Dollar Inflation the Primary Cause of Rising Oil Prices, ‘Peak Oil’ a Myth – PART 1

I’m under strict instructions, and have been from the beginning, to not talk about the dollar.” -White House Deputy Press Secretary Dana Perino, March 17, 2008 – Link

There is a direct relationship between Dollar value and oil prices. All crude oil purchases worldwide have been conducted exclusively in U.S. Dollars for over thirty-five years. [1] When Dollar value falls via inflation (i.e. the creation of money by the Federal Reserve and other banking mechanisms), oil prices rise. [2] [3] [4] This phenomenon could be called Petrodollar Inflation; it occurred during the 1970’s oil ‘price shock’, and it is occurring right now. [1]

Oil is a critical economic and strategic resource – because every country needs oil to develop and prosper, they also need U.S. Dollars. This has raised the demand, and value, of the Dollar worldwide for several decades. [1]

However, the U.S. Dollar is continuously devalued (inflated) by Federal Reserve and U.S. government monetary policies. [5] Due to recent ‘super-inflation’ of the Dollar, oil producing nations are losing money – or rather, wealth – by selling oil in Dollars. To prevent losses, oil producing nations will sell some or all of their oil in other currencies (Euros, for example). This further devalues the Dollar, since oil buying countries no longer need them to purchase oil.

A downward spiral results, and U.S. Dollar-based economies implode. Oil purchasing power is severely weakened, and first-rate industrial empires are brought to their knees.

But what about ‘peak oil’? It’s a myth based on an antiquated 18th century geological theory, so-called ‘fossil’ fuels. [6] [7] Read Revolutionary ‘peak oil’ coverage, The ‘Peak Oil’ Myth.

Reuters: “The weak dollar’s leading role in oil’s ascent to record highs… reflects a shift in the greenback’s relationship with crude.”

“I’m certainly in the camp of dollar weakness driving crude strength,” said Anatol Feygin, head of global commodity strategy at Bank of America.”

“With growing OECD inventories, revised lower demand, increased OPEC production and a relatively mild hurricane season, the dollar seems to be much more the issue.”

Resource Investor: “People do not realize that a lot of movements in the oil price… are caused by fluctuations of the dollar versus the major currencies,” Pavel Erochkine of the Centre for Global Studies in London told Resource Investor.

“As the U.S. dollar is likely to continue to fall, oil prices will be automatically pushed up…”

The Financial Express: “We must be aware that it is not the price of crude oil that has risen but the dollar value that has weakened,” said Mohammad Ali Khatibi, Deputy Director of International Affairs at the National Iranian Oil Company.”

“Currently the prices of crude oil do not follow supply and demand and they will gain moderation in the event of improvement in (the value of) the dollar,” he was quoted as saying by the Oil Ministry website Shana.”

A succinct history of the Dollar/Oil relationship is Ron Paul’s The End of Dollar Hegenomy. Relevant excerpts:

The ‘Gold Standard’

“The 1944 Bretton Woods agreement solidified the dollar as the preeminent world reserve currency, replacing the British pound… the world readily accepted our dollar (defined as 1/35th of an ounce of gold) as the world’s reserve currency.”

“It all ended on August 15, 1971, when Nixon closed the gold window and refused to pay out any of our remaining 280 million ounces of gold. In essence, we declared our insolvency and everyone recognized some other monetary system had to be devised in order to bring stability to the markets.”

The ‘Oil Standard’ – by consent

…elite money managers, with especially strong support from U.S. authorities, struck an agreement with OPEC to price oil in U.S. dollars exclusively for all worldwide transactions. This gave the dollar a special place among world currencies and in essence “backed” the dollar with oil.

Dollar Inflation

During the 1970s the dollar nearly collapsed, as oil prices surged…The pressure on the dollar…reflected reckless budget deficits and monetary inflation during the 1960s.”

The ‘Oil Standard’ – by force

“Most importantly, the dollar/oil relationship has to be maintained to keep the dollar as a preeminent currency. Any attack on this relationship will be forcefully challenged-as it already has been.

In November 2000 Saddam Hussein demanded Euros for his oil…”

“Within a very short period after the [U.S.] military victory [in Iraq], all Iraqi oil sales were carried out in dollars. The Euro was abandoned…”

“In 2001, Venezuela’s ambassador to Russia spoke of Venezuela switching to the Euro for all their oil sales. Within a year there was a coup attempt against Chavez, reportedly with assistance from our CIA…”

“Iran, another member of the “axis of evil,” has announced her plans to initiate an oil bourse in March of this year [2006]. Guess what, the oil sales will be priced Euros, not dollars.”

The Iranian oil bourse did eventually open in early 2008 after multiple delays. But a funny thing happened just days before it was to begin trading oil in Euros. The entire Persian Gulf region lost internet connectivity. [8]

PART 2: Dollar Inflation Raises Oil and Commodity Prices

Sources:

[1] The End of Dollar Hegenomy, Hon. Ron Paul of Texas, Before the U.S. House of Representatives, February 15, 2006

[2] Weak Dollar Central to Oil Price Boom, Reuters, Sept. 26, 2007

[3] OPEC Considers Move Off U.S. Dollar Peg, Will Russia Be First?, Andrew K. Burger, Nov. 19, 2007

[4] Dollar causes record oil prices: Iran, Reuters, May 10, 2008

[5] Inflation and the Federal Reserve, Richard C. Cook, Oct. 2, 2007

[6] Forget everything you think you know about oil, Worldnetdaily.com, Oct. 18, 2005

[7] Oil Without End? Revisionists say oil isn’t a fossil fuel. That could mean there’s lots more of it., Julie Creswell, Feb. 17, 2003

[8] ‘Iran Oil Bourse’, US Dollar and Internet Cables, Mathaba News Agency, Feb. 6, 2008

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1 Comment

Filed under Iraq, Oil Prices, Peak Oil, Ron Paul

One response to “Dollar Inflation the Primary Cause of Rising Oil Prices, ‘Peak Oil’ a Myth – PART 1

  1. Pingback: Oh but it couldn't be Obama's Energy Policies - Southern Maryland Community Forums

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