Sunday, September 30, 2007

War, the tar sands, and the dollar

If George W. Bush had campaigned for a weaker economy and a weaker dollar it's doubtful he would have been reelected in 2004. Bush didn't intend for the American dollar to lose 40% of its value relative to the Canadian dollar but this was the unintended consequence of the Iraq war.

When the neo-conservatives in Bush's administration planned the Iraq War their intentions were probably twofold: to secure a steady supply of oil for the American economy and, by making an example of Iraq, to shock and awe the rest of the world into agreeing with whatever Americans wanted.

But the history of the twentieth century is littered with wars like the First and Second World Wars that got way out of hand, creating chaos and destruction unparalleled in previous human history.

Before the American invasion, Iraq, under Sadamm Hussein, was a stable country. Soon after the invasion social and political order crumbled. As a consequence Iraq produces less oil now than it did before the war. This, and the uncertainty that goes along with wars in an oil producing region, has led to a huge increase in the price of oil. Because the United States imports so much oil, the high price has led to a steady loss in the value of the American dollar.

While the Iraq War has led to the recent decline in the American dollar, it has also led to the rise in the value of the Canadian dollar. The higher price of oil has made the Alberta tar sands, which contains almost as much recoverable oil as Saudia Arabia, a very valuable piece of real estate. As the price continues to rise, investment money pours into Alberta, helping raise the value of the Canadian dollar. Unlike the United States, which has to import most of its oil Canada is a net producer of oil.

But what if the Bush administration were to launch a “pre-emptive war against Iran, which it is, in fact, threatening to do? Iran would likely attack oil tankers in the Strait of Hormuz, shutting down the flow of oil from Saudia Arabia. The price of oil might reach two hundred dollars a barrels as a result.
The unintended consequence? The Canadian dollar would surge ahead of the American dollar as American dollars pay for Canadian oil and foreign investment pours into Alberta and drains out of the United States. The Alberta economy has benefitted from the Iraq War and would benefit even more from a war in Iran.

But the rest of the Canadian economy would be squeezed between skyrocketing energy costs and the high dollar, devastating the manufacturing industries in Ontario and Quebec. This would be especially true if we are locked in to producing more and more oil for export to the U. S. as a result of the NAFTA proportionality clause, and U. S. demands for greater “energy security”, which is the theme of the new “Security and Prosperity Partnership”.

Since coming to power, Prime Minister Harper has echoed American foreign policy, from uncritical support of Israel's agression in Lebanon to helping the Americans fight the Taliban on a semi-permanent basis. If the U.S. bombs Iran, will Harper fall in behind George W. Bush yet again? It would certainly benefit Alberta but not the rest of Canada.

With the possiblility of higher oil prices on the horizon the least we could do is increase the royalties from oil production and put a surtax on oil profits. The oil companies will protest that they will pull out if it happens, but that's a joke. Right now, almost no-one is making as much money as the oil companies. A country like Norway, which produces similar quantities of oil is receiving twenty times as much in royalties as Alberta.

At eighty-five dollars a barrel, oil profits are not earned but are the unintended consequences of America's wars. And the rest of Canada is going to need some compensation from the crippling rise in energy costs.

1 comment:

  1. Hi,

    I have a blog, no degree and am an unemployed secretary who lives in America.

    Yet and still, the lack of information about the American economy and the recent decline in the dollar and the parity between the American dollar and Canadian dollar are very interesting to me.

    I'm already poor but what I've read leads me to believe that America is headed not only for recession but another Great Depression.

    Would you be willing to discuss this with me and where I'm right or wrong about what's happening.

    Again, I'm just a layperson in these matters so it might be a tad tedious.

    I can be reached through my blogger profile. : )