European Union Foundation – Central Asian Strategic Forecasting and Research Institute
Bishkek

Daurzhan Rozy-bakiev
Senior Research Analyst

Klaus Haushoffer
Senior Research Analyst, Ph.D

The aggressiveness of US war policy has triggered world wide discussions about the driving forces behind this offensiveness. In this context, “war against terror” is essentially nothing but a crusade to maintain the dollar hegemony.

World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy. To prevent speculative and manipulative attacks on their currencies, the world\’s central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world\’s central banks to acquire and hold more dollar reserves, making it stronger. This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars.

When oil is denominated in dollars through US state action and the dollar is a fiat currency, the US essentially owns the world\’s oil for free. And the more the US prints greenbacks, the higher the price of US assets will rise. Thus a strong-dollar policy gives the US a double win.

The United States now is in debt for at least $4 trillion. That\’s $4,000,000,000,000. And for the first time ever, Americans owe foreign nations more of their debt than they owe their own banks. Americans owe foreigners more than $2 trillion. In exchange for the security of US rule – and with massive aggressive threats – Kissinger induced the Saudi royal house to calculate its oil in dollars. The other Opec states joined so the two central trading centers for oil and gas, the International Petroleum Exchange (IPE) in London and the New York NYMEX are both based on the dollar. This mechanism leads to a gigantic demand for dollars and supports the role of the greenback as the leading world currency. “Everyone accepts dollars to buy oil.”

As long as dollars are demanded, the US can become indebted almost at will without having to declare bankruptcy. Any other state with comparable statistics would be forced to declare bankruptcy.

IS THE IRANIAN OIL EXCHANGE THE END OF PETRO-DOLLAR HEGEMONY?

For the first time, a serious alternative to the dollar exists in the euro. The run on the US currency has already begun. More and more countries – particularly Russia and China – systematically rearrange their currency reserves. The falling demand for dollars is a logical consequence. Some recent headlines show the greenback has lost considerable value and is under massive pressure: “The Asian Development Bank sounds the alarm over the dollar” (International Herald Tribune, 3/28/2006); “Dollar begins nosedive against other important currencies” (The Sunday Times, 4/30/2006); “Dollar falls after Federal Reserve Chief’s Speech” (The Times, 4/26/2006)

On this background, the Iranian plans to establish an oil bourse (Iranian oil bourse, IOB) on the Kish Island that accepts euros as a means of payment are explosive. The original starting date of March 20 was postponed. However government officials will carry out the project. The oil bourse makes sense from an economic perspective. Teheran does 45% of its trade with the euro zone where a third of its oil flows. Thus the IOB avoids price fluctuation risks and transaction costs by bypassing the dollar.

Both China and India are interested in negotiating future oil through the IOB. Potential sellers could be Venezuela and Russia that for a long time considered calculating their oil in euros. French industrial minister Francois Lous already urged a greater role of the euro in the oil business.

“The IOB is part of a very intelligent and creative Iranian strategy – taking the offensive in every conceivable way and mobilizing other actors against the US.”
Central Asian Strategic Forecasting and Research Institute, 2006.

The US is scraping the barrel in the currency question. The US Federal Reserve stopped publishing the money supply statistics since March 2006 as the most important indicator for the worldwide dollar supply in circulation. This decision was an awkward attempt to hide the shaky foundations of the US Empire. In this precarious situation, Washington will consider any step that could cause a sudden drop in the dollar as a declaration of war. Whether the IOB can do this is a completely different matter.

Preventing the IOB and simultaneously giving a sign to other countries that Washington is ready to march into war with any country that seriously tries to shake the dollar hegemony may help explain the extreme aggressiveness of the US toward Iran.

“While some thought the colorful protest was fun, others were angered. ‘This is a disgrace,’ said 74-year-old Orazbek Ziyakhanov of the activists’ outfits. ‘Don’t we have enough of our own spoiled girls? This is not Europe, this is Asia.’ As for becoming a vegetarian, Ziyakhanov said, ‘How can we stop eating meat? All the vitamins are in meat.’
Such views found resonance in other knowledgeable Kazakhs of different origins, and even some non-Kazakhs.”

I can literally picture the babushka in my mind, waving a cane at the ladies.

Vadim - Apparently, they’re from PETA - the animal rights organisation, so I assume they are volunteers. PETA has done some ’shocking’ stuff before, like putting people in plastic meat packaging.

I bet they drank Vodka before that and of course after.

Interesting to know how much they got paid?

This is the kind of thing that makes ordinary people inclined to sympathize with the President when he says he’s tired of listening to foreigners telling him how to run the country.

Well, I enjoyed the joke about meat and Kazakhs being second to wolves. Those two women will have to worry about their immune systems being out in the cold like that. They are also not telling the full truth. All vegetables cannot provide all of the needed proteins and minerals. Hey, it is their bodies.

Mike
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