The Price Of
Oil And The Bush Dollar
By Dave Lindorff
10 April, 2005
Counterpunch
There's
been a lot of hand-wringing going on among economists and politicians,
and a lot of fuming at the gas pump by consumers over the soaring price
of oil over the last two years.
Increasingly, concern
is being expressed by treasury officials and economists about the negative
impact soaring oil prices and related gas prices could have on the overall
economy. Politicians-especially Republicans-- are also fretting, since
the thousands of extra dollars consumers are now spending on electricity,
home heating and gasoline have, for all but the wealthiest taxpayers,
more than cancelled out any minimal benefits they saw from the president's
tax cuts.
What's wrong with
this picture?
The focus of all
this anger and angst is oil prices. As a result, everyone is looking
at culprits in the wrong place, blaming wasteful energy use, OPEC production
quotas, monopolistic oil companies and/or conniving oil traders.
In fact the real
culprit behind these higher oil prices is the Bush Administration, which,
thanks to its massive deficits and tax give-aways to the rich and corporations,
to its war spending, and to its failure to combat unprecedented and
ever-larger trade deficits, has been causing the dollar to plunge in
value.
Oil is a commodity
and it is priced in dollars. If dollars decline in value, then the price
of oil will rise in inverse proportion.
One need only look
at Europe to see what this means.
Over the period
from February 1, 2003, just before the start of the Iraq War, when oil
prices began to rise in earnest, to Feb. 1, 2005, the price of a barrel
of oil in dollars rose about 30 percent, from $30.13 a barrel to $42.91
a barrel. But over that same period of time, the Euro, Europe's new
combined currency, rose 21 percent against the U.S. dollar, from .93
Euros to the dollar in February, 2003 to just .77 to the U.S. dollar
in February, 2005.
For Europeans, then,
the net rise in oil prices over the two years of the Iraq War has been
just 9 percent, or less than 5 percent per year-hardly the kind of energy
inflation that would cause economic problems.
And this situation
is likely to get only worse. Some Wall Street oil industry analysts
are now predicting that oil could, before too long, hit $100 a barrel.
What they are saying really is that the dollar is likely to fall in
value by 50 percent.
Should that happen,
though, the OPEC states would likely at some point along the way decide
that it is ridiculous for them to continue pricing oil in dollars, since
the piles of dollars filling their bank vaults will be losing value
faster than their oil wells are emptying. At some point, the oil producing
states, including Russia and Norway, will inevitably switch to pricing
their oil in a basket of currencies-a basket that would prominently
feature the Euro and probably the Japanese Yen.
At that point there
would be little left to prop up the dollar, and it could end up becoming
little better than a Third World currency.
That's something
to chew on next time you're filling your car with $2.25/gallon or $2.50/gallon
gas at the local pump.
It's not oil sheiks
or even oil executives (though they're certainly raking in the dough!);
it's Bush economic policy, stupid.
Dave Lindorff can
be reached at: [email protected]