inevitably loom so large in any resolution of the Iraq crisis. The current 
configuration of the Middle East originates in the network of treaties and 
understandings that defined the post-World War I settlement of the broken 
Ottoman Empire. That settlement was premised on the Russian Revolution and 
the exclusion of Central Asia from the world market for oil. The UK was 
initially the dominant power in the Middle East, but its imperial ambitions 
and concomitant control of these oil fields was ultimately superseded by the 
Americans after Roosevelt met with Ibn Saud in 1945 and Truman recognized 
Ben-Gurion's Israel in 1948.

Until recently, this imperial guarantor role has taken the form of a tacit 
quid pro quo between the region’s lead producer, Saudi Arabia and America in 
which the former takes on the role of stabilizing the world oil market as 
the swing producer in OPEC, concurrently using its revenues (in part) to 
purchase American weapons (Saudi Arabia is the largest purchaser of American 
weapons, having bought some $39 billion worth in the 1990s).  The US in turn 
has provided tacit guarantees to safeguard the Royal Family, whilst turning 
a blind eye to the country’s role in disseminating a radical form of Islam.  
However, in the aftermath of 9/11, the underlying tensions in this 
relationship, notably the Kingdom’s persistence in upholding the tenets of a 
radical Islam, has upset the status quo and perhaps catalyzed the move to a 
different strategic paradigm on the part of the Americans, one which may 
entail an occupation of the oil fields and a siege of Baghdad.

To be sure, from a military perspective, a 21st century siege is not 
optimal.  Were America to end up besieging Baghdad, the American people may 
witness a massive human catastrophe in Technicolor on CNN.  A siege is, by 
far, the oldest, most primitive and indiscriminate form of war.  It is also 
the easiest form of defence in that the attacker is predictable and he 
depends on time to work his will.  It is no accident that history is 
littered with tales of gallant sieges, where the besieged made all sorts of 
clever adaptations before finally being ground down in a defence that 
exhibited with the kind of honour, sacrifice, and pluck which even their 
adversaries sometimes came to admire.

But these sieges also show little in the way of military success.  Were this 
to occur in a siege of Baghdad, despite overwhelming American superiority in 
men, machines, and money, the country’s alliances might weaken or even 
dissolve, the uncommitted might turn against the US, and America’s 
adversaries will be fuelled by increased hatred and be emboldened by our 
growing moral isolation.  What such development might do to the solidarity 
of the American people on the home front is anyone's guess.

On the other hand, by controlling the oil fields, America also controls 
Saddam's source of profits, by which he continues to buy the loyalty of his 
Republican guard and Tikriti tribesmen. Absent this source of funding, 
Saddam might fall quickly. And even if he doesn’t, it matters less if the 
main objective is control of the oil fields.

Apart from pre-empting a North Korean-type problem, the Bush Administration 
could also use the occupation to break the trouble-making qualities of the 
other hangovers from the Cold War - Syria and Libya - as well as reducing 
the reliance on Saudi Arabian oil. There are signs that the smaller Arab 
states, particularly in the Gulf, will welcome such changes - hence their 
co-operation with American military preparations. Iran is another potential 
plum down the road. While waiting for the theocratic regime to fall, 
Washington could content itself by effectively becoming the 2nd largest 
producer in OPEC.

Spelling out such naked imperial ambitions may seem extreme, but there is a 
certain cynical elegance to the foregoing suggestion in that it both 
addresses the worrying issue of “imperial overstretch”, whilst accommodating 
the stated desire for regime change and disarmament in Iraq.  For those who 
hesitate to characterise American foreign policy in this manner, it is 
worthwhile recalling that historically in a clash between democracy and 
human rights on the one hand, versus the steady, profitable flow of goods 
and raw materials on the other, American power has come down heavily on the 
side of stability and profits, for example, toppling democratically elected 
leaders from Mossadegh in Iran (when he threatened to nationalize American 
oil interests) or through its continued support of dictatorships throughout 
the Gulf in the post-war period.

Indeed, it is increasingly common to see analyses of America framed in the 
context of empire, as opposed to the nation-state, both from the perspective 
of 19th century power politics, but also (somewhat surprisingly) in lots of 
“progressive” discourse from the left.  The old European imperialism 
justified itself as a mission to civilize, to prepare tribes and so-called 
lesser breeds in the habits of self-discipline necessary for the exercise of 
self-rule. Not today: Robert Cooper, a British diplomat and advisor to Prime 
Minister Tony Blair, circulated a piece last April calling explicitly for a 
new “liberal” imperialism.  Cooper’s model is the European Union, whose 
member states accept a degree of external interference from Brussels, 
thereby acceding to a “voluntary” or “co-operative” form of imperialism.

But Cooper’s scheme does also make allowance for more traditional forms of 
imperialism – misgovernment, ethnic violence, and crime in the Balkans, for 
example, posed a threat to Western Europe, so neighbourly imperialism did 
justify the deployment of NATO forces in Kosovo and bombers over the skies 
of Serbia.  The reason, according to Ignatieff, is simply that, however 
valid the sanctity of national borders may be, “the political form in which 
they are realized -- the nationalist nation-building project -- so often 
delivers liberated colonies straight to tyranny, as in the case of Ba’ath 
Party rule in Iraq, or straight to chaos, as in Bosnia or Afghanistan.”  
Hence, the rationale for “liberal interventionism”. But this “progressive” 
form of imperialism is ultimately grounded in the framework of universal 
human rights and Western Enlightenment ideals.

We doubt this is what the hawks in the Bush administration have in mind, 
although such ideology does provide any naked exercise of imperial power 
with a respectable cover.  A recent January 6th, 2003 New York Times article 
(“US is Completing a Plan to Promote a Democratic Iraq”) casts the 
occupation of Iraq in these humanitarian/liberal terms:

“President Bush's national security team is assembling final plans for 
administering and democratizing Iraq after the expected ouster of Saddam 
Hussein. Those plans call for a heavy American military presence in the 
country for at least 18 months, military trials of only the most senior 
Iraqi leaders and quick takeover of the country's oil fields to pay for 
reconstruction. (Our emphasis)

“The proposals, according to administration officials who have been 
developing them for several months, have been discussed informally with Mr. 
Bush in considerable detail. They would amount to the most ambitious 
American effort to administer a country since the occupations of Japan and 
Germany at the end of World War II. With Mr. Bush's return here this 
afternoon, his principal foreign policy advisers are expected to shape the 
final details in White House meetings and then formally present them to the 

In reality, the Bush Administration’s perspective is probably more aligned 
to the views expressed by Professor Stephen Peter Rosen. Writing in Harvard 
magazine, Rosen sheds all liberal euphemisms: Europe and Japan are ageing, 
and are unlikely rivals for global power.  Today, the US “has no rival”, is 
“militarily dominant”. Rosen makes clear that the political strategy 
underlying US military strategy should be about “maintaining our imperial 
position, and maintaining imperial order.” The recently promulgated Bush 
defence doctrine reflects this reality. There is no appeal to Blairite 
values, voluntarism, or multilateral engagement. It’s pure power politics, 
even if not explicitly stated as such.  Or, as Iganatieff puts it: 
“Multilateral solutions to the world's problems are all very well, but they 
have no teeth unless America bares its fangs.”

How much should America bare its fangs in regard to Iraq and how will it 
disperse the country’s natural assets, notably oil? However much a seizure 
of Iraqi oil fields is cast in humanitarian terms, it may well be the case 
that only a small proportion of the oil proceeds will be used in fact to 
“reconstruct” Iraq.   Obviously, there is no more delicate question for the 
administration than how to deal with Iraq's oil reserves — the world's 
second largest, behind Saudi Arabia's — and how to raise money from oil 
sales for rebuilding without prompting charges that control of oil, not 
disarming Iraq, is Mr. Bush's true aim. This is a particularly germane 
question to both the French and the Russians.

Iraq as the “51st state” is obviously not one designed to appease America’s 
allies. But one can readily see the advantages for the Americans, 
particularly in regard to the dollar. A major prop for the dollar has long 
been the simple fact that oil is priced in dollars. If the new Iraqi 
petroleum authorities announce that they will accept only checks in dollars, 
invest their surplus in dollars, and swell American exports by contracting 
principally with American firms for services and goods, both the long and 
short term prospects of the dollar will brighten. As pleased as Europeans 
have historically been to seize chances to export under the umbrella of a 
high dollar, and take advantage of the US consumer as global buyer of the 
last resort, US control over Iraqi oil fields this will not be what they had 
in mind when they supported recent UN resolution 1441.  At a moment when the 
costs of empire are mounting for America, her rich European allies/creditors 
matter financially and Bush cannot choose to ignore that fact.

Of course, nobody will dare express these strategic disagreements in such 
crass terms. Being an empire doesn't always mean being omnipotent, but it is 
equally hard to envisage the US has not at least implicitly threatened 
French and Russian economic interests in Iraq that if they don't fall in 
line.  France has consequently begun to hedge its bets. Well aware of the 
likelihood of allied action or an internal coup before the Ides of March, 
Jacques Chirac does not want his country out in the cold as oil-rich New 
Iraq is put on its feet by the U.S. and Britain.

In his New Year’s message, Chirac suddenly took to threatening Saddam with 
"war of unimaginable consequences" unless he disarmed right away. France has 
also announced that it would soon dispatch an aircraft carrier to the gulf. 
But still straddling, Chirac insists that the Security Council, and not what 
Bush calls "a coalition of the willing," make the decision about whether 
Iraq has failed to prove it has disarmed.

On the matter of how the objective is achieved, there are many 
possibilities. There is still talk of marching straight to Baghdad, but this 
might be part of an elaborate disinformation campaign.  One can equally 
imagine the US forces going after the fields first, all the while saying 
they were going to march all the way to Baghdad, but then taking their sweet 
time about the 2nd half of it so as to minimize casualties and hope that the 
"one-bullet" solution for Saddam would manifest itself at last.  So the 
practical effect would in effect be an occupation of the oil fields.

If this strategy ultimately is pursued, it may be that the US would 
"magnanimously" agree to put all revenues from Iraqi petroleum production 
into some sort of a grand reconstruction fund to be administered by the UN 
or something.  That way, no one could claim that it was a giant oil grab all 
along.  However, where would those funds be invested?  Why not in 
Treasuries, or other dollar denominated assets for the most part or 
exclusively?  After all, oil revenues are denominated in dollars, aren't 
they?  So the effect would be to generate a large new buyer of $ assets, 
which would offset a large portion of the current account deficit even 
though it wouldn't reduce that deficit from an accounting perspective -- the 
market effects would be the same.

Whether this serves as a long term solution is another matter.  An American 
operation in Iraq will not face a competing nationalist project, but across 
the Islamic world it will rouse the nationalist passions of people and 
thereby feed as potential recruiting fodder for organisations such as Al 
Qaeda.  There is the not so trivial possibility that seizures of foreign 
assets by the US could be read as setting a very poor precedent for any 
foreign holder of US assets, as it implies a willingness to break the rules 
of property ownership at the whim of the imperial power.   Perhaps the sheer 
magnitude of American military might will preclude a seizure of American 
overseas assets, but it is hardly likely to reassure the country’s growing 
list of foreign creditors.

Which raises another important issue:  the US dollar-denominated assets the 
US authorities want foreigners to keep holding have a decidedly private 
sector cast to them. Consequently, private sector profitability and 
creditworthiness is more the issue than balance of payments per se, even if 
one assesses the latter from an imperial, as opposed to national, 
perspective.  The contemporary constraints facing the US today have much 
more to do with a collapse in the exchange rate when large quantities of 
private (and public) liabilities are held abroad, largely unhedged. The 
constraint is still a financing constraint, and even an external one at 
that, but it works through currencies and portfolio preferences reducing US 
financial asset prices and financing availability. The US government may 
indeed believe it must appear to make its self more creditworthy in the eyes 
of misinformed creditors to the US by seizing foreign income generating 
assets in order to continue on the path of imperial overstretch, but this 
might ultimately prove an unsuccessful strategy, particularly amongst the 
Asian and European rentier classes.

The war build-up, coupled with detailed US-contingency planning for a 
post-Saddam Iraq has created the momentum for a vast, if uncertain 
commitment by the US in the region. How to pay for it at a time of 
unprecedented financial fragility and economic imbalances? In our view, the 
inexorable effects of imperial overstretch are clearly driving the US toward 
occupation of the Iraqi oil fields.  We happen to agree with the assessment 
of Jay Bookman, an editor of the Atlanta Journal-Constitution, when he asks, 
“Why does the administration seem unconcerned about an exit strategy from 
Iraq once Saddam is toppled? Because we won't be leaving. Having conquered 
Iraq, the United States will create permanent military bases in that country 
from which to dominate the Middle East, including neighbouring Iran.”

No doubt some figures in the State Department or the Treasury have tried to 
bolster somebody's innovative invasion plan from the Pentagon by arguing 
that by executing a medieval style siege of foreign assets, one could hope 
to reap the additional benefit that the invading government will appear more 
creditworthy (given current misunderstandings of foreign creditors about 
public finance), and so demand for the dollar will improve or at least be 
stabilized. Acquiring a big “cash generating asset” like the Iraqi oil 
fields temporarily minimizes the prospects of credit revulsion amongst 
foreign creditors, keeps the oil flowing, and the chance to preclude the 
emergence of rivals to America’s dominant global military position. But is 
it a viable long term solution to the country’s ongoing problems, or the 
last gasp of a declining empire?

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