Saddam Hussein May Get the Last Laugh
Thomas Guzman

On November 2000, Saddam made a fateful decision to convert 10 billion U.S. dollars to euros. This was a radical move for an OPEC country. This single decision may have sealed his fate. That single transaction must have sent shock waves through London and New York. The reason for alarm is cast in a story about oil, greed and geopolitics.

The story requires some backtracking in time. So lets get into our wayback-machine to the end of World War II.

After World War II, we were the big man on the hill. Europe and Japan were in ruins after the war while America’s infrastructure was left untouched by the war and thousands of American factories were up and running.

The major powers held a conference called the Bretton Woods Conference in New Hampshire at the end of WWII The outcome of the conference obligated each country to maintain the exchange rate of its currency within a fixed range - plus or minus one percent - in terms of gold. This was ok with the United States, because we had the largest gold reserves of any nation. The U.S. also had newfound oil fields America had also became the world's foremost energy producer and goods exporter.

Not bad, we had it all. Thousands of American GI’s came home to a bustling economy. There were jobs and lots of stuff to buy, and conversely our standard of living shot up. Life was good and we became the envy of the world.

Then the Vietnam War started in the 60’s. There was concern in Europe about this ill-gotten war. France and England began to take their dollar export earnings and demand gold from the U.S. Federal Reserve, which was perfectly legal under the Bretton Woods agreement. By November 1967 the drain of gold from U.S. and Bank of England vaults had become critical. With soaring deficits from Vietnam, war it was only a matter of time before the United States itself would be forced to devalue the dollar against gold. By May 1971 the drain on US reserves had become critical. Nixon did the only thing he could under the circumstances: he abandoned the Gold Exchange program altogether, and allowed the dollar to float against other currencies. He allowed market forces to determine the value of the dollar.

Let’s moving the clock up to 1973. Saudi Arabia and other Arab countries of OPEC were pretty pissed off with the United States because of our continuing support of Israel during the Ramadan/Yom Kippur War and so they retaliated with an oil embargo.

US oil production had peaked earlier and our oil fields were not able to completely supply the country’s energy needs. We had become very dependent upon petroleum imports. Oil prices soared 400%, and the US economy took a major hit. Through a lot of diplomatic efforts and god-knows-what-else The U.S. worked out a deal with the Saudis. It was a stroke of genius. The Secretary of State Henry Kissinger established the US-Saudi Arabian Joint Commission on Economic Cooperation in June 1974. One of its major components stated that OPEC officially agreed to sell its oil only for dollars.

Every country that purchased oil from OPEC had to pay in U.S. dollars.

This enormously increased the demand for the floating dollar. Oil importing countries were faced with the problem of how to earn or borrow dollars to pay for their oil.

OPEC oil countries were soon overflowing with oil dollars. Most of these oil dollars ended up in accounts in London and New York banks.

This 1975 act established the dollar as the global monetary instrument. One could say that world trade now consisted of the U.S. printing dollars and the rest of the world producing stuff that dollars can buy. Countries competed for dollars and they accumulate huge dollar reserves to sustain their own currencies. This all but guaranteed a strong dollar.

Meanwhile back at the Federal Reserve Bank, since the American dollar was the global monetary instrument, it was the only institution that could print as many dollars as they wanted to. The fifty-cent phrase for this whole recycling of petro-dollars is “Dollar Hegemony.”

Saddam enters into the picture on November of 2000. Saddam makes a decision to convert 10 billion dollars to euros. There was serious concern that other OPEC countries could start accepting the Euros instead of the dollar for oil! If that happened across the board, the party would be over for the American dollar. It seemed like a nutty move at the time. Euros were valued below the dollar; Saddam was taking a pretty big hit on the trade. But in the next few years the euro surpassed the dollar in value and he would have made a considerable sum if he had not been hiding in a hole while the United States occupied his country.

OK Lets bring the way-back machine to today.

The EU is stronger than ever. The change to the euro is more attractive than ever. The euro is stronger. The Euro zone has a bigger share of world trade than the U.S. and the Euro areas have a more balanced external accounts position. Euro-zone is also a larger importer of oil than the U.S. There is also a stronger trade link between the Euro-zone and the OPEC countries.

If oil sales are now made in euros, world oil sales will not artificially hold up the dollar. It would have to fend for itself and initially it would be a shock to the system because of high oil prices and the massive debt incurred over the last few years. Oil prices will probably continue to increase, the dollar will probably fall farther, inflation, will probably go up, real estate values will hold and even increase for a while, our standard of living will probably also suffer and Greenspan will age 10 years. Before anyone panics lets recheck the current geopolitical situation.

- The high cost of oil makes it very tempting to make the jump to euros.

- The European Union is growing stronger. It represents 25 nations, with two more in the wings and the Euro is stronger and stronger. The dollar is presently trading near a seventh- month low against the euro. Record oil prices are hurting U.S. growth, discouraging investors from buying the country's assets.

- The United States has a trade deficit, which is at an all time high of $38.5 billion in August, exports fell as imports increased.

- The National Debt has never been bigger. On January 15th 2004, the Outstanding Public Debt jumped $13 billion to $7,001,852,607,623.35. The U.S. National Debt surpassed the $7 trillion mark and came less than two years after the Debt first passed $6 trillion. It is even higher today.

- The dollar has been on a slow downward slide for the last four years

- Russia has repeatedly made claims that they are seriously considering moving to euros instead of dollars for their oil.

- India and China are emerging as major players in manufacturing and service sectors are leaving the United States behind.

- China and India have also become major competitors for available energy resources.

- Bush handed out three extremely expensive tax cuts while supporting a war in Iraq that has cost the United States $120 billion so far and there is no apparent end to the death destruction and constant dollar drain there.

- Bush has disavowed international agreements and organizations such the Kyoto Agreement, and Nuclear Disarmament Agreements.

- Bush has sidelined and ignored organizations such as The International Court, the Geneva Convention, the International Red Cross and most importantly the U.N.

- The Bush administration has consistently denigrated many of our allies as a part of “Old Europe.”

- Hugo Chavez, the president of Venezuela has a contentious relationship with the United States after Bush backed his opponent in a failed coup of the Chavez government. By the way, Venezuela has the world's fifth-biggest oil industry.

- The United States has consistently backed Sharon while he destroyed years of peace making efforts by Arab nations and Europe.

Yep, the combination of all these factors has now set up the dollar as America's Achilles heel.

There are many countries out there that would love to take us down a peg or two. Time will soon tell how fast they may pull out of our markets.

Ask yourself: Have we pissed in the well only to have to drink from it tomorrow? Have we started a war in Iraq that has set up a situation and a world movement, which may cause considerable damage to our standard of living and our economy? Buckle up, it’s going to be a bumpy ride folks.

Somewhere Saddam may be smiling to himself knowing that even in defeat he may have had the last laugh and although he lost the war, he may have started a war the U.S. may not win, the geopolitical oil dollar war.