In his new book Secret Notes from Iran (Leadstart Publishing/Platinum Press), Nadim Siraj tried to shed some light on the game-changing concept of the Petrodollar system. Following is a section from one of the chapters from the book that goes right down to the root of the Petrodollar system itself!
WELL BEYOND OIL
The central piece of the whole crude oil puzzle is the petrodollar story. It is key to American supremacy in West Asia. The petrodollar system helps us understand why the US military machine pursues a state of perpetual domination in West Asia. It is why there is uncompromising backing for unelected dictatorial regimes in the Gulf region.
Over the past decades and eras, we have all witnessed ‘how’ the US-led West intervenes in West Asia to control oil resources. The petrodollar tells us the real story behind that ‘how’ — it tells us ‘why’ the Western governments and foreign energy corporates are desperate to stamp their authority over the region’s oil resources.
Protect the petrodollar system — that, in a nutshell, is the core agenda of the US in West Asia.
It is necessary to first make sense of the term ‘petrodollar’. Ever since the mid-1970s, the oil-rich West Asian and North African nations (basically the OPEC cartel), have been following an unusual, monopolistic de facto directive from Washington DC. As per the directive, these countries must sell their crude oil to various national governments in exchange for only US dollars, period.
After selling their crude abroad for dollars, these oil-producing nations are compelled by the US to buy American treasury bills and stocks. Basically, the dollars earned by the West Asian Big Oil nations eventually travel westwards and get parked in elite American banks. In turn, those phenomenal sums of oil money (that travel from West Asia to US banks), are reinvested in the US economy and a few other Western economies, leading to their economic revival and survival.
To understand why the US government deems the petrodollar system sacrosanct, one must simply understand this.
All oil-buying nations desperately require dollars to buy oil from the oil-producing countries, and this worldwide demand keeps the US currency permanently buoyant and dominant. This in turn places Washington DC, the US Federal Reserve and the country’s economy, in a perennially commanding position to dictate terms. One can say that nations that procure crude oil are generally at the mercy of the US, since they have a constant and desperate need to stockpile American currency, whether they like it or not.
This dollar-for-petroleum money earned by the oil-producing nations is called petrodollar, and the procedure of investing the oil money into the US is called petrodollar recycling. The system is now common knowledge. But what is not common knowledge are the shadowy circumstances in which the petrodollar was born in 1974, underlining an American masterstroke to inflate worldwide demand for the dollar.
1974: THE DOLLAR IS REBORN
The petrodollar’s fascinating origin is widely written about in the media and is well documented by historians of geopolitics and currency wars. The US-masterminded system was best exposed in an article published by Bloomberg on 31 May 2016 (The Untold Story Behind Saudi Arabia’s 41-year US Debt Secret).
Journalist Andrea Wong wrote that in July 1974, the then US President, Richard Nixon, sent William Simon, the then US Treasury Secretary, along with his second-in-command, Gerry Parsky, on a discreet trip to Jeddah, to strike a formal deal with the ultra-conservative Saudi Arabian royal family, represented at the time by King Faisal Al Saud (who was assassinated on 25 March 1975).
The deal was struck between the Saudi central bank, known as SAMA (Saudi Arabian Monetary Authority), and the US Treasury Department. Henry Kissinger, the US Secretary of State at the time, kept a close watch on proceedings as the deal was rubber-stamped and formalised. The crux of that US-Saudi agreement was a game-changing move and highly monopolistic in nature.
As per the Bloomberg article, the story unfolded like this: The US government would import a steady, substantial, and agreed-upon quantity of Saudi Arabian crude oil. In return, the US government would give the Sunni, pro-Wahhabi monarchy abundant and fool-proof military support as protection against Israel, a militarily well-equipped opponent in Saudi Arabia’s backyard. Crucially, for all the crude the monarchy would peddle to countless nations all over the world, it would accept payment only in greenbacks.
The Saudi Arabian government would then inject over half of the oil-trade profits into the US economy (and partly into the British economy as well). The inflow of dollars into US banks, earned from the Saudi sale of oil, would benefit the US on two fronts — easing the ballooning US debt, and funding US military spending.
In the months following the emergence of the petrodollar, the ruling family in Riyadh and the US government managed to persuade the other OPEC countries to switch over to the new dollars-only arrangement, by mid-1975. The development resulted in a spiralling demand for US currency among most of the governments the world over because the greenback became the only mode of payment for crude oil purchases from the OPEC suppliers.
In the 1988 book, Western Expansionism in the Persian Gulf, Russian diplomat-turned-writer Viktor Leonovich Mikhin, quotes a Newsweek article to claim that this petrodollar set-up included a pledge from King Khalid of Saudi Arabia that his government would invest 50 percent of its oil profits in US treasury bonds. Mikhin reveals that, ‘…by investing 50 percent of its active balance in US bonds paying 7.5 percent [interest] for a 25-year term, Saudi Arabia was helping out the US credit and finance system, which was constantly suffering from a deficit.’
In return, Saudi Arabia was given the ‘right’ to use the interest to purchase expensive weaponry and military hardware, exposes Mikhin in his well-researched work. In addition, says the writer, the US promised to ‘provide the Saudi Arabians with military cover’, in the event of any threat that might arise in its backyard — basically from Israel.
SADDAM DEFIES THE GREENBACK
The US and its banks made the most of the oil-for-greenback system right up to the early 2000s. But after that, the tide slowly and steadily started to turn. In an apt reminder of Bob Dylan’s timeless classic, The Times They Are A-Changin’, a small but significant rebellion began brewing against the monopoly of the dollar.
The Euro, Europe’s common currency, was already in circulation by then and the Chinese yuan was steadily gaining ground. After years of monopolistic dominance, the US currency was no longer the pet favourite of the Big Oil producers as it had been from the mid-1970s to the early 2000s.
Headed by the militarily-authoritative leader, Saddam Hussein, the Iraqi government was the first country to put its hand up against the dollars-only arrangement.
Saddam, a friend-turned-foe of the US government and a dictator with a poor human rights record, courageously announced that his country would detach its oil business from the petrodollar compulsion. In 2000, Saddam began airing his intentions to sell Iraqi oil globally only in exchange for Euros, not dollars.
Soon after, Iraq, a country with a decently healthy economy and at the time a primarily a socialist nation, was crippled by the onset of brutal, US-instigated economic sanctions. The debilitating sanctions were followed by America’s urge to invade Iraq in a bid to remove Saddam from power. In 2003, Iraq was famously invaded for its never-to-be-proven connections to the 9/11 terrorist strikes in the US and the never-to-be-found stockpiles of WMDs, as vehemently and wrongfully claimed by British Prime Minister Tony Blair and US President George Bush.
Saddam was eliminated and his endgame advertised via the mainstream press as a chilling warning to other oil-producing countries. It is very important to remember here that Saddam was once viewed by Washington DC as a staunch ally.
It is also interesting to note that since the fall of Iraq, the country’s new administration has been trading its crude oil only for dollars — a fact not highlighted by the corporate media houses. The toppling of Saddam and his Ba’ath Party ensured that plans to contest the petrodollar set-up in Iraq were shelved.
GADDAFI DEFIES THE DOLLAR, TOO
After Iraq came the turn of Libya, whose megalomaniacal leader, Muammar Gaddafi, announced plans of launching a pan-African, gold-backed currency, popularly hailed as the ‘gold dinar’, during the mid-2000s. Basically, Gaddafi did a Saddam — choosing to move away from the petrodollar.
In an article published in The Guardian on 21 April 2011 (Libya: Another Neocon War), journalist David Swanson writes that, as per Gaddafi’s audacious proposal, Libya wanted to sell its oil only for the newly-planned currency. The Libyan boss wanted the proposed gold dinar to become the common African currency. The result of that independent plan? Libya spun into chaos, thanks to the 2010–2012 Arab Spring revolutions and the subsequent foreign intervention.
Hounded by NATO-backed forces, Gaddafi was knocked off following an airstrike in 2011, and the North African nation became unstable. It is perhaps needless to add here that Libya was forced to jettison the gold dinar dreams for good. The petrodollar hegemony victoriously survived the threatening Gaddafi storm in Libya.
For a more detailed throwback into the business of oil and its illuminating history, you are welcome to catch a copy of the book Secret Notes from Iran.