<nettime> War Economics 101

[Are Flagan <areflagan@artpanorama.com>]

Not being an economist, but intrigued by the buried news that Iraq linked
its oil trade to the euro at the expense of the dollar in late 2000, I
looked around for some truth to this story. Sure enough, in October of 2000
the UN opened an Iraq account in euro, after Iraq had indicated that it
would cut its oil supply if this was not done. (The mere threat resulted in
soaring oil prices, as Iraq accounts for 5% of the world's supply.) At the
time, the euro was weak in relation to the dollar, and the move cost Iraq an
estimated $270 million. Hussein, however, had proclaimed the dollar an enemy
currency, and switched all trade to the euro through the UN escrow account.
Jordan quickly joined Iraq and announced that its non-UN sanctioned trade
with Iraq would be in euro, or another european currency. Iran has mumbled
about the same move.

On January 15 this year, upon the announcement that 11 empty warheads had
been found by the UN inspectors, oil prices rose to a two-year high, with
the fear of war looming. At the same time, the dollar hit a three-year low
against the euro, weighing in at $1.06 (versus $0.82 back in 2000). If more
countries decided to fix their oil price against the euro and accept
payments in euro, the dollar's role as the world reserve currency would be
seriously threatened, there would be a flight from the dollar, long-term
asset portfolios would move toward the euro, the cost of the US trade
deficit would loom, and the stock market would seriously deflate along with
the dollar -- together they would most likely collapse.

There are many complex angles to report on this, and nowhere did I find an
article that covered it in detail, but suffice to say that the US imports
59% of its oil, that a dollar crash in the current climate would effectively
be the end of the US as we know it, and that a long-term rise in oil prices
would quickly wipe out reserves, with roughly the same effect.

I think the euro link, even if it is somewhat misconstrued from my
non-economist point of view, brings home a useful perspective on "Showdown
Iraq."

-af

+ + + + +

http://www.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut/

U.N. to let Iraq sell oil for euros, not dollars

October 30, 2000 
Web posted at:  8:45 PM EST (0145 GMT)

UNITED NATIONS (Reuters) -- A U.N. panel on Monday approved Iraq's plan to
receive oil-export payments in Europe's single currency after Baghdad
decided to move the start date back a week.

Members of the Security Council's Iraqi sanctions committee said the panel's
chairman, Dutch Ambassador Peter van Walsum, would inform U.N. officials on
Tuesday of the decision to allow Iraq to receive payments in euros, rather
than dollars. 

+ + + + +

http://www.un.org/Depts/oip/background/chron.html

31 October 2000:   The Security Council's 661 Committee authorises the UN
Treasury to open an UN Iraq account in euro . It also requests an in-depth
report within three months on the costs and benefits for the Programme and
other financial and administrative implications of the payment for Iraqi oil
in euro .

+ + + + +

http://www.rferl.org/nca/features/2000/11/01112000160846.asp

But he says Saddam may feel the strategy is worth the price because it
allows him to draw a clear line between what Iraq  sees as two camps in
world opinion regarding the UN  sanctions.

One camp, led by the U.S. and Britain -- a country also outside  the euro
zone -- wants to maintain strict trade sanctions on Iraq  until Baghdad
proves it has no more weapons of mass  destruction.

The other camp, led by euro-user France -- along with Russia  and China --
favors easing the sanctions on humanitarian  grounds while still pursuing
disarmament.

+ + + + +

http://www.gold-eagle.com/editorials_00/hickel092900.html

Iraq decided to no longer accept dollars for oil... what do you think will
be the effect on the greenback and on the Euro?"

The burning question in cyber-space today is "Will this policy be limited to
just Iraq?"

+ + + + +

http://www.millennium-money.com/pmupdate_3oct_00.htm

Jordan to switch from dollar in trade with Iraq - a move is in response to
an earlier Iraqi decision to stop trading with the US currency - October 25,
2000, 02:25 PM 

BAGHDAD (Reuters) - Jordan has decided to stop using the US dollar in trade
dealings with Iraq and replace it with the euro or another European
currency, the state news agency INA reported on Wednesday.

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