Reason for Invading Iraq: A Second Look

In Fall 2007 former Federal Reserve Chairman Alan Greenspan published his memoir titled “The Age of Turbulence: Adventures in a New World.” A single 20-word sentence in his book about the motive for the 2003 Iraq invasion proved to be the most controversial for the White House.

“I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil.”

Greenspan believed that Saddam Hussein posed a threat to the security of oil supplies in the Middle East. But the US and Britain have always insisted that the war had nothing to do with oil. Bush said the aim was to disarm Iraq of weapons of mass destruction and end Saddam’s support for terrorism.

To counter this incendiary comment, the White House pressed the Washington Post to interview Greenspan in order to seek a “clarification.” Greenspan “spake” thus in his Post interview (Sept 17, 2007): “I was not saying that that’s the administration’s motive. I’m just saying that if somebody asked me, ‘Are we fortunate in taking out Saddam?’ I would say it was ESSENTIAL” (emphasis mine).

And to put more spin on the matter, the Administration sent out the Defense secretary to make the Sunday TV rounds instead of their usual attack-dog, Dick Cheney. Robert Gates said, “I have a lot of respect for Mr. Greenspan.” But he disagreed with Greenspan’s comment about oil being a leading motivating factor in the war. Gates added:

“I know the same allegation was made about the Gulf War in 1991, and I just don’t believe it’s true. I think that it’s really about stability in the Gulf. It’s about rogue regimes trying to develop weapons of mass destruction. It’s about aggressive dictators.”

Something doesn’t smell right about the allegation in writing by the perspicacious and taciturn Mr. Greenspan, who was the chairman of the Federal Reserve for over 18 years, and the Administration’s vehement desire to parse his sentence about the motive to invade Iraq. It is clear to anyone who is aware of the cost of the war (recent estimates put it at $720 million per day or $500,000 per minute), that it is not possible to recover this entire amount from oil revenues. There just isn’t that much oil in Iraq and Iraq isn’t our primary source of oil.

Why does the Administration then continue the war in Iraq? And why does it find enough votes in Congress to support the war? And why do people who have opposed the war from the very start suddenly start voting on continuing the funding for the war? Why does the Administration reject the recommendations of the Iraq Study Group chaired by James Baker and Lee Hamilton? Has this Administration gone “completely crazy” or is there some “method to the madness” portrayed by our representatives in the House and Senate?

I stumbled upon some reports and books that have encouraged me to take a second look at the reason for invading Iraq and I will share them with you. The Joint Resolution to Authorize the Use of United States Armed Forces Against Iraq states, in part, “Iraq both poses a continuing threat to the national security of the United States and international peace and security in the Persian Gulf region.” Whether we like it or not, Middle East oil is in the United States’ national security interest and if we take that away the world’s economy would grind to a halt.

William Clark, in his 2004 book titled “Petrodollar Warfare,” states that the war in Iraq is an oil currency war. His book was based on a report written by him in 2003 about the real reasons for invading Iraq [1]. Much of what Clark says has gone completely unreported by the U.S. media and the government. I will provide you some excerpts (and their sources) so that you can read for yourself and arrive at a conclusion.

Some historical background may be helpful, most of which I obtained from another recent book, “Thicker than Oil,” by Dr. Rachel Bronson, a scholar at the Council on Foreign Relations. Bronson (no relation to Tough-Boy Charlie) discusses the nature and future of the US–Saudi relationship which began in 1945 when President Franklin D. Roosevelt met with King Abdul Aziz ibn Saud aboard the USS Quincy in the Red Sea. The two leaders fell into easy, warm agreement on three main issues, “Oil, Gold, and Real estate.” On the economic front Saudi Arabia invested largely in the US, and both were true allies in fighting communism.

Turning the clock back nearly a half century, the signing of the Bretton Woods agreement in 1945 established the dollar as the reserve currency of the world [3]. This was possible because during World War II, the US had supplied its allies with goods and demanded gold as payment, thereby accumulating a large amount of the world’s gold. However, with the “guns-and-butter” policy [2] of the 1960s and the Vietnam War, a lot of dollars were handed over to foreign countries in exchange for economic goods. In 1971, when foreign countries demanded payment for dollars in gold, the US Government defaulted on its payment. The popular spin was that the US had “severed the link between the dollar and gold,” but in reality the denial to pay back in gold was tantamount to an act of bankruptcy [3].

This was a time when Saudi Arabia came to the rescue of the US. In 1972 an iron-clad agreement was reached between the two countries. The US would support the power of the House of Saud and in return Saudi Arabia would only accept US dollars for its oil.

The rest of OPEC was to follow suit and also accept only dollars. Because the world had to buy oil from the Arab oil countries, it had reason to hold dollars as payment for oil. Even though dollars could no longer be exchanged for gold, they were now exchangeable for oil. The economic essence of this arrangement was that the dollar was now backed by oil. As long as the dollar was the only acceptable payment for oil, its dominance in the world was assured [3].

In November 2000, Saddam Hussein sealed his fate by demanding Euros for his oil instead of US dollars. He converted $10 billion of his reserve fund at the UN into Euros (when a Euro was worth around 82 cents). Clark [1] outlines what would occur if OPEC were to make a sudden shift to the Euro:

The effect of an OPEC switch to the euro would be that oil-consuming nations would have to flush dollars out of their (central bank) reserve funds and replace these with euros. The dollar would crash anywhere from 20-40% in value and the consequences would be those one could expect from any currency collapse and massive inflation (think Argentina currency crisis, for example). You'd have foreign funds stream out of the U.S. stock markets and dollar denominated assets, there'd surely be a run on the banks much like the 1930s, the current account deficit would become unserviceable, the budget deficit would go into default, and so on. Your basic Third World economic crisis scenario.

The United States economy is intimately tied to the dollar's role as reserve currency. This doesn't mean that the U.S. couldn't function otherwise, but that the transition would have to be gradual to avoid such dislocations (and the ultimate result of this would probably be the U.S. and the E.U. switching roles in the global economy).

Big Picture Perspective: Everything else aside from the reserve currency and the Saudi/Iran oil issues (i.e., domestic political issues and international criticism) is peripheral and of marginal consequence to this administration. Further, the dollar-euro threat is powerful enough that they will rather risk much of the economic backlash in the short-term to stave off the long-term dollar crash of an OPEC transaction standard change from dollars to euros. All of this fits into the broader Great Game that encompasses Russia, India, China [1].

So the claim is that the Iraq war was not about Saddam’s WMD, nor about spreading democracy. It was about defending the dollar and setting an example for anyone else who demanded payment for oil in currencies other than US dollars. Two months after the US invasion, the Iraq Oil for Food program was terminated, the Iraqi Euro accounts were switched back to dollars, and oil was once again sold for US dollars.

The real reason for the Iraq war was this administration’s goal of preventing further OPEC momentum towards the Euro as an oil transaction currency standard, and to secure control of Iraq’s oil before the onset of Peak Oil (predicted to occur around 2010). A lot of Gulf money was being invested in Europe and Asia and the US had to convince the people who were making decisions to invest elsewhere that it was still profitable to invest in the US. However, in order to pre-empt OPEC, they needed to gain geo-strategic control of Iraq along with its second largest proven oil reserves [1, 3].

I am not sure whether all the sources I have cited are reliable, but this exercise has certainly piqued my interest and yours, too, I hope. Oftentimes political rhetoric leads us to believe that domestic economic security is antithetical to war which is a foreign policy issue, but we may be surprised to discover that the two are interwoven together in a complex web. There appear to be many factors at play in establishing global dollar supremacy – the oft-purported post-9/11 connection (by the current Administration) between Saddam and Al Qaeda, a deliberately manufactured case for war in Iraq, and the subsequent surge that went against all conventional wisdom including the recommendations of the Iraq Study Group. To some readers this may explain why Dubya paraded with swords and pleaded for less-than-$100-barrels of oil in his recent visit to the Kingdom.

The references I have provided have been largely ignored by the mainstream media, because they may be viewed as “conspiracy theories.” But when Greenspan also says that the Iraq war was about oil, the least we owe it is due diligence. Maybe Alan Greenspan still knows a thing or two! When Rachel Bronson publishes a scholarly treatise on the Saudi–US relation, it warrants a second look at the matter.

The invasion of Iraq may have been a necessary “economic” issue but its mismanagement after the first few months by the bumbling neocon nitwits, as described in “Imperial Life in the Emerald City” by Rajiv Chandrasekaran, "unstintingly depicts the stubborn cluelessness" of the current Administration. Given the present conditions, does anyone believe that our presidential hopefuls will get us out of Iraq before 2010?

I doubt that that will happen. We had the “surge” last year which was actually a troop escalation; some other metaphor will be invented to give us reasons to stay in Iraq well beyond 2010. Slogans like “ending the war,” or “supporting the troops,” or “victory in Iraq,” are all very good emotional sound bites, but the realities may be far more complex to deal with in what is an Economic World War in the global village that is home to six billion of us.

My background in economics is seriously lacking and discussion on this topic from more knowledgeable persons is strongly elicited. Thanks in advance to the cognoscenti for their comments.

My acknowledgments to Ashok Subramanian and Sree Nilakanta for pointing me to the reference by Petrov.

References

[1] Clark, William. 2003. The Real Reasons for the war with Iraq.

[2] Haynes, Anthony. 2004. On Guns and Butter.

[3] Petrov, Krassimir. 2006. The Proposed Iranian Oil Bourse.