Oil

What’s at stake as America hits the petrodollar wall?

The rise of competing centers of currency and energy transactions spells serious doom for the US dollar, the American economy, and its military guardian. Which way will Canada go when the chips come down?

By Dan Adelman

When it comes to the peterodollar-oriented global economy, all roads lead to Rome—or to America, to update the truism. But now rival nodes to this American economic rule are evolving to the point where they may very well be able to overcome their structural disadvantages in order to circumvent the dollar’s hegemony.

This is extraordinarily problematic for the American imperium, whose full-spectrum supremacy over the world scene has always rested on its dominant economy. For as these rival nodes grow, the American one necessarily shrinks. 

Many analysts point out that the vigorous euro currency holds a lot of appeal for both oil producers (such as Iran, Venezuela, and even the House of Saud), and dollar-holding oil purchasers (like China and Japan) that want to dump at least some of their depreciating dollar holdings. At the macro level, this transition would have potentially disastrous effects on the American economy. As confidence in the dollar plummets and money pours out of the derivative, bond, and stock markets, inflation would skyrocket as the US has to print even more devalued dollars to service its ever-spiraling wartime debt in the midst of economic recession or depression.

This may explain why (several days after the proposed—but now delayed—opening of the Iranian Oil Bourse) the US Federal Reserve suddenly quit reporting M3, which represents the number of dollars circulating through the entire American economy and, as a result, happens to be the prime indicator of inflation. At a time when American debt is about to reach its ceiling (that is, the point at which it is deemed beyond the point of no return), and the economy is quite possibly about to enter a period of hyperinflation, this sudden omission warrants notice. Consequently, Republican Congressman Ron Paul, who’s been a real canary in the oilshaft on the petrodollar issue, has protested the removal of M3, but to no avail. 

But as devastating as the effect would be on the economy as a whole, and debt-strapped US consumers in particular, the most acute impact would probably be on the closed-circuit old-boy military-industrial-government oligarchy (the so-called “iron triangle” that dictates so much American foreign policy) that’s making such a killing off petrodollar recycling. This includes the big New York and London Banks as well as the usual litany of corporate suspects that are raking it in hand-over-fist off structural development projects in oil-producing countries like Saudi Arabia and Qatar, as well as in the IMF-beholden third world (which, it bears noting, has to pay off its debts in American dollars), and in war-torn Iraq and Afghanistan, too now. It also includes the gargantuan weapons and private security industries that count on Middle East petrodollars for sustenance.

Of course, the danger is not merely that some countries will follow Iran’s lead and sell some oil in euros. The real threat to America is that this petroeuro economy will gain momentum, thereby taking a significant amount of steam out of the petrodollar network and ultimately threatening the greenback’s role as the world’s fiat currency. The ability to push the world economy in this direction would grant wealthy nations a more nuanced means of coercive leverage over American (and by extension, Israeli) foreign policy. Indeed, even the mere threat of a flush of the dollar could be used to manipulate the administration in all sorts of ways that are antithetical to America’s domineering pre-eminence in world affairs. This is the incursion that the administration has the most to fear from on the home front.

The Euro hub will not be the only one to swell at America’s expense. As time goes by, so too will the Chinese, Japanese, South American (led by Venezuela), Iranian, and United Arab ones.  And as the network undergoes this structural reconfiguration, many new tactical and strategic alliances will develop between these emergent powers. 

In the West, we will continue to see previously unthinkable alliances between liberals and old-school fiscal conservatives (such as Congressman Ron Paul and former Nixon Republican Kevin Phillips) in response to the ever-tightening integration of neoliberal and neoconservative agendas (both of which fly under the equivocal banner of “spreading freedom”).

There’s no question where Canada’s Stephen Harper’s Tories stand in all of this. It goes without saying that they are fully prepared to give Uncle Sam priority access to our natural resources. But how will the new imperial lapdog participate in the wars and covert coups to come? The coups (such as the failed one against Venezuela’s Chavez and the successful one against Haiti’s Aristide) will in all likelihood fly right beneath the mainstream media’s radar. The wars, on the other hand, will likely require a powerful parallel propaganda campaign to hoodwink Americans and Canadians into believing they’re being directly threatened, and to lull Canadians into believing that deeper integration with the US is in the national interest. Unfortunately, there’s no reason to believe that the Liberal party’s corporate cronies would do things substantially differently, though they’d probably go about it in a much more namby-pamby fashion.

On the other hand, as the Bush administration ramps up its bellicose rhetoric in response to Iran’s nuclear development, it may very well also be singing its own swan song. America is in the ultimate double-bind right now. Its military might is propped up by its economy, and its economy is propped up by its military might. Both are overextended to the max. And in its hamstrung state, Iraq, Iran, and Venezuela have landed serious blows. The ruptures are still small, but the imperial Leviathon’s lifeblood is beginning to hemorrhage. So as it begins to flail about violently, we as Canadians have to devote some very serious thought to what kind of citizen of the new world Canada should be.

Congressman Ron Paul refers to this as the American era of “bread and circuses,” a sardonic phrase borrowed from Juvenal, who used it to refer to the vapid culture of extravagant self-gratification that led to Rome’s decline. For the time being, all roads still lead to Rome. And as the emperor’s bosom buddy, we Canadians get to share in the decadent spoils at most of the rest of the world’s expense. But if we know what’s good for us, we’ll prick up our ears and hear what the canary’s trying to tell us.