Will Iran's OIL Bourse Harm U.S. Petrodollars?
Interview With William Engdahl
Economist/Journalist
By Nathan Diebenow
Associate Editor

FRANKFORT, Germany — F. William Engdahl has eyed Big Oil’s effects on geopolitics for over 30 years and hasn’t looked back.

Since the first oil shock and world grain crisis in the early 1970s, he has covered the GATT Uruguay Round trade talks, EU food policies, the grain cartel, IMF policy, Third World debt issues, hedge funds and the Asia crisis.

The native Texan/current resident of Germany has also authored a best-selling book on the subject called A Century of War: Anglo-American Oil Politics and the New World Order published by Pluto Press.

While reporting, Engdahl wears his economist hat he received as a graduate study in comparative economics at the University of Stockholm. He also earned a degree in politics from Princeton University and worked as an economist and journalist in New York and in Europe.

Engdahl has contributed regularly to a number of publications including Japan’s Nihon Keizai Shimbun, Foresight magazine; Grant’sInvestor.com, European Banker and Business Banker International.

The Lone Star Iconoclast’s Nathan Diebenow recently phoned Engdahl in Germany to discuss the effects of Iran’s possible oil bourse on the U.S. dollar hegemony, Russian technology as a discredit to the peak oil controversy, and the impact of the so-called “color revolutions” on China and Russia.

.........

ICONOCLAST: How did you get started focusing on oil and geopolitics?

F. WILLIAM ENGDAHL: That’s something that is hard to give a short answer to. Basically, I’ve been looking at the world in sense of politics, geopolitics, international politics for 30 years or so. I started as a journalist in New York during the first oil shocks. I got very intrigued then by the enormous power of Big Oil suddenly. Then it was called Exxon, Mobile, the Seven Sisters — just overwhelmed all other corporations in terms of annual cash through-put. Oil was king in those days, 1973, ’74, and ’75. That kind of caught my attention, if you put it that way. I’ve been looking at the world ever since, slowly building up a sense of history, a sense of process, where they came from and where they seem to be going. That’s the short answer.

ICONOCLAST: So your education base is journalism?

ENGDAHL: No, no, no. Not at all. I never studied journalism. God forbid.

ICONOCLAST: (laughs)

ENGDAHL: I hope I’m not insulting anyone.

ICONOCLAST: No, no. (laughs)

ENGDAHL: Okay. No, I just started writing. I pieced together things that I saw. I did interviews. I kind of self-taught, but my education background is in economics and politics. I think I have a little sense of history, again looking at these things. I got curious and then started digging. I guess I’m a habitual digger. I’m always unsatisfied with the surface of stories. I look behind the facade or try to dig deeper to find out where something comes from. That’s been with me in my whole life.

ICONOCLAST: One thing that was digging at me was how petrodollars, the fusion of the U.S. dollar to the price of oil, relates to international politics. It seems like this cycle of violence in the Middle East is starting up again but this time between Iran and the United States. With regard to the U.S.-led invasion of Iraq, you theorized that invasion happened in part because Saddam was threatening to change from the petro-dollar “the enemy’s currency,” as he put it, to the petro-euro.

ENGDAHL: I wouldn’t call it a petro-euro. He made a deal with the president of France and the BMP Party to sell the “oil for food” oil in euros in 2000. That was an irritation, I think, for the U.S. Treasury and the hegemony of the dollar, but little more than an irritation until a lot of other nations, for example, Iran, some of the OPEC member countries, Venezuela, and even Russia began to talk about, “Well, it’s much more logical to price oil in euros because most of our trade goes to European countries.”

So that was I think an aspect, but only an aspect, of the decision to go to war against Saddam Hussein. I think it was a relatively minor, even though I three years ago thought it perhaps was a major, factor, but in retrospect, it was a factor but relatively minor factor. The real point in all this, and the reason I think you have an administration in Washington with the former CEO of Halliburton geophysical resources Dick Cheney and several other people steeped in the oil business is, this administration unlike the Clinton administration, sees its major agenda item as securing with military means if necessary all the major oil fields of the world. It’s a big order, but they seem to be doing it.

ICONOCLAST: So the petro-dollar is only one little aspect of it?

ENGDAHL: I think so. That’s my conviction. I think it could have been a factor, but wasn’t the factor as some people have claimed it was. The reason I say that, you can look back to the year 2000 even before the pricing in petro-euro, if you want to call it that, took place, and you had a report in September 2000 from the Project of New American Century which included Dick Cheney, Don Rumsfeld, Jeb Bush, and vice president of McDonald/Douglas, and several of the neo-conservatives who are close to the current administration. They called for a pre-emptive war against Saddam Hussein and a military taking of Iraq, even if there was no military threat or weapons of mass destruction. That was in 2000 of September, months before the pricing of oil in euros by Iraq.

ICONOCLAST: Okay, so Project already had a plan in place.

ENGDAHL: To understand this you have to step back and look at how people like Cheney view the projection of the supply and demand of global petroleum over the next 20 years. Back in 1999 at a speech at the Institute of Petroleum in London, a bunch of oil industry good old boys, Cheney as CEO of Halliburton outlined the prospect by I think 2020 the world is going to need — given the fact that oil fields like the North Sea, Alaska, and certain fields in Mexico and elsewhere, are depleting at a very dramatic rate now, they have reached a so-called aging phase — that the world will need 50 million barrels of new oil discoveries online by 2020.

Right now we have a world production of 84 million barrels a day, so where is the world going to find 50 million new barrels? But Cheney was optimistic. He said, “Well, we know where the oil is. There’s only one place in the world where it exists in such abundance. It’s so easy to tap and that is the countries in the Middle East. There’s only one problem with those countries, however. All the oil companies are in state-owned hands.”

Cheney didn’t elaborate, but he means that the state-controlled oil in Iraq, the state controlled oil in Iran, Saudi Arabia, and elsewhere between now and 2020 has to be put in the hands of private interests. For sure he was thinking of Exxon/Mobile, Chevron, Texaco, and a few of his chums in Houston there in the oil trade.

ICONOCLAST: Looking back, the Bush administration was already thinking about resorting to violence to take over the Middle Eastern oil.

ENGDAHL: I think they were thinking about taking it over, but I don’t know if from the get-go that violence was upper-most on the agenda. Perhaps they thought they could cut a deal with Saddam Hussein. I just don’t know. I’m not privy to that. But the idea of taking direct military control of the Middle East — I mean, this has been inching in that direction since the 1970s, and as soon as the Bush administration came in, Paul O’Neil, the former Treasury Secretary under Bush who was fired because he simply spoke his mind — Bush is a team player as you probably know in Crawford, Texas —

ICONOCLAST: Oh, yeah. (laughs)

ENGDAHL: Paul O’Neil has said in his memoirs after he left office that almost from the first day he sat on a meeting in early 2001, something like March or April, Bush, Cheney, and other the Cabinet were talking about how we can get Saddam Hussein, so that tells me that this is a long-term project.

I think the way to understand this (is to ask) why does Big Oil suddenly need to militarily control Iraq, Iran, and some of these Middle East oil sources? And the answer to that, if you look at a map, and I urge your readers to do that—look at a map of Eurasia. Eurasia is the term for the continental landmass which goes from France all the way on the Atlantic Coast to Vladivostok, Russia on the Pacific Coast. It includes China, Russia, Azerbaijan, and all the oil rich countries in Central Asia and the Caspian Sea. It also includes the countries in the Middle East.

Several of the Washington strategists and presidential advisors openly said the number one policy of the United States is to prevent the emergence of any global super-power combination that could conceivably threaten American hegemony, so the emergence of China over the next five-10 years is right now considered within the administration, as far as I can see, the number one geopolitical threat — not Iran, but China.

I think that close on that is the reckoning about Russia because Russia has — number one — oil, it has resources, it has raw materials, which western Europe needs. Number two, Russia has a very formidable nuclear arsenal and extremely sophisticated missile delivery techniques and anti-missile systems, so that’s kind of like the fly in the ointment of the whole global domination theme of Cheney, Bush, and some of his friends in the Pentagon.

ICONOCLAST: So Russia and China are sort of on the horizon right now. I read recently that Bush was in India and a deal was struck over nuclear arms. How does India play in all of this?

ENGDAHL: Well, about one year ago, the Bush administration turned to India as a strategic partner and a counterweight against the growing power of China in Asia, and they simply said, “We want to get a foothold in Asia and India is our best bet.” So the United States is trying to play, if you will, kind of a British geopolitics or a balance of power politics against China in Asia by offering carrots to India. Ironically, they are assisting India in exactly the same kind of civilian nuclear program that Iran is trying to build, and that doesn’t enter into the calculus. So you have to ask why some countries with nuclear potentials are considered black sheep and why others are considered allies. It’s kind of a funny calculus.

ICONOCLAST: Going back to Iran, so are we bullying Iran because of its supposed nuclear energy aspirations or is it mainly having to do with oil or is it mainly about Israel?

ENGDAHL: Well, I think all of the above, if this were a multiple choice test.

ICONOCLAST: (laughs)

ENGDAHL: The Iran situation is far more complex than Iraq was by orders of magnitude for the simple reason that it’s three years after the attack on Iraq, and it’s very clear to Iran back in March 2003 exactly just what nastiness the U.S. is capable of. Number two, Iran has quietly been building its defenses because the President of the United States made a State of the Union address in January 2002 where he said Iran, Iraq, and North Korea are the “Axis of Evil,” whatever that means.

So Iran knew it was on the target list and that, by the way, was well before Iran decided to make an oil bourse which may or may not go ahead this spring. But going back to the main point — the complication — Iran would be a crucial chess piece in a great game of the new version of the British great game in central Asia from the last century. Iran would be a major coup in the march to encircling Russia and controlling the potentials of Russia to ally with Iran, to ally with China, to ally with Germany, to ally with France and to create a counterweight to this unbridled U.S. power.

I, as an American, feel more than uncomfortable. I think it’s obscene the fact that one country, even though it’s my own country, literally dictates life and death over virtually a 130 nations on this planet simply according to whims over some people in Washington who have a very dubious record of personal morality, to say the least.

ICONOCLAST: (laughs)

ENGDAHL: And aren’t very good bird hunters either.

ICONOCLAST: (laughs) Oooooh! Well, I did want to ask you about the Iranian oil bourse. Why do you say that it may or may not go through?

ENGDAHL: Well, let’s see. It may not go through and it may be a success. But I think it’s more a technical factor in terms of Iran selling most of its oil to places like China and Europe where the currency is the euro so they can sell their oil for Chinese yuan. The Chinese provide Iran with a lot of equipment. They provide Iran with military defense material so that would make sense. Why lock yourself in the American dollar to sell your oil and then reexchange it for euros or for Chinese yuan? Why not deal directly and you’ll avoid the currency risk because some people think the dollar is highly, highly overpriced and highly vulnerable to crash in the next month.

ICONOCLAST: In the next month!

ENGDAHL: There are certain aspects of the Iranian oil bourse that technically could work. I think also the Iranians see this as a pin prick irritation to the Americans to simply start pricing oil in euros. It’s kind of a no-no since the 1973 oil shock. Washington has always insisted that OPEC countries sell only in dollars. It’s not much of a problem as it was then. Today the prompt is more of the recycling of Chinese trade surpluses into the dollar and into the U.S. Treasury bond market.

ICONOCLAST: So this bourse could only be a minor irritation to the U.S. economy?

ENGDAHL: Yeah, I don’t see it as a major—the crucial question is there’s one major reserve currency in the world still today and that is the American dollar, even though the dollar is no longer backed by gold. The reason that has been possible to keep despite the hollowing out of the industrial economy in the United States in the last 20-25 years and despite the fact that the debts and the trade deficits and the federal budget deficits are stratospheric in dimension over the past five years especially — all those things would speak for the collapse of the dollar as a worthless paper currency — why hasn’t it collapsed? Simply because the United States has allowed countries like Japan and China to import without restriction in order that they recycle those trade dollars. These aren’t petro-dollars. These are trade dollars — hundreds of billions of dollars a year into American treasury bonds.

What does that do? That makes the interest rate on treasury bonds, which are the bench mark of the entire domestic economy in the United States, far lower than it would have been would the Chinese, Japanese and other trade partners were not doing that. They do it partly because they are afraid that if the dollar collapses, their exports will be over-priced and they won’t be able to make the trade. So it’s a devil’s circle and it’s a very conscience one. Washington has realized this since 1971 when Nixon closed the gold window and slammed it shut in the New York Fed and said, “We no longer give gold for our paper dollars.” France, Germany, and several other countries were asking for gold and they were simply left on a lurch.

I developed that in some length in a book I wrote called “The Century of War.” It’s available through the University of Michigan Press in the U.S. and Pluto Press in Britain. If people are interested, order that at any bookstore and learn more about how that worked.

ICONOCLAST: You made a statement about why do we give nuclear technology to India but we’re upset that Iran is getting it. I see a similarity in the sense that, why does the United State choose to violently invade Iraq and allegedly help stage a coup against Hugo Chavez in Venezuela on the one hand but help fund these non-violent so-called “color revolutions” like in the Ukraine? Why use violence in one area and why use nonviolence in the other, you think?

ENGDAHL: I think that quite simply it’s whatever works. The thing against Chavez failed dramatically because Chavez I think has a fairly strong popular base and that’s something that is difficult to uproot.

The color revolutions in Ukraine, Georgia, and Serbia and so forth were backed by the U.S. State Department, the National Endowment for Democracy, Freedom House, which is an organization headed up by former head of the Central Intelligence Agency James Woolsey. These were effectively the kind of destablizations that the CIA did directly in the ’50s and the ’60s but now are done by private agencies like the Soros Foundation and the National Endowment for Democracy.

The goal was to put in hand-picked puppets to be, for example, Mikheil Saakashvili in Georgia. The country Georgia in the Caucasus lies on the critical pipeline route going from the Caspian Sea into Turkey which is a NATO country and is very close to Washington, so if they didn’t have somebody who was in their pocket in Georgia, their whole pipeline route would have been threatened. So James Baker went to Georgia and prepared that color revolution personally, and the one with Ukraine — Ukraine is the cross roads of almost all the natural gas pipelines going from Siberia into Western Europe, so if Washington controls Ukraine, then it has the potential to simply choke off the lifeline of the Russian economy.

This is part of an encirclement of Russia which has been going on since the end of the Cold War really in very incremental steps, and to my mind, it’s a highly dangerous geopolitical game that Washington is engaged in because the Russian Tiger does still have nuclear teeth. They have a few cavities, but they’re still nuclear teeth.

ICONOCLAST: With your knowledge of the Big Oil industry, where do you stand on this argument about “peak oil?” Are we past the peak? Have we yet to hit it?

ENGDAHL: It’s a very complicated question. I recently wrote an article for a German newspaper, “Confessions of an Ex-Peak Oil Believer.” And I was very taken by the peak oil thesis, but I ran across several of its advocates back in 2003 or so. I’ve met Golden Campbell and most of the people who advocate this thesis. I increasingly began to have doubts with the way it was being argued that everything, well, it goes back to peak oil; the world is running out of oil; we suddenly have to prepare for catastrophe, starvation and whatever.

But there’s a much more interesting reason I’m an ex-peak oil believer, and that is, I think the idea that petroleum is a fossil fuel, the idea that petroleum is a biologically based material which was formed hundreds of millions of years ago under pressures of rock on top of dinosaurs, plankton and algae — to have a trillion barrels of oil produced in the last, you’re going to have to have quite a few dinosaurs packed belly-to-belly nose-to-nose 10 deep or a hundred deep to make that kind of biological matter.

But the Russians have developed actually during the Cold War — it was a national emergency to get energy independence — and their geologists said, let’s look at where oil comes from in a very scientific way. After several years of research and experiments, actually testing their theory, they came to the conclusion that petroleum is formed deep, deep, deep under the earth’s mantle under granite and not close to the surface as you find it in Saudi Arabia and places like that. It has come close to the surface of those countries. That’s not the origin of it, and they tested the hypothesis and drilled very deep into this granite and through the granite and found oil, lo and behold. What they found was oil that didn’t run dry. It kept being created, so to speak, deep in the earth. It’s like a huge oven that has enormously hot temperatures and enormously high pressures, and through that, you create petroleum not too much unlike how diamonds are created. Then through shifts of tectonic plates and so forth on the earth’s surface, the oil can seep up close to the top.

American geologists for the last 100 years have been lucky because they have been able to access cheap easy oil. Since 1945, they have controlled Saudi Arabia. The royal Saudi house is very dependent on U.S. military support, and as long as they have cheap and easy oil, they didn’t have to worry about it. Now, what’s happening is that they don’t have the technology to drill these deep wells, and the Russians do, so the wells that they do have, many of them are beginning to deplete, and production rates are declining. That’s very real. The Russians maintain that can be corrected if you know how to do it. They claim they’ve done it and that’s why Russia today is the second largest oil producer next to Saudi Arabia. That’s an impressive record.

I began to have doubts about the Peak Oil thesis. I came to the conclusion that it, in effect, helps Big Oil, Exxon/Mobile, etc. slowly raise the prices to levels where they’re making obscene profits now on a quarterly basis, if you look at their quarterly and annual reports over the last two years. They are able to say, “It’s because we’re running out of oil.”

So the Peak Oil question is a complex one. I do think these fields are depleting and there are technologies that have been developed to ream these wells out or to do off-set wells. That’s been done in many cases, but the Russians are kind of the world experts on this, and the U.S. geologists don’t have the slightest idea on how to think in those terms. In that sense, Russia has a strategic asset in terms of energy that the West lacks. We probably would be well advised to have a more cooperative policy toward learning some of these things.

ICONOCLAST: So what I gather from what you’re saying is that there is some sort of natural petroleum creation process that is in place—

ENGDAHL: Yeah, and the Russians found again and again — they thought it had peaked out, that when they reduced the production rate, suddenly the well was topped up again from deep, deep underground.

ICONOCLAST: Can they account for how much is down there?

ENGDAHL: It seems to be quite a lot. The Russians even found places like Vietnam which were deemed barren by western geologists, so the Vietnamese are very thankful to the Russians helping them get some energy independence. Of course, they tried to do this in India in the 1980s and the U.S. State Department and intelligence agencies sabotaged and bribed various Indian officials to shut the program down because that would have made India far too independent.

ICONOCLAST: So we’re not into any end of the world scenario because of Peak Oil?

ENGDAHL: No, I don’t think so. It’s a question of the right technology and the right investment in future technology as well as we can do a lot to use far less oil in automobile engines and so forth. In Europe, diesel engine cars are the most commonly bought car because they can get 50-60 miles to the gallon, and there’s no reason why we can’t do that in the U.S. It’s just politics. Oil companies just love to sell all of that, and the refining companies — that’s a whole other scandal. They’ve shut down perfectly good, brand new refineries in order to jack the price of gasoline and refined products as high as they’ve had.

ICONOCLAST: Where’s that going on?

ENGDAHL: In the U.S. and in Europe. Also there have been documented cases of Shell oil Company doing that and several of the other refiners. In California, Shell did that also with a new refinery that was very state of the art, modern refinery, and they shut it down and refused to sell it. People wanted to buy it, so that’s kind of suspicious. The journalists who got some internal documents of these companies about a year or so ago put them on the Internet. They’re out there for people to read.

ICONOCLAST: So how do you think this Iran thing is going to play out?

ENGDAHL: Oh, if I had the answer to that, I’d be a rich man.

ICONOCLAST: (laughs)

ENGDAHL: Frankly, this is just a gut feeling. The Bush administration has gotten into a very, very nasty pickle with their bravado against Iran, going back to the Axis of Evil 2002 State of the Union address, and once you start making those kinds of threats, if you don’t deliver on them, you are perceived as being a paper tiger as the Chinese said years ago. Well, at this point, were the United States to bomb Iran — I mean, it’s unquestionable that they could wield enormous physical damage with the arsenal of air power the U.S. has and even with mini-nukes which Rumsfeld and others have hinted at, but what would that bring?

As Iran has said, and I’m sure that they are not just making bravado, they would unleash a holy war the likes of which the world has never seen. I mean, this character Osama bin Ladin hiding in the caves of Tora Bora, I think he’s chump change compared to what could be done against oil installations that are the life-blood of the U.S. economy and the world economy. So keep in mind, the Iranian government is a Shia brand of Islam. The Saudis are Sunni, Wahabbi Sunnis. The Iranians have very close ties to the Shias who are now the dominant political faction in the Iraqi parliament, but also to the fact that the largest oil installation in Saudi Arabia in the area of Ras Tanura, where all the oil is loaded up on super tankers and heads out to Japan, to China, to the U.S. and elsewhere, the work is done by Shia Islam workers in Saudi Arabia, and were they to be activated by Tehran as a retaliation for the nuclear bombing of Iran, that could simply shut down the world’s oil flows then big time.

Iran has strategic military ties with Russia. Russians are building the nuclear reactor in Bushehr, Iran. They see it as a commercial reactor and something that is bringing a lot of good hard currency dollars to the Russian economy, and also Russia is delivering missiles and other technologies so that Iran can defend itself. So Saddam Hussein was a pushover compared with Iran. Iran is impenetrable by ground forces. It’s very mountainous. The Iranians have prepared themselves very well for this situation, and I think it would be the beginning of the end of the United States as a nation if they were insane enough to do this.

ICONOCLAST: (laughs)

ENGDAHL: No, really. I’m quite serious. So for that reason, I mean, there are some what I consider insane things going in government in recent years, but I somehow think they have to pull short of launching a full scale nuclear war and I don’t think they can have Israel as a proxy to it because as a Russian general said a few days ago in Moscow, “Well, if the U.S. launched a bomb strike against Iran, that would immediately solve the Palestinian problem, the Iraqi problem, the Iranian problem, and the Israeli problem because they would no longer exist.”

ICONOCLAST: Wow!

ENGDAHL: That was the Russian view of it. I think it is an immensely dangerous thing. The leveler-heads in Washington know that, so maybe there will be some scandals against the Cheney/Bush administration that will stop short of them going to war. I just don’t know. It’s going to be a fascinating and a very dangerous six or nine months before the November U.S. mid-term elections.