Oil Price Effects ...

kelley kelley@interpactinc.com
Mon, 24 Mar 2003 10:32:17 -0500

see also, John S. Herrington complaining about our oil under their sand. 
Really, the gullibility of believing this is about democracy for the kurds 
or that the administration gives a bat's eyelash about commies and 
socialists getting their tongues cut out is astonishing.

What's our oil doing under their sand, says (no, not asks) John S. Herrington.


oh, and an entertaining a paleocon perspective, below, as well as a 
half-baked argument about petrodollarism (see links), as well as economist 
Ellen Frank's critique of petro-dollarism and admin assumptions:

1. speculation from the far right:
>Look at it this way:  the ownership of Iraq's oil reserves is about
>to dramatically change hands.  This will be one of the largest financial
>transactions in history.
>Of course world oil production will remain relatively constant, and
>the price, too.  People always say this when they wnat to pooh-pooh
>the oil issue.  What they hide is that the ownership changes hands.
>If the owner of a grocery store is shot dead, and the shooters
>appear as the new proprietors of the store, but nothing else changes,
>was it about the grocery store?
>We need to identify the world cash flow picture:  at present this is
>"surplus money" (since the US has nothing to export) is "invested"
>(i.e. LOANED) in the US, in various forms from mortgages to credit
>card debt bundles to government bills.  The loaners are Europeans
>and Japs.   The money thus loaned is spent primarily on imported
>finished goods from Japan and Asia.  These proceeds, again passed
>largely through Europe and Japan, cycle back in loans.
>When the US imports oil, more bux go to the oil producers, who buy
>"stuff" from Europe...
>This picture involves the US having to service a mountain of foreign
>held debt.
>How are foreign debts serviced?
>         a) Default
>         b) Inflation/Monetization
>         c) Actually paying
>Europe is presented with a choice:  should the US default on its
>foreign debt?  (World-wide collapse in an hour), should the US
>inflate its currency?  (hello, major trade war)  Or should the US
>engage in a thinly-masked piracy against certain odious third parties?
>Well, it depends what each European country stands to gain or lose.
>France and Germany are about to lose *big time* due to their investments
>in Iraq (and the next "evil" countries, Syria and Iran).  Russia will
>lose *big time*, too.  These nations would probably prefer the US
>to "actually pay" the debt without piracy, by handing over title to
>tangibles in the US.  ("Daimler-Chrysler" redux).  At a second choice,
>they will bite the bullet and take gradual inflation of the dollar --
>they can pass the pain off to some third party like India and E. Europe
>if they're sly about it.
>The Euro countries that back us (such powerhouses as Estonia and Italy)
>aren't invested in Iraq, Iran and Syria.  They do not benefit from
>a "cash-long" middle east, it doesn't matter if the Americans own
>the oil or some Arab.  OTOH, these countries are deathly afraid of
>significant devaluation of the dollar.  So they are our good buddies.
>At present they buy their oil from or through their scary-beary eastern
>neighbor, Russia.  They wouldn't mind a second-source at all.
>(See schemes for Turkish pipelines -- the idea is to pipe Azeri
>(formerly Soviet) oil south to the Med.  Also to pipe Iranian
>oil West through Turkey.  And now -- ta-da -- Iraqi oil North and
>West.  This means cutting Russia out.  Hello, cold war II.

2. Petrodollarism as explanation from the left:


3. Ellen Frank's critique of 2].:

From: "Ellen Frank" <frank@emmanuel.edu>
References: <3E7CAD60.51A8FE9F@ilstu.edu>
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pen-l@galaxy.csuchico.edu writes:
 >Ellen Frank did a nice job of handling this question on KPFA about a week
 >ago.  Maybe she should chime in.

I don't recall saying that much on KPFA, but I will chime in nonetheless.
The idea that we are at war to force OPEC to keep pricing in dollars
makes little sense.

To the extent that they've thought about this at all, I suspect the
Bush folks see the dollar's role as evidence of US power, see
the war in Iraq as an assertion of US power and so imagine
the war will help the dollar.  I think they are correct that the
international role of the  dollar reflects US power, but I think
they may be wrong about how investors perceive the Iraq venture.

My research (some of which will appear in the RRPE) suggests
that currency preeminence is built on global economic preeminence.
The key currency country is the country whose committment to
a liberal world economic order is absolute, is guaranteed by
the size and exposure of its international corporations and is backed
by its ability to coerce/persuade others to support that order.
Military power is important but in a statistical study I did on
international currency usage, it was less important than the
assets/sales of MNCs.  Military and diplomatic preeminence
(like a veto in the UN and 20% of IMF votes) give some comfort
to dollar-holders that in a crisis, the US will be able to coerce
others to bail it out -- holding dollar reserves or buying dollars
to support its value on world markets, for example.

Where I think the Bush folks might be wrong is in
thinking the the diplomatic imbroglio they created
will not impact investor perceptions.  Would you
say the disdain and even contempt with which they
treated allies reflects unwavering commitment
to a liberal world economic order?  Is this an administration
that will keep its capital markets open even if there is
short-term political gain to be had from closing them?
Even if central banks in China and Japan will scream?

This really is an issue for the dollar.  I wouldn't be
surprised if some of the dollar's recent decline signifies
a real portfolio shift to euro and not just a transient
speculative attack.

So my take is that not only are we not at war to defend the dollar,
but the war could prove very detrimental to the dollar's
international role.