by F William Engdahl
New Eastern Outlook (February 10 2016)
Washington foreign policies these days are dominated by a bizarre kind of political sado-masochism, not unlike the argument given by the CIA that torture such as waterboarding is a successful, legitimate way to extract invaluable intelligence from an enemy combatant. Abu Ghraib and Guantanamo come to mind. The war-makers like CIA head honcho John Brennan or Victoria Nuland at the State Department, or neocon Ash (as in ashes of war) Carter at the Pentagon seem to be convinced that to be a great nation, first you must be “hard cop”, beat the daylights out of your target person or nation. You sanction them to the point of breaking economically. Then you flip sides and go “soft cop”. Their silly CIA and military torture handbooks tell them this works every time. Only problem, it doesn’t. This is definitely true with several nations today who resist the bully hard cop-soft cop games of Washington. What Iran is doing in terms of pricing its oil export sales is an example.
In summer of 2015 the United States agreed to a lifting of sanctions on Iran, on certain conditions, allegedly tied to Iranian guarantees to IAEA international monitoring of its nuclear reactor program.
The most brutal of sanctions were devised by the US Treasury’s aggressive Office of Financial Terrorism in January 2012. They were then imposed by the European Union under immense Washington pressure. Among other measures they imposed unprecedented worldwide cessation of all Iranian banks’ access to the SWIFT interbank payments system for sales of its oil or trade on world markets.
SWIFT, Society for Worldwide Interbank Financial Telecommunication, clears most world interbank financial transactions. It is based in Belgium and owned by private banks, not by the EU. It was SWIFT’s first expulsion of any institution in its 39 year history. The SWIFT expulsion was designed by David Cohen, US Undersecretary of Treasury for Terrorism and Financial Intelligence, together with Mark Dubowitz, a sanctions specialist in Washington. It was the financial equivalent of Washington deciding to use a thermonuclear weapon.
As well, the EU agreed to an oil embargo on Iran and to freezing the assets of Iran’s central bank abroad. The Iranian currency rapidly collapsed some eighty percent to the dollar. Iranian inflation, especially for vital wheat imports, exploded and oil exports to major customers including the EU, China, Japan, South Korea and India were cut in half.
On January 16 2016 on the report from the Vienna IAEA that Iran was complying with the nuclear enrichment and other parts of the agreement of July 2015, SWIFT announced it was readmitting all Iranian banks, including the National Bank, into the payments system. The EU stated that European companies, including oil companies, were no longer prohibited from doing business with Iran. The Obama Administration, however, was not so generous.
The US Treasury stated that “the US embargo will generally remain in place, even after Implementation Day, because of concerns outside of Iran’s nuclear program”. The White House issued a statement that, “US statutory sanctions focused on Iran’s support for terrorism, human rights abuses, and missile activities will remain in effect and continue to be enforced”.
Now Teheran has reacted to years of US-driven economic warfare. Rather than embrace the nation that waged a constant war against her since 1979, like Vietnam has done with its embrace of US free market economics, Iran’s leadership has responded with a clear decision to ride a tightrope between giving the US an excuse to re-impose the SWIFT and other sanctions, and to follow her own national interests.
Those interests include a major step to de-dollarize. No doubt some hard-liners in Washington and their allies in Saudi Arabia and Tel Aviv will call it ingratitude. I call it autonomy, pursuing Iran’s sovereign national interest.
Oil Only for Euros
Now, in gratitude for 37 years of USA economic sanctions being lifted, on February 5, according to a report in Iranian state-owned PressTV, an official of the National Iranian Oil Company (“NIOC”) has announced that Iran will accept payment only in Euros, not dollars, for its oil. The official added that that rule applied to newly signed deals with France’s energy giant Total, Spain’s refiner Cepsa and Russia’s Lukoil.
The NIOC official declared, “In our invoices we mention a clause that buyers of our oil will have to pay in euros, considering the exchange rate versus the dollar around the time of delivery”. In addition NIOC clarified, India and other large buyers of Iranian oil at the time of the SWIFT freeze must also pay the debt, billions of Euros worth, in Euros, not dollars. The official of NIOC clarified that the Central Bank of Iran (“CBI”) had instituted the policy to carry out foreign trade in euros while the country was still under sanctions.
Why is this such a big deal, you might be asking? In and of itself it isn’t. But combined with similar moves among other nations of Eurasia, particularly Russia and China to conduct their bilateral energy trade in national currencies (ruble and renminbi ) as well as Russia’s recent decision to start trading Russian crude oil futures on the Saint Petersburg Mercantile Exchange in rubles, not dollars, and to create a new Urals ruble oil benchmark to replace the US-dollar Brent futures at the London ICE exchange, the Iranian move begins to cause serious damage to what Henry Kissinger back in the days of the first 1973~1974 oil price shock, dubbed “petrodollars”.
What are Petrodollars, Anyway?
As I document at some length in my book, A Century of War: Anglo-American Oil Politics (2012), the idea of “petrodollars” first arose out of the 1973 oil price shock.
That year an obscure and rather influential Atlanticist network of bankers, oil multinationals, US and European government officials , some 84 hand-picked players met in an ultra-closed-door two day session at the Saltsjoebaden Grand Hotel, owned by the wealthy Swedish Wallenberg family. There, the May 1973 Bilderberg Meeting discussed the world of oil.
The top Anglo-American bankers and oil barons, including David Rockefeller of Chase Manhattan Bank; Baron Edmond de Rothschild of France; Robert O Anderson of ARCO oil company; Lord Greenhill, chairman of British Petroleum; Rene Granier de Lilliac chairman of the French Compagnie Francaise des Petroles, today TOTAL; Sir Eric Roll of S G Warburg, creator of Eurobonds; George Ball of Lehman Brothers. German industrialist and close Rockefeller friend, Otto Wolff von Amerongen and Birgit Breuel, later head of the German Treuhand, where she asset stripped former East Germany, were also present. So too was Italian industrialist and close Rockefeller business associate, Gianni Agnelli of FIAT.
The Swedish closed-door meeting, from which no press coverage was allowed, discussed a coming 400% rise in the price of OPEC oil. Rather than discuss how such a shock to world economic growth might be avoided through careful diplomacy with Saudi Arabia, Iran and other Arab OPEC oil states, the meeting focused on discussing what they would do with the money! They discussed how to “recycle” the anticipated fourfold increase in the price of the world’s most important commodity, petroleum.
The official confidential minutes of the Bilderberg Saltsjobaden meeting, which I’ve read, discussed the danger that in the wake of a huge rise of OPEC oil prices, “inadequate control of the financial resources of the oil producing countries could completely disorganize and undermine the world monetary system”. The minutes go on to speak of “huge increases of imports from the Middle East. The cost of these imports would rise tremendously.” Figures given later in the Saltsjobaden discussion by US oil consultant and presenter, Walter Levy, show a projected price rise for OPEC oil of some 400 per cent.
This was the true origin of what Kissinger later would call the problem of “recycling the petrodollars”, the huge increase of dollars from oil sales. US and UK policy , Wall Street and the City of London policy to be more precise , was to make certain that OPEC oil countries would invest their newfound oil riches mainly with Anglo-American banks.
Yom Kippur War
The October 1973 Yom Kippur War between Israel and a coalition of Arab states led by Egypt and Syria, predictably, led Saudi King Faisal to make good on his threat to declare an OPEC oil embargo against Europe and the US for supplying Israel with arms before the war. Kissinger and Wall Street counted on that.
At the outbreak of the war, in mid-October 1973, the German government of Chancellor Willy Brandt told the US ambassador to Bonn that Germany was neutral in the Middle East conflict, and therefore would not permit the United States to resupply Israel from German military bases. Nixon, on October 30 1973, sent Chancellor Brandt a sharply worded protest note, most probably drafted by Kissinger:
We recognize that the Europeans are more dependent upon Arab oil than we, but we disagree that your vulnerability is decreased by disassociating yourselves from us on a matter of this importance … You note that this crisis was not a case of common responsibility for the Alliance, and that military supplies for Israel were for purposes which are not part of Alliance responsibility. I do not believe we can draw such a fine line … “
Washington would not permit Germany to declare its neutrality in the Middle East conflict. But, significantly, Britain was allowed to clearly state its neutrality, thus avoiding the impact of the Arab oil embargo. That was the Anglo-American oil world.
In a fascinating personal discussion in London in September 2000 with Sheikh Zaki Yamani, Faisal’s trusted Oil Minister, Yamani told me about a mission to Teheran in late 1973. It was prior to a major December OPEC meeting. Yamani related that King Faisal had sent him to Teheran to ask Shah Reza Pahlavi why Iran was insisting on a major permanent OPEC price increase that would amount to a 400% rise from prewar levels. Yamani related to me that the Shah told him, “My dear minister, if your king wants the answer to that question, tell him he should go to Washington and ask Henry Kissinger”.
In June 8 1974, US Secretary of State Henry Kissinger signed an agreement establishing a US-Saudi Arabian Joint Commission on Economic Cooperation, whose official mandate included “cooperation in the field of finance”. In December 1974, in strict secrecy the US Treasury Assistant Secretary, Jack F Bennett, later to become a director of Exxon, signed an agreement in Riyadh with the Saudi Arabian Monetary Agency (“SAMA”), the Saudi central bank). The mission of SAMA was “to establish a new relationship through the Federal Reserve Bank of New York with the US Treasury borrowing operation. Under this arrangement, SAMA will purchase new US Treasury securities with maturities of at least one year”, explained Bennett in a February, 1975 memo to Secretary of State Kissinger.
The Washington government was now free to run almost unlimited deficits, knowing that Saudi petrodollars would buy US debt. Washington promised the Saudis major US arms sales in return, winning on both ends.
No less astonishing than these US-Saudi “arrangements” was the exclusive policy decision by the OPEC oil states in 1975, led by Saudi Arabia, to accept only US dollars for their oil not German marks, despite their clear value, not Japanese yen, French francs or even Swiss francs, but only American dollars.
This is the actual origin of what were called petrodollars. Petroleum, following the 1975 US-Riyadh agreement, was to be sold by OPEC oil producers in US dollars only. The result was a dramatic revival of a sinking US dollar, a windfall profit for the Rockefeller and UK oil majors, then known as the Seven Sisters, a boom for the Wall Street and City of London Eurodollar banks that “recycled” those petrodollars, and the worst world and USA economic recession since the 1930s. For the bankers of London and Wall Street the economy was a mere externality.
That US-Saudi oil-for-dollars agreement, which holds to this day, was ignored by Saddam Hussein who, in the UN oil-for-food deals, sold Iraqi oil for Euros deposited with the French BNP Paribas bank. The Iraqi “petroeuro” practice ended abruptly with the March 2003 US invasion of Iraq. Since that time, no OPEC oil country has sold their oil in any other currency. Now, Iran breaks ranks, yet another blow to the hegemony of the US Dollar System and the role of the dollar as dominant world reserve currency. After all there is no international law that countries must buy and sell oil only for dollars, is there?
The end of what has become a tyranny of that Dollar System is moving nearer with Iran’s decision to sell oil only for euros now. It’s a truly fascinating world.
F William Engdahl is strategic risk consultant and lecturer, he holds a degree in politics from Princeton University and is a best-selling author on oil and geopolitics, exclusively for the online magazine
New Eastern Outlook.