At Counterpunch, Michael Hudson
has penned an important article that
outlines the important connections between US foreign policy, oil, and the US
dollar.
In short, US foreign policy is geared
very much toward controlling oil resources as part of a larger strategy to prop
up the US dollar. Hudson writes:
The
assassination was intended to escalate America’s presence in Iraq to keep
control of the region’s oil reserves, and to back Saudi Arabia’s Wahabi troops
(Isis, Al Quaeda in Iraq, Al Nusra and other divisions of what are actually
America’s foreign legion) to support U.S. control of Near Eastern oil as a
buttress of the U.S. dollar. That remains the key to understanding this policy,
and why it is in the process of escalating, not dying down.
The actual context for the
neocon’s action was the balance of payments, and the role of oil and energy as
a long-term lever of American diplomacy.
Basically, the US's propensity
for driving up massive budget deficits has created a need for immense amounts
of deficit spending. This can be handled through selling lots of government
debt, or through monetizing the debt. But what if there isn't enough global demand for US debt? That
would mean the US would have to pay more interest on its debt. Or, the US could
monetize the debt through the central bank. But that might cause the value of
the dollar to crash. So, the US regime realized that it must find ways to prevent the
glut of dollars and debt from actually destroying the value of the dollar.
Fortunately for the regime, this can be partly managed, it turns out, through
foreign policy. Hudson continues:
The solution [to the problem of maintaining
the demand for dollars] turned out to be to replace gold with U.S. Treasury
securities (IOUs) as the basis of foreign central bank reserves. After 1971, foreign
central banks had little option for what to do with their continuing dollar
inflows except to recycle them to the U.S. economy by buying U.S. Treasury
securities. The effect of U.S. foreign military spending thus did not undercut
the dollar’s exchange rate, and did not even force the Treasury and Federal
Reserve to raise interest rates to attract foreign exchange to offset the
dollar outflows on military account. In fact, U.S. foreign military spending
helped finance the domestic U.S. federal budget deficit.
An
important piece of this strategy has been a continued alliance with Saudi
Arabia. Saudi
Arabia maintains the world's largest capacity for oil production, and it
was the largest single producer of crude for most of the period from the
mid-1970s to 2018, when the US surpassed both Saudi Arabia and Russia.
But Saudi Arabia
remains under the US thumb:
what
Saudi Arabia does not save in dollarized assets with its oil-export earnings is
spent on buying hundreds of billion of dollars of U.S. arms exports. This locks
them into dependence on U.S. supply [of] replacement parts and repairs, and
enables the United States to turn off Saudi military hardware at any point of
time, in the event that the Saudis may try to act independently of U.S. foreign
policy.
So maintaining the dollar as the world’s reserve currency
became a mainstay of U.S. military spending. Foreign countries do not have to
pay the Pentagon directly for this spending. They simply finance the U.S.
Treasury and U.S. banking system.
However, any move away from
this status quo tends to be met with paranoia and intervention
from the US:
Fear of
this development was a major reason why the United States moved against Libya,
whose foreign reserves were held in gold, not dollars, and which was urging
other African countries to follow suit in order to free themselves from “Dollar
Diplomacy.” Hillary and Obama invaded, grabbed their gold supplies (we still
have no idea who ended up with these billions of dollars' worth of gold) and
destroyed Libya's government, its public education system, its public
infrastructure …
But
the role of oil-producing states goes beyond merely churning dollars and US
debt to keep the dollar afloat. These countries also provide the foot soldiers for many US
interventions in terms of terrorists and guerrilla fighters who can be used
against US enemies. Hudson declares:
The
Vietnam War showed that modern democracies cannot field armies for any major military
conflict, because this would require a draft of its citizens. That would lead
any government attempting such a draft to be voted out of power. And without
troops, it is not possible to invade a country to take it over.
The corollary of this
perception is that democracies have only two choices when it comes to military
strategy: They can only wage airpower, bombing opponents; or they can create a
foreign legion, that is, hire mercenaries or back foreign governments that
provide this military service.
That is, the US regime can certainly get away with lots of bombing operations and
other low-manpower operations. But anything that might require conscription is
a political nonstarter. Hudson notes that Saudi
Arabia, with its particularly rabid and extreme strain of Islam is quite
useful:
Here
once again Saudi Arabia plays a critical role, through its control of Wahabi
Sunnis turned into terrorist jihadis willing to sabotage, bomb, assassinate,
blow up and otherwise fight any target designated as an enemy of “Islam,” the
euphemism for Saudi Arabia acting as U.S. client state. (Religion really is not the
key; I know of no ISIS or similar Wahabi attack on Israeli targets.) The United States needs the
Saudis to supply or finance Wahabi crazies. So in addition to playing a key
role in the U.S. balance of payments by recycling its oil-export earnings into
U.S. stocks, bonds and other investments, Saudi Arabia provides manpower by
supporting the Wahabi members of America’s foreign legion, ISIS and
Al-Nusra/Al-Qaeda. Terrorism has become the “democratic” mode of today's U.S.
military policy.
Hudson also notes that the term "democracy," when used in the context of
foreign policy, has very little to do with what a normal person would regard as
democracy. Rather,
From the U.S. vantage point, what is a “democracy”? In today’s Orwellian vocabulary, it
means any country supporting U.S. foreign policy. … The antonym to “democracy”
is “terrorist.” That simply means a nation willing to fight to become
independent from U.S. neoliberal democracy.
And this leads us to
Iran. Hudson explains:
America’s
hatred of Iran starts with its attempt to control its own oil production,
exports and earnings. It goes back to 1953, when Mossadegh was overthrown
because he wanted domestic sovereignty over Anglo-Persian oil. The CIA-MI6 coup
replaced him with the pliant Shah, who imposed a police state to prevent
Iranian independence from U.S. policy. The only physical places free from the
police were the mosques. That made the Islamic Republic the path of least
resistance to overthrowing the Shah and re-asserting Iranian sovereignty.
Thus, we got the
Islamic revolution of 1979 which has led to forty years of Iran refusing to
play ball in the US dollar maintenance regime that is demanded of other
oil-producing nations in the Middle East.
The US is unlikely to let
up on this effort so long as Iran continues to refuse to take orders from DC on
these matters. It's true that the US can't do much about China and Russia. But
Iran — unlike North Korea, which wisely secured nuclear arms for itself —
remains an easy target because of its lack of nuclear capability.
Being a leftist, Hudson includes some
unfortunate stuff about "neoliberalism," as if low taxes and freedom
to trade were somehow driving global war. Hudson also concocts a theory about
how this oil-dollar policy is driving global warming. That's a bit of a stretch, but the connection between
foreign policy and the US dollar that he identifies is a key factor that tends
to be almost universally ignored by the mainstream media. As China and Russia work ever harder to undermine the dollar and
its geopolitical position, small countries like Iran will become even more
important in the US's drive to maintain the dollar's status quo. But it
remains to be seen how long the US can keep it going.