Sunday, December 16, 2007

Iran: Why does Bush invoke the threat of World War III?

Part 1: Iran’s strategic position

By Alex Lantier

This is the first of a three-part series.
On October 17, George Bush made a remarkable statement concerning the mounting tensions between the US and Iran: “If you’re interested in avoiding World War III, it seems like you ought to be interested in preventing [Iran] from having the knowledge necessary to make a nuclear weapon.” Bush has since repeated and defended this comment. It testifies to the superficiality of media commentary that this declaration has not been subjected to critical analysis.

Bush’s statement has profound and far-reaching implications. Washington’s deliberate stoking of political tensions with Iran over the last year—with accusations of Iranian military assistance to the anti-US Iraqi resistance, and the branding of portions of the Iranian armed forces as “terrorist”—does not simply threaten Iran. It is a confrontation with a global cast of characters.

Further investigation of the context of Bush’s comments substantiates their significance. He made his initial statement about World War III just one day after Russian President Vladimir Putin had said during a visit to Iran, “Not only should we reject the use of force, but also the mention of force as a possibility.”

Clearly, Bush’s remarks were a response to Putin, a fact that has been barely, if at all noted in the bourgeois media. However, such inflammatory comments, coming on the heels of an important state visit by the Russian president, indicate that US hostility to Iran is bound up with global considerations central to the interests of US imperialism.

The verbal exchange between Putin and Bush raises important questions. What is so crucial about Iran that its acquisition of a few crude nuclear devices—far outweighed by the hundreds of strategic nuclear devices held by Israel, let alone the thousands possessed by the major nuclear powers—would trigger a world war? When Washington contemplates fighting World War III over an Iranian nuclear weapon, whom does it view as its potential adversaries, and why?

Iran, oil, and the geopolitics of the Persian Gulf

Iran is at the heart of oil-rich, war-torn Southwest Asia. It lies on the north shore of the Persian Gulf, which holds 63 percent of the world’s proven oil reserves. Immediately to the north of Iran lie Turkey, the Caucasus, the Caspian Sea and the former Soviet states of Central Asia—springboards to Europe, Russia and China. By virtue of this geography, control of Iran is a valuable prize for all the major capitalist powers, which could use it to decisively increase their influence in commercial and diplomatic relations.

Iran’s own energy reserves are massive. According to US Department of Energy figures, Iran has the second largest proven oil reserves in the Middle East—136.3 billion barrels. It also has 970 trillion cubic feet of natural gas—the second-largest reserves in the world. Its oil and gas exports account for the vast bulk of its activity in international markets, generating 85 percent of export revenue and 65 percent of state revenue. It exports over 2.5 million barrels of oil per day and is a critical supplier to East Asia and Europe.

Even more than its own energy reserves, Iran owes its strategic importance in the Persian Gulf energy industry to its position astride the Gulf’s shipping lanes. Oil shipped out of the Gulf on tankers must pass through the Strait of Hormuz off Iran’s southern coast to reach the Indian Ocean.

Anthony Cordesman of the US Center for Strategic and International Studies writes: “Oil flows through the Strait of Hormuz account for roughly 40 percent of all world traded oil.” He cites International Energy Agency figures showing that, of the 17.4 million barrels shipped daily through the Straits of Hormuz, 13 million travel east, through the Indian Ocean and the Straits of Malacca near Singapore, to East Asia. Of the remainder, 3.5 million barrels travel through the Bab el-Mandab into the Red Sea, to Europe and the US.

He continues: “Iran’s coastline is particularly important because tanker and shipping routes pass so close to Iran’s land mass, the islands it controls in the Gulf, and its major naval bases. At the narrowest point (the Strait of Hormuz), the Gulf narrows to only 34 miles wide, with Iran to the north and Oman to the south. The key passages through the Strait consist of 2-mile wide channels for inbound and outbound tanker traffic, as well as a 2-mile wide buffer zone.”

Tehran has purchased numerous cruise missiles from Russia and China and deployed them on patrol boats and at naval bases along these shipping lanes. Iranian officials, including Ayatollah Ali Khamenei, have repeatedly said that, in the event of a US attack on Iran, energy shipments through the region will be “jeopardized.”

Iran has emerged from the 2003 US occupation of Iraq as the most serious regional obstacle to the strategy of US imperialism in the Persian Gulf. It wields considerable influence within the Shiite fundamentalist parties that have functioned as Washington’s favored quislings inside Iraq.

Iran also has potential political influence with the population of the southern Gulf shore. In Saudi Arabia’s oil-rich Eastern Province, as well as Bahrain, US-backed Sunni monarchs rule over an oppressed Shiite population subjected to sectarian discrimination. These monarchs are terrified of any Shiite-populist political agitation like that carried out during the early years of the 1979 Iranian Revolution.

Iran has been under a US embargo since the 1979 Revolution overthrew the US-backed Shah. Its oil is largely traded with other powers. Asia accounts for the largest share (56 percent, largely to Japan and China, with lesser amounts to Korea, India and Southeast Asia); Europe, especially Italy and France, buys 29 percent of Iran’s oil exports. Europe, China and Korea also supply over 50 percent of Iran’s imports, and several European corporations have set up manufacturing operations there.

Iran as a global commercial gateway

Iran is a potential nexus of oil pipelines and trade routes between all the major geopolitical competitors of the US bourgeoisie. It is a transit point, via its northwestern border, for oil and gas flowing from the Middle East and Central Asia to Turkey and the European market. Via its northeastern border with the former Soviet republic of Turkmenistan, it could become a transit point to Kazakhstan and thence to western China.

Iran has taken on a particularly vital role in this last regard, since the other land routes to the Indian Ocean from Central or East Asia are barred—either by geographical barriers such as the Himalayas, or by the permanent state of civil war in US-occupied Afghanistan and the increasing destabilization of Pakistan.

Iran has significant potential to help the former Soviet republics of Central Asia (notably Kazakhstan, Turkmenistan and Azerbaijan) ship their oil and gas via the Indian Ocean to world markets. This is particularly important since, in the aftermath of the industrial collapse that accompanied the dissolution of the USSR, the region’s economy has largely been rebuilt around oil and gas exports, enriching a narrow layer of former Stalinist apparatchiks. Currently, all oil and gas is exported through a Soviet-era pipeline network controlled by the Russian corporation Gazprom.

The question of Central Asia’s oil and gas has long held the attention of US corporations and diplomats. At a 1998 hearing of the US House of Representatives’ Committee on International Relations, Frederick Starr of the Central Asia Institute of Johns Hopkins University noted: “The heaviest burdens of the measures we are taking toward Iran fall disproportionately on Azerbaijan, Kazakhstan and Turkmenistan, for it prevents them from exporting their oil by one of the most obvious alternative routes to Russia, namely Iran. The US position has been to argue that this would not be in the Central Asians’ best interests. None of our friends in the region agree.”

Other speakers at the hearing also admitted that the US veto of pipeline construction through Iran significantly distorts the region’s economy. Unocal executive John Maresca described Russian plans for a pipeline to the Black Sea port of Novorossiysk and a US plan for a pipeline through the Caucasus (from Baku, Azerbaijan to Tblisi, Georgia and to Ceyhan, Turkey—the so-called BTC pipeline). Both pipelines are now operational.

Maresca said: “Even if both pipelines were built, they would not have enough total capacity to transport all the oil expected to flow from the region in the future. Nor would they have the capability to move it to the right markets.... Western Europe, Central and Eastern Europe, and the Newly Independent States of the former Soviet Union are all slow growth markets where demand will grow at only a half a percent to perhaps 1.2 percent during the period 1995 to 2010. Asia is a different story altogether.”

Since then, Iran has developed pipeline links to Turkmenistan, sealing a deal to pump 30 billion cubic meters of natural gas per year from Turkmenistan through Iran and Turkey to Europe. However, such links would undoubtedly multiply if Iran were not living under the constant threat of US attack.

Iran has also become increasingly active in regional diplomacy. Since 2006, it has had observer status at the Shanghai Cooperation Organization (SCO), a regional grouping including China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. The SCO has actively lobbied for the closure of US military bases in Central Asia obtained just after the September 11, 2001 terrorist attacks, during the initial US attack on Afghanistan.

These basing rights have now largely been revoked, as Central Asian governments have come to view Washington as principally dedicated to their overthrow—especially after the failure of the US-backed “Tulip Revolution” in Kyrgyzstan and the US-backed Andijan uprising in Uzbekistan, both in 2005.

Part 2: Eurasian geopolitics and US threats against Iran

This is the second article in a three-part series.

The Bush administration’s warnings that a world war could be fought as a result of a US-Iranian confrontation inevitably raise the question: what other countries might be drawn into a military conflict set into motion by an attack on Iran by the United States?

Though this question cannot be answered with certainty, it is a fact that the two countries most actively shielding Iran in negotiations over sanctions against Iran’s nuclear programs—Russia and China—have been publicly and repeatedly described as potential targets of the US military.
Both have considerably increased their economic weight relative to the US in recent years—China due to the explosive development of its cheap-labor manufacturing base, Russia thanks to the high prices for oil and gas on world energy markets. Though their interests diverge in many other areas, Russia and China are united by their fear of the economic and military consequences of a US attack on Iran. From Washington’s standpoint, however, this unity is an intolerable threat to the world position of the US bourgeoisie.

US strategists have warned that they would do all in their power to prevent the emergence of a strategic competitor on the Eurasian landmass. In his 1998 book The Grand Chessboard, former Carter administration National Security Advisor Zbigniew Brzezinski warned: “It is imperative that no Eurasian challenger emerges, capable of dominating Eurasia and thus of also challenging America.”

After the terrorist attacks of September 11, 2001, these warnings have become even more threatening, with the public announcement of preparations for nuclear war.
Iran and the Russian bourgeoisie

To the emerging Russian bourgeoisie, whose wealth is based to a great extent on its looting of the state property and natural resources of the old Soviet state, US domination of Iran is also an intolerable threat. President Vladimir Putin’s economic and geopolitical strategy has been developed around oil and gas exports, including the control of export revenues earned by Central Asian oil and gas.

The Russian bourgeoisie’s relations with Iran reflect significant financial interests. Russia’s oil and gas exports accounted for 61 percent of its export revenues in 2005 and 65 percent in 2006, according to World Bank figures.

The World Bank concluded: “Outside of natural resources and metals, Russia has few advantages on international markets.” The Russian bourgeoisie thus has every reason to prevent the US from controlling Iran and gaining an even tighter hold on world oil and gas markets—by controlling Iran’s oil and gas, or by building new, competing export pipelines from the former Soviet republics of Central Asia.

The military component of Russia’s opposition to US control of Iran is, if anything, even more essential.

US imperialism does not view the collapse of the USSR as a reason to accommodate the Russian bourgeoisie, but rather as an invitation to press its advantage. This was underscored in a 2005 analysis, “America Unplugged,” by the Stratfor web site, which has close links to US intelligence agencies.

Strafor wrote: “The Soviet Union also came as close as any power ever has to uniting Eurasia into a single, integrated, continental power—the only external development that might be able to end the United States’ superpowership. These little factoids are items that policymakers neither forget nor take lightly. So while US policy towards China is to delay its rise, and US policy towards Venezuela is geared toward containment, US policy towards Russia is as simple as it is final: dissolution.”

Muslim separatists in Russian regions of the Caucasus, such as Chechnya and Dagestan, have enjoyed Washington’s tacit support, while the Russian state views the struggle against them as a critical national security issue.

Iran has served as a critical counterweight to US criticism of Russia’s role in these wars. As analyst Brenda Shaffer wrote in a 2001 Washington Institute for Near East Policy paper, “Partners in Need”: “Moscow views cooperation with Tehran as essential for preventing a Muslim backlash in response to Russian activities in Chechnya: the official Iranian view of the conflict as an internal Russian affair undermines Muslim efforts to band together against Moscow.”

Besides the implications for ethnic conflicts in the Caucasus and Central Asia, US bases in Iran would have global implications for US-Russian conflict. They would place US spy and attack planes even closer to Russia’s southern border, which has long been identified by the US military as one of its least well-defended.

Much of Russia’s highest-security military, nuclear, and space infrastructure is located in northern Kazakhstan and western Siberia—areas which were once the furthest points on the globe from any US military facility, but are now increasingly vulnerable to US strikes from the south.

Russian acquiescence to US military action against Iran would therefore be predicated, at the very least, on the US giving security guarantees to Russia. However, US policy towards Russia—supporting regimes in Azerbaijan and Georgia hostile to Moscow, and pushing for the deployment of a “missile shield” in Central Europe directed against Russia’s nuclear arsenal—makes such guarantees impossible.

The administration of Russian President Putin has therefore pursued an increasingly confrontational policy. It supplied Iran with high-tech missile systems, notably Tor-M1 anti-aircraft missiles, which Tehran reported successfully testing in February 2007. It is also rumored to have supplied Iran with advanced Moskit anti-ship cruise missiles that are updated models of Soviet missiles designed for attacking US aircraft carrier battle groups.

Direct military relations with the US have also become tenser. In August 2007, Putin ordered Soviet-era “Bear” strategic bombers to resume constant patrol flights in the North Atlantic, forcing US air defense systems to monitor them. Just this week, he officially withdrew from the Conventional Forces in Europe treaty.

Iran and the Chinese bourgeoisie

The Chinese bourgeoisie’s ties to Iran are shaped by its emergence, out of the Stalinist Chinese Communist Party, as the owners of a massive, cheap-labor manufacturing base. It holds down workers’ struggles for higher wages and living standards with a ruthless, police-state apparatus and exports much of their production. Especially as China has become the location of an ever-larger portion of world industrial production, its energy demands have spiraled upwards.
China has developed massive energy ties with Iran. It currently buys 11 percent of Iran’s oil exports, but this figure is expected to increase substantially in the coming years. Iran is reportedly China’s largest supplier of oil, and Chinese corporations have signed several large-scale deals with the Iranian government.

In 2004, for instance, China’s Sinopec Group signed a $70 billion oil and gas agreement with Iran, according to which it will purchase 250 million tons of liquefied natural gas over the next 30 years and develop Iran’s Yadavaran oil field. As part of the deal, Iran also agreed to sell China 150,000 barrels of oil per day.

China has also purchased rights to oil in Kazakhstan, its western neighbor in Central Asia, as well as in several African countries, notably Sudan.

Oil is central to many of the weaknesses of the Chinese bourgeoisie. Its oil deals serve many purposes: overcoming the energy shortages and power outages that have plagued its rapidly developing but poorly coordinated industry, and lessening the economic imbalance between its coastal exporting regions and its poorer western regions, which historically were linked to Central Asia and the Muslim world via the fabled Silk Road.

In global geopolitical terms, however, the main purpose of China’s dealings with Iran is to secure its access to energy, which at present is largely at the mercy of US naval forces in the Indian and Pacific oceans.

Oil exports from the Persian Gulf to China pass through the Indian Ocean, the Straits of Malacca, and into the South China Sea and the Pacific Ocean to the Chinese coast. Major US naval bases at Diego Garcia in the Indian Ocean, Singapore (at the end of the Straits of Malacca), and Okinawa (off the Chinese coast) lie astride each main leg of the voyage.
China has so far sought to protect its oil supply by building a competing network of naval bases—the so-called “string of pearls”—and looking for alternate shipping routes to avoid US-held strong-points. A 2006 US military study lists Chinese “string of pearls” bases at Gwadar in Pakistan, Chittagong in Bangladesh, and Sittwe in Myanmar on the Indian Ocean; and at Woody and Hainan Islands on the South China Sea.

Chinese plans for skirting the Malacca strait include building a pipeline from Sittwe in Myanmar to the southwest Chinese city of Kunming, and dredging a canal through Thailand’s Kra Isthmus. Plans for avoiding the South China Sea and Pacific include shipping oil up the Mekong River in Southeast Asia to China.

Such plans are very costly, however, and involve the Chinese Navy in a technological and military competition with the US Navy that it is not currently in a position to win. As a result, Chinese oil corporations and Chinese state planners have hoped to build a safer land route for the energy trade between China and the Middle East, passing through Central Asia and Iran.
The underlying strategic conception was outlined in a 1999 article by Xiaojie Xu in the OPEC Review, entitled “The oil and gas links between Central Asia and China: a geopolitical perspective.” Xu wrote: “In terms of regional energy links [...] China will extend its Central Asian land routes from Kazakhstan and Turkmenistan down to Northern Iran. As a result, the Chinese Central Asian corridor will connect the Gulf Area as a Sino-Arabic grand passage.”
Plans for such commercial links, ambitiously titled “The Pan-Asian Global Energy Bridge,” were regularly discussed in 2001. The US intervention in Afghanistan in the aftermath of the September 11 attacks dealt a serious blow to these ambitions, however, as Central Asian states were unwilling to openly flout US military power.

By now, however, such plans have resurfaced, amid the ebbing of US influence in Central Asia—the debacle of the US occupation of Afghanistan, and the failures of the 2005 “Tulip Revolution” in Kyrgyzstan and the Andijan uprising in Uzbekistan.

In the November 2005 issue of the Journal of Contemporary China, Professor Niklas Swanstrom writes: “By gaining control over the Central Asian network of oil pipelines, China hopes to gain control over the oil that is transported to Asia from the Middle East. This is a Herculean task and hardly possible without international cooperation.

“The logical partner for China if it wants to control the oil of the Middle East [flowing] to China is Iran. [...] A Sino-Iranian network between [the western Chinese region of] Xinjiang through Kazakhstan, Turkmenistan, and Iran to [the Iranian Persian Gulf port of] Bandar Abbas has been discussed and the conclusion of such a plan would make China the most important transit state for oil in Asia.”

Significantly, Swanstrom concluded: “America will probably attach greater importance to the region after the finalization of the ongoing wars and focus its attention on Iran.”
US nuclear primacy and preparations for war

The strategic imperatives pushing Beijing and Moscow to protect Iran from US attack clash with an American bourgeoisie determined to consolidate its hegemony—in world oil markets, the Middle East, and world shipping lanes. The tensions between the US and China, Russia and Iran have repeatedly come to public attention, as the US has adopted an increasingly threatening posture.

In January 2002, following an order from the Bush administration, the Pentagon delivered the Nuclear Posture Review to Congress. The report called for planning the use of nuclear weapons against seven countries: Russia, China, Iran, Iraq, North Korea, Syria, and Libya. The review was ultimately leaked to the Washington Post in March 2002.

The issue of US planning for nuclear war against China and Russia surfaced again in the March 2006 issue of Foreign Affairs, the publication of the highly influential US Council on Foreign Relations. In their article, “The Rise of US Nuclear Primacy,” Keir Lieber and Daryl Press argued that, due to the deterioration of Russia’s nuclear arsenal after the collapse of the Soviet Union, the US could destroy the entire Russian and Chinese nuclear arsenals with a devastating first nuclear strike. It noted several aspects of US defense spending and research suggesting that the Pentagon was actively trying to achieve this capability.

Lieber and Press noted that the policy of aggressively preparing for nuclear war against Russia and China was directly tied to the global calculations of US imperialism, particularly in the Persian Gulf. They wrote: “The United States is now seeking to maintain its global preeminence, which the Bush administration defines as the ability to stave off the emergence of a peer competitor and prevent weaker countries from being able to challenge the United States in critical regions such as the Persian Gulf. If Washington continues to believe such preeminence is necessary for its security, then the benefits of nuclear primacy might exceed the risks.”

Part 3: Globalization, Iran, and the dollar crisis

This is the final article in a three-part series. .

The important role of oil in US Middle East policy—and particularly in the campaign of war and occupation launched by the Bush administration—is widely acknowledged, though it is ignored by the corporate media. Less often discussed is the role of the oil trade in propping up the US dollar, and thus helping to maintain the increasingly tense and unstable relations between the world’s main trading blocs.

These tensions find their most finished expression in the US trade deficit and the crisis of US industry. Since the economic crisis and oil shock of the 1970s, the US has gone from the world’s largest industrial power to its largest debtor and importer. According to European Union (EU) statistics, in 2006 the US posted a trade deficit with all its major trading partners: 100 billion euros with the EU, 61 billion euros with Canada, 53 billion euros with Mexico, 73 billion euros with Japan, and 200 billion euros with China. Yearly capital inflows into the US of more than US$600 billion were needed to finance this deficit, as the rest of the world paid the US to buy the products it made.

In particular, the East Asian countries—China, Japan, and Korea—have amassed huge dollar reserves by lending money to the US to purchase their products. China’s dollar holdings alone are at least US$1.2 trillion, and total East Asian dollar holdings are estimated at more than US$2 trillion.

The material reality underlying this phenomenon in the US (and, to a lesser extent, in Japan and high-wage countries of Europe) has been wave upon wave of plant closures and layoffs, wage and benefit concessions by trade unions, and the shifting of much of the working class towards low-paying service jobs. As anyone who has shopped at a US discount store like Wal-Mart or Target knows, the living standards of the US population are dependent on the availability of cheap foreign manufactured goods.

The US bourgeoisie has continued to realize huge profits on such goods, however, by pocketing the difference between the low prices it pays to foreign manufacturers in the cheap-labor countries and the prices paid by the American masses. The survival of the downsizing of America’s industrial base has thus relied in large part on forcing foreign exporters to accept low prices for—and even lend money for the purchase of—their goods.

The US bourgeoisie has also partially relied on the implicit military threat posed by its strategic position in the Middle East. Simply put, every exporting country negotiating prices with US retailers must keep in mind that the US can threaten it with an oil blockade (if it imports oil) or with military attack (if it is near the Middle East). As has already been pointed out, Beijing’s foreign policy in the Indian Ocean and Southeast Asia shows the central importance of this preoccupation in the minds of leading Chinese state officials.

However, financial concerns also play an important role in encouraging other countries to hold dollars. Most of industry’s basic raw materials—oil, gas, metals, grain—are traded in markets that denominate their sales in dollars. This gives other countries a powerful incentive to accept US dollars in return for their products, even when they do not intend to purchase US goods: they will use these dollars to purchase raw materials on world markets.

The crisis of the US economy—notably the bursting of the sub-prime mortgage bubble and the rapid fall of the US dollar versus other major currencies—places a question mark over the viability of the strategy of exporting on credit to the US. The plunge of the dollar against other currencies means that their dollar holdings generate losses when converted back into those currencies, and there is increasingly the possibility of a major credit crisis in the US.
Increasingly, the fall of the dollar is also encouraging exporters—notably oil-producing countries—to consider selling their commodities in different currencies, such as the euro.
Such a shift would further decrease the incentive to sell goods and provide credit to the US economy: US dollars would no longer be needed to purchase essential raw materials on world markets. Absent the need to sell on credit to the US, the maintenance of current trading patterns would represent a very costly political decision to supply the US market with goods and financial backing.

Though the risk of a flight from the dollar in world currency and commodity markets is currently described as small by most bourgeois financial journalists, it is of utmost concern to the US bourgeoisie and is actively discussed in the US foreign policy establishment.
In 2002, during a Capitol Hill Conference Series on US Middle East Policy, former US ambassador to Saudi Arabia Chas. Freeman said: “It seems to me that one of the major things that the Saudis have historically to insist that oil continue to be priced in dollars. Therefore, the United States Treasury can print money and buy oil, which is an advantage that no other country has. With the emergence of other currencies and with strain in the relationship [between Saudi Arabia and the US], I wonder whether there will not be again, as there have been in the past, people in Saudi Arabia who raise the question of why they should be so kind to the United States.”

Referring to the massive inflows of capital financing the US trade deficit, Freeman added: “I think the issue is the US balance-of-payments deficit.”

Iran ditches the US dollar

Washington’s policy of embargo against Iran and war and occupation in Afghanistan and Iraq has destabilized this already tense situation and strengthened tendencies pushing toward the abandonment of the US dollar by the Middle East oil trade. Iran, which has no legal trade with the US, and upon which US financial authorities are trying to impose a total blockade of financial transactions, is perhaps the Middle Eastern power with the least reason to hold dollars.

Unsurprisingly, the Iranian state has progressively shifted its oil sales at the Iranian Oil Bourse out of US dollars and into other currencies, notably euros and Japanese yen. This event has gone surprisingly unreported in the US corporate media.

According to a March 2007 report in the Scotsman, China’s Zhuhai Zhenrong Corporation began paying euros for Iranian oil deliveries in late 2006. In September 2007, Japan’s Nippon Oil agreed to purchase oil in yen. In October 2007, AFP quoted Mohammad-Ali Khatibi, deputy head of the National Iranian Oil Company, as confirming Iran’s switch out of the US dollar.

Khatibi said: “Iran is selling about 85 percent of its oil in the non-dollar currencies. Currently, about 65 percent of the oil sale income is in euros and 20 percent in yen.” He also suggested that the remaining 15 percent of Iranian oil sales could soon be denominated in dirhams, the currency of the United Arab Emirates—a major Iranian trading partner.

The UPI press service interviewed PFC Energy analyst David Kirsch, who noted that for Iran, “a key motivation is the US informal sanctions that the Treasury, and [US Treasury] Undersecretary [for Terrorism and Financial Intelligence] Stuart Levey in particular, put on banks not to do financial transactions with Iran.”

Kirsch also implied that, should Iran be allowed to continue its currency policy unmolested, it might end up leading a shift of the Persian Gulf oil industry out of dollar-denominated oil sales. He said: “There is also another key issue that you are seeing, not just in Iran, but in other oil producers, especially Gulf oil producers, is given the depreciation of the dollar, it is better to hold their reserves at least in euros, it is a better store of wealth. Some of the other Gulf producers will accept payment in euros.”

The geopolitics of the dollar and the euro

In the current tense international situation, the possibility that the euro might supplant, at least partially, the US dollar as the main currency of world trade is becoming tangible. The dollar’s role in international markets—from its plunge against other currencies to the explosion of (dollar) prices of global commodities and raw materials—resembles nothing more than worldwide theft benefiting the American bourgeoisie.

The rapid fall of the dollar risks pricing the European bourgeoisie out of world markets, as its goods are undercut by US competitors, whose costs are counted in cheaper dollars. It also cuts down the value of dollar-denominated profits realized abroad by European corporations, once brought back to Europe and converted into euros.

This was perhaps most prominently discussed by French President Nicolas Sarkozy during his latest trip to Washington, D.C. Noting that every cent that the euro rises against the dollar costs Franco-German airplane maker Airbus 100 million euros in profits, Sarkozy warned that “monetary disorder risks growing into economic war.” He refrained from adding that Airbus’s difficulties profited its only competitor, US-based Boeing.

For oil sellers like Iran, Russia, and the Persian Gulf kingdoms, most of whose trade is realized with Europe and Asia, the fall of the dollar against the euro (and to a lesser extent versus the Asian currencies) cuts into the purchasing power of their oil earnings, unless they are denominated in other currencies.

The Asian bourgeoisies, for whom the US is a key export market, are caught between surging prices for oil and raw materials on dollar-denominated markets, and the low dollar prices for their manufactured goods set by US retailers like Wal-Mart. According to figures published in Le Monde, in 2007 alone, dollar prices for oil, wheat, lead, and gold have increased on world markets by 64 percent, 63 percent, 118 percent, and 26 percent, respectively. This has led to what some, notably in Australia, have called the “China resources boom.”

The US government’s demand that China let its currency rise in value against the US dollar is an unsubtle invitation for the Chinese bourgeoisie to take large capital losses (in home-currency terms) on its gigantic dollar holdings.

Chinese officials have begun to argue for greater use of other currencies in trade and finance, and in the Chinese government’s own investment portfolio. On November 7, the vice-chairman of the Chinese parliament, Cheng Siwei, said: “In terms of the structure of our foreign exchange reserves, we should take advantage of the appreciation of strong currencies to offset the depreciation of weak currencies.... For example, in the current foreign reserves structure, I mean the bonds we bought, the euro is appreciating against the yuan while the US dollar is depreciating against the yuan. So we should make a balance between the two.”
Another official, Xu Jian of the People’s Bank of China, commented: “The US dollar’s global currency status is shaky and the creditworthiness of dollar assets is falling.”

The interest of Chinese officials in other currencies, such as the euro, comes as Chinese goods are increasingly penetrating the European market. The EU reportedly overtook the US this year as China’s largest export market; already in 2006, the EU, due to its larger export volume to China, was China’s largest trading partner (216.2 billion euros, versus 208.9 billion euros for the US, according to EU figures).

Any significant shift in global demand for dollars toward demand for euros would, however, pose a massive challenge to the US economy. Due to its trade and current accounts deficits, the US requires daily inflows of billions of dollars in capital—that have so far largely come from East Asia—for its financial system to function. Any significant contraction of these inflows risks triggering massive interest rate increases and a collapse in the dollar, as demand for dollar-denominated debt dries up, and thus a serious recession in the US and world economy.
In this context, it should be remarked that the US establishment has long been aware of the euro’s strategic and military implications. In 1997, five years before the launching of the euro, Harvard economics professor and US National Bureau of Economic Research CEO Martin Feldstein wrote in Foreign Affairs that the formation of a single European currency risked weakening “America’s current global hegemony.” He added that this “would undoubtedly complicate international military relationships more generally.”

The link between currency rivalry and military tensions is not the product of Feldstein’s imagination.

Such calculations clearly took place in Europe and Russia at the time of the US invasion of Iraq, in 2003—when the governments of Germany, Russia, and France were trying to oppose US plans for Middle East domination. At an October 2003 joint press conference with then-German chancellor Gerhard Schröder in the Russian city of Yekaterinburg, Russian President Vladimir Putin suggested that Russia could price its oil sales to Europe in euros.
Iran’s more recent decision to sell its oil in euros and yen also takes place in a definite military context: a US campaign of political provocation resembling that which, in 2003, led to the US invasion of Iraq.


In remarking that current tensions over Iran threatened to provoke World War III, President Bush inadvertently acknowledged the profound tensions tearing at the political and economic foundations of world capitalism. Plans for a US war against Iran are baring the rivalries between the different cliques of the world bourgeoisie—American, European, Russian, Chinese, etc.—and their preparation for war against each other.

They are again affirming the basic contradiction identified by the great Marxists of the early twentieth century: the clash between the global character of mankind’s productive forces and the fetters imposed upon them by the capitalist nation-state system.

The idea that the current Middle East conflicts would remain localized in the case of US aggression against Iran is historical and political blindness. Globalization on a capitalist basis—with a ferocious competition inside the world bourgeoisie for the global division of profits, and where the living standards of the working classes of each region are pitted against each other in a race to the bottom—has dangerously outlived itself. It threatens not only a further eruption of US militarism in the Middle East and the destabilization of world finance, but a horrific global military conflagration.