Tuesday, May 20, 2008

War for the Dollar

Political analysts are not pondering over whether the US would hit Iran for its nuclear ambitions; WHEN are they going to hit – is the only real question that remains. Is a war imminent? You bet it is.

The popular notion that the American public is war fatigued may not mean anything when it comes to government policies. Even though the US is a democracy, Washington doesn’t go by referendums on every major issue. Sometimes the popular perception can be way too wrong – didn’t most American politicians think Iraq had WMDs?

George Bush has been very subdued by his own war standards – in recent times. Maybe there is a good reason for this uneasy lull in War politics. The Democratic Party is too busy contesting the primaries to nominate the next president; the republicans are waiting to know whether it will be Obama or Hillary.

America has a history of being pro-war; every time their economy has faced a major recession – they have relied on a war to bail them out. American politicians are more or less aligned with the ‘big money businesses in the US’. The corporate giants – banks, oil companies, auto-makers and other industry giants have all their say thanks to the ‘grip’ they have over the US polity.

McCain is a born-again pro-war believer. Hillary, in fact, has threatened to obliterate Iran. Only Obama has been pussy-footing to win the liberal votes – claiming he’ll engage in a dialogue with Iran. The American presidential election, or lets say the nomination of Obama could hasten the war.

I’ll come back to the American domestic angle a little later. But, first, let us look at what China is thinking. Chayakada finds the Chinese position on Iran very interesting. Zhang Zhaozhong, assistant director of Military Logistics and Military Equipment Department, National Defense University, China, writes:
Iran still takes a hard-line on the nuclear issue under the UN Resolution 1747. But its rejection against any inspection by the International Atomic Energy Agency (IAEA) will be very dangerous and increase the possibility of 'sensitive occurrences'. As a result, the room for communication is shrinking.

The United Nations adopted the Resolution 1747 last month, urging Iran to implement previous resolutions and increasing sanctions. This resolution, together with the previous one, 1737, is a fair decision designed to secure the world peace, take Iran's demand into account and fence off the nuclear proliferation. It was not adopted under the pressure of the US. So it must be respected.

China has expressed its position. China insists that the international law be observed and the nuclear proliferation be avoided. It is also against the abuse of force on the issue. China votes for the two UN resolutions. It has also tried to persuade Iran and US to solve the issue through diplomatic ways.

Once a war breaks out, Israel will be the first to get engaged. In that case, Arabic countries will not stand by. Is the Third World War looming? Nobody knows how many countries will be involved if such things happen. The Middle East will be in a total mess.

If Iran chooses to stick to its hardliner policy till the deadline specified by the UN Resolution 1747, it will have to face the consequence. What tough measures will be taken is not sure. But the US may resort to some kind of force.
You really don’t have to read between those lines. The message is very clear – China is in favour of the UN resolutions on Iran. Oh yes! We know what that means.

The US clearly doesn’t have the troops to win a war in Iran or in any other part of the world. All they can do is rely on heavy air strikes – as Hillary said, obliterate Iran. The human casualty and the cost of such a war to humanity are going to be of epic proportions. Still, there seems to be an inertia that is building up for a major war.

The US and India were to sign a Nuclear deal – the 1-2-3 agreement. Government of India has been reluctant to sign because of the pressures from the Leftist and Communist parties in India – who support the central government. The opposition to the 1-2-3 agreement is purely based on vote-bank politics; these parties would like to consolidate the Muslim vote. The communists are not descendants of a non-violent social philosophy; their history is filled with violent actions whenever they deemed it suitable for their own gains. That small village, Nandigram, in Bengal, witnessed such brutal violence and killing – backed by state law and order machinery and the lawless Marxist party killers – is a sad example of the violent heritage of the communist and left parties in India.

The congress party, which is at the helm in New Delhi, seems absolutely clueless on how to govern the nation or its economy. India needs energy to sustain its current growth, and like it or not, Nuclear energy is one of the options India has already taken decades ago. As the communists try to portray it, India is not an Iran, contemplating on Nuclear energy for civilian use. India has nuclear reactors supplying electricity to furl its economy.

What we really don’t know much about the nuclear agreement with the US is – what does the US get in return? Is it support to its new military expeditions? India was almost ready to send troops to Iraq; they backed out in the end due to domestic political pressure. Chayakada’s overwhelming feeling is that in return for the nuclear help from the US, India will support the US with troops.

The question then is, when would India sign the deal?

There has been pressure on India with the situation in Tibet – and China looking peeping over the wall. That pressure wasn’t enough for the Prime Minister of India to sign the deal. Now, India faces another major problem – rising food and oil price – especially Oil. At 129 US dollars a barrel, oil has travelled a long way from 18$ a barrel in 2002.

The US currency has been struggling in the international market due to various reasons, poor fiscal policies of the Federal Reserve to money laundering. It is no secret that the US dollar is the most favoured currency for launderers. If the next war is going to be fought by the Americans, it will not be for OIL, it will be a war for the DOLLAR. The world economy banks on dollar; weak dollar is a catastrophe for many nations.

This week the Indian rupee hit a 13-month low; the Indian economy is in real danger of crashing. Software can’t feed people; India needs to strengthen its rural economy which takes care of agricultural production. Any growth can only be fuelled with energy. No nuclear deal, oil price shooting up, India just cannot afford to wait and watch.

Chayakada suspects the tipping point for India is 150$ a barrel of oil. At that point India will have to act. India will sign the nuclear deal and send troops (we have abundant manpower anyway!) to where the US wants us to.

Iranian administration has been playing into the hands of American spin doctors for the last few years. Given their tough stance on nuclear inspections, Iran is fast losing global support. What Iran also did recently was to move their oil trading out of the dollar basket – further hitting the struggling dollar.

The GCC countries, with the exception of Kuwait, have stayed loyal to the US Dollar over the last one year – in spite of widespread rumours that they’ll all abandon the greenback. Kuwait removed the US$ currency peg, which definitely did not make Washington too happy.

Iran is definitely a potential US target. Now that China too seems to have taken a neutral position, there is nothing that is going to stop the Americans if India commits troops for this adventure. Anything that would bring the oil price down will have widespread world support. A quick war in the region, which brings the price of oil down to 50$ a barrel will be trumpeted as a success by the Bush administration as a victory of their government’s policies. Every American will then be happy, notwithstanding it was 18$ a barrel just before the Iraq war.

The high oil price cannot be blamed on India and China. Global oil supply is already higher than demand so if OPEC pumped more it would not reduce the price, Iraq's Oil Minister Hussain al-Shahristani said on Monday.
"There is more oil in the market than consumers want," Shahristani told Reuters. "What is driving up prices is an increase in speculative funds. An increase in production by OPEC countries would not really change the scenario -- it would not affect the price."

Speculative funds – the same funds which are driving up the food grain price. Chayakada cannot speculate whether Sovereign funds are playing in the food futures and oil futures. It might be in the interest of some sovereign funds to indulge in such dirty games for certain. There is more money to be made – and no stopping them. If a Middle Eastern sovereign fund indulges in oil futures trading… they get to fix the price of what they produce – OIL.

International Herald Tribune reports:
World Bank President Robert Zoellick cautioned that the funds will continue to raise international concern as countries question whether their investments are driven by the search for profit or by political interests that could threaten national security.

The United States and the European Union have pushed sovereign funds to provide greater disclosure about their investment strategies and are backing an initiative by the International Monetary Fund and the Paris-based Organization for Economic Cooperation and Development to develop a voluntary set of best practices for the investment vehicles.
If there is an iota of truth that sovereign funds are operating in the oil market – pushing the price up – they better watch out. Uncle Sam will come down heavily on them; If America is going to fight to save the dollar – all countries which have their currency pegged to the $ will end up supporting US action. Plus, if it means cheaper oil, why wouldn’t India or China send troops to secure energy.

Oil producing nations cannot ignore the global warning – higher the oil price – higher the risk.

  1. http://www.india-defence.com/
  2. http://www.antiwar.com/justin/?articleid=12755
  3. http://english.peopledaily.com.cn/200704/29/eng20070429_370883.html
  4. http://www.iht.com/articles/2008/05/21/business/21oil.php
  5. http://www.iht.com/articles/2007/06/19/business/insider.php
  6. http://www.iht.com/articles/ap/2008/05/19/business/ME-FIN-Mideast-Sovereign-Funds.php
  7. http://www.bloomberg.com/apps/news?pid=20601091&sid=aIoSB3xCBk08&refer=india
  8. http://politicalpakistan.blogspot.com/2007/05/rich-and-infamous.html


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