Oil, Currency, and the War on Iraq

4 04 2007

I stumbled upon a •fascinating article about the relationship between the US dollar, foreign trade, and oil.• I won’t try to summarize it, but to my mind there were several very significant passages:


There is though one major obstacle to this happening: oil. Oil is not just by far the most important commodity traded internationally, it is the lifeblood of all modern industrialised economies. If you don’t have oil, you have to buy it. And if you want to buy oil on the international markets, you usually have to have dollars. Until recently all OPEC countries agreed to sell their oil for dollars only. So long as this remained the case, the euro was unlikely to become the major reserve currency: there is not a lot of point in stockpiling euros if every time you need to buy oil you have to change them into dollars. This arrangement also meant that the US effectively part-controlled the entire world oil market: you could only buy oil if you had dollars, and only one country had the right to print dollars – the US.

If on the other hand OPEC were to decide to accept euros only for its oil (assuming for a moment it were allowed to make this decision), then American economic dominance would be over. Not only would Europe not need as many dollars anymore, but Japan which imports over 80% of its oil from the Middle East would think it wise to convert a large portion of its dollar assets to euro assets (Japan is the major subsidiser of the US because it holds so many dollar investments). The US on the other hand, being the world’s largest oil importer would have to run a trade surplus to acquire euros. The conversion from trade deficit to trade surplus would have to be achieved at a time when its property and stock market prices were collapsing and its domestic supplies of oil and gas were contracting. It would be a very painful conversion.

So far only one OPEC country has dared switch to the euro: Iraq, in November 20002, 3. There is little doubt that this was a deliberate attempt by Saddam to strike back at the US, but in economic terms it has also turned out to have been a huge success: at the time of Iraq’s conversion the euro was worth around 83 US cents but it is now worth over $1.05. There may however be other consequences to this decision.

One other OPEC country has been talking publicly about possible conversion to the euro since 1999: Iran2,4, a country which has since been included in the George W. Bush’s ‘axis of evil’.

A third OPEC country which has recently fallen out with the US government is Venezuela and it too has been showing disloyalty to the dollar.

It’s interesting that Iraq had switched the Euro in 2000. I wonder if that explains the Iraq War, at least in part? Just a thought. Be sure to read the whole article (it’s not very long). It is very interesting, even to non-economists like me!





God Makes It Easier to Kill

28 03 2007

According to new research, belief that “God” is on one’s side makes it easier for people (or nations) to engage in war. Take a moment and read the article •at ABCNews.com•, it’s well worth the read!

This is, of course, no surprise to me at all.

An excerpt:

March 27, 2007 — Does believing that “God is on our side” make it easier for us to inflict pain and suffering on those perceived to be our enemies? If we think God sanctions violence, are we more likely to engage in violent acts?

The answer to both those questions, according to new research, is a resounding “yes,” even among those who do not consider themselves believers.

Social psychologist Brad Bushman of the University of Michigan led an international research effort to find answers to these questions, and said he is very “disturbed” by the results, though he found what he had expected. Bushman has spent 20 years studying aggression and violence, especially the impact on human behavior of violence in the media, but most previous research has focused on television and movie violence, not such things as scriptures and texts held sacred by many.

He wanted to take it a step further and see if simply exposing someone to a text that implies God sanctions violence would increase their level of aggression.

Fought in the Name of God

“I think many people use God as their justification for violent and aggressive actions,” Bushman said. “Take the current conflict in Iraq as an example. Bush claims that God is on his side. Osama bin Laden claims that God, or Allah, is on his side.”

History is replete with other examples of wars fought in the name of God, involving nearly every religion on the planet.





Study Finds No Link Between Terrorism and Poverty

19 03 2007

An exerpt from an article on •CNN-Money•:

The poverty/terror myth

There may be an economic dimension to terrorism — but it’s not what you think, says Fortune’s Cait Murphy.
FORTUNE Magazine
By Cait Murphy, Fortune assistant managing editor
March 13 2007: 11:14 AM EDT

NEW YORK (Fortune) — The idea that poverty breeds terror appears obvious; how could it be otherwise? And people as different as the Archbishop of Canterbury, George Bush, Jacques Chirac and Pakistan’s leader, Pervez Musharraf, have also noted a link between poverty and terrorism.

In fact, there is now robust evidence that there is no such link. That does not mean, however, that economics is irrelevant.

First, to the question of poverty. Of the 50 poorest countries in the world (see list at right) only Afghanistan (and perhaps Bangladesh and Yemen) has much experience in terrorism, global or domestic.

But surely that is the wrong way to look at things. Aren’t the people who commit terrorist acts poor, even if they are from countries that are not? No. Remember, most of the 19 hijackers on 9/11 were middle-class sons of Saudi Arabia and many were well-educated. And Osama bin Laden himself is from one of the richest families in the Middle East.

But it goes deeper than that. In a 2003 study in the Journal of Economic Perspectives, Alan Krueger and Jitka Maleckova reported the results of a post-9/11 survey of Palestinians. Asked whether there were “any circumstances under which you would justify the use of terrorism to achieve political goals,” the higher-status respondents (merchant, farmer or professional) were more likely to agree (43.3 percent) than those lower down the ladder (laborer, craftsman or employee) (34.6 percent). The higher-status respondents were also more likely to support armed attacks against Israeli targets (86.7 percent to 80.8 percent). The same dynamic existed when education was taken into account.

Click on the link above to read the entire article.