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The dollar's unique role as a petrodollar has been the foundation of its supremacy since the mid 1970's. Petrodollar recycling underpins US economic domination - even in the face of declining manufacture and trade - and it is a domination that funds its military might.
While oil remains priced in dollars the United States enjoys a unique ability to sustain deficits year after year, pass on huge tax cuts, build a massive military capability and still have other countries accept its currency.
And so we have passed into the third phase of the so-called American Century - the Petrodollar Warfare stage. With a stated intent of shaping "a new century favourable to American principles and interests" enter the doctrine of pre-emptive warfare - aimed at preserving America's military and economic dominance. At any cost.
Rather than investing in the more intellectually honest policy of fiscal prudency, this third phase is characterised by contriving 'legitimate' excuses to attack sovereign nations that challenge the US economy. Rhetoric replaces reality, the world is deceived into believing factual un-truths and whole countries are rallied towards false patriotism in the mad scramble for war. Double-speak abounds: US armies become 'freedom fighters', foreign troops become 'death squads'... and in a bizarre twist on concept of an 'Iranian nuclear crisis' the US is now shown to be developing plans to drop tactical nuclear weapons on Iran.
This strategy unfortunately fits the pattern witnessed throughout history from a declining economic power. Britain resorted to increasingly desperate imperial wars as the empire declined. So too is the US using its military might to advance what it can no longer achieve by economic means.
The euro currency was successfully introduced in January 1999. With the recent enlargement of the EU the European currency has become a real challenger to the supremacy of the United States dollar. What we are witnessing in Iraq, Iran and elsewhere is a response to the economic threat of ditching the dollar and transferring to the euro - a currency war between the EU and US.
It's a little-publicised fact that in November 2000, former US ally Saddam Hussein used the only WMD left in his possession against the country that had once supplied him anthrax (source), chemical weapon samples and conventional military weapons to use against his neighbour, Iran. He transferred $10bn of his oil-for-food currency reserves to the euro, and began selling his oil in the euro currency.
Within 3 months of the US-led invasion, the currency reserves had been converted back to dollars (devaluing them for the Iraqi people by some 13% in the process), oil sales were once again conducted in US dollars only and president Bush appeared on an aircraft carrier off the San Diego coastline to proclaim 'Mission Accomplished'.
Iran is about to commit a far greater 'sin' however - it has been accepting the euro as payment for oil sales since September 2003 but planned from March 2006 to open an oil 'bourse' setting a price marker for oil in euros - in direct challenge to the exchanges in London and New York.
From an economic perspective, invoicing oil in euros would be logical for Iran as trade with the euro zone countries accounts for 45% of its total trade. More than a third of Iran's oil exports are destined for Europe, while oil exports to the United States are non existent. The decline in the dollar against the euro since 2002 - some 26% to date - has also substantially reduced Iran's purchasing power against its main importing partner.
A move away from the dollar and a strengthening of the euro would further benefit Iran as according to a member of Iran's Parliament Development Commission, Mohammad Abasspour, more than half of the country's assets in the Forex Reserve Fund are now euros.
It is primarily the US which stands to lose out from any move away from the petrodollar status quo, it is the world's largest importer of oil and a move away from invoicing oil in dollars to euros will undoubtedly have a negative effect on its economy.
Fewer nations would be willing to hold the dollar in reserve which would cause a significant devaluation and result in the loss seigniorage revenues. In addition, US energy-related companies stand to lose out as they will be unable to participate in the bourse due to the longstanding American trade embargo on Iran.
At present the dollar is, on paper, a worthless currency bearing the burden of a national debt exceeding $8trn and a trade deficit of more than $600bn. That oil is traded in dollars is critical in maintaining the dollar as the world's reserve currency. What the Bush regime fears is not Iran's nuclear ambitions but the effect of the world's fourth-biggest oil producer and trader breaking the dollar monopoly. Will the world's central banks then begin to shift their reserve holdings and, in effect, dump the dollar?
Iraq, Iran, North Korea, Venezuela, Russia, China, Syria, Qatar... the list of countries actively reducing their dollar holding in favour of the euro grows by the month. Whether the 'axis of evil' script-writers can keep up one can only wait and see...
In his latest State of the Union speech, president Bush outlined his plans to wean America off its addiction to oil. Just how serious is he about such an investment?
Even with the increased funding he outlined taken into account, the amount of research and development dollars allocated to alternative energy sources per year equates to 1½ weeks of the cost of the war in Iraq. You decide...
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