On June 10, Saudi-Qatar-Kuwait backed Sunni jihadis led by Abu Bakr al Baghdadi, a terrorist released from an American detention camp in Iraq in 2009, seized the oil-rich Iraqi city of Mosul, with covert US blessing. The Kurdish peshmerga seized the oil-rich city of Kirkuk on June 12, and announced plans to sell oil to Turkey. A tanker carrying 1 million barrels of crude oil is due to sail for Turkey on June 22. The events signalled the possible breakup of Iraq as it existed under Saddam Hussain, and pushed up oil prices, giving a new lease of life to the US dollar.
It is difficult not to see a connection between these sudden developments and the $400 billion energy deal between Russia and China in May 2014, in local currencies, as both Moscow and Beijing are determined to undermine the Dollar as international fiat currency, particularly in oil and gas. World capitals have noted US President Barack Obama’s refusal to help the friendly Nouri al-Maliki regime repel the terrorists, though he formally denounced the invasion. Washington has undertaken airstrikes in eight nations under the pretext of combating terror; in Iraq it resisted a call for help from a legitimate Government.
Though the rebels are a long way from the Shia-dominated Basra in the south, where most Iraqi oil is located, the Gulf oil market has become risky and volatile. On Tuesday, June 17, troops of the Islamic State of Iraq and Syria (ISIS) attacked Iraq’s largest oil refinery in Baiji, 155 miles north of Baghdad. The refinery produces more than a quarter of the country’s entire refining capacity, all of which is consumed domestically for petrol, cooking oil and fuel for power stations. In neighbouring Syria, the ISIS has used its control of oilfields to fatten its wallet, pointing to a flourishing black marked in oil. The group is said to have a formidable war chest of $152 billion and huge caches of illegal weapons
ISIS controls large swathes of Iraqi territory and has reportedly reached Baquba, less than 40 miles north of Baghdad and is threatening to march to Baghdad and the holy cities of Kerbala and Najaf; all house some of the most revered Shia sites. The ISIS also tried to capture Samarra, which hosts another major Shia shrine.
These developments have complicated peace in the region with Iranian President Hassan Rouhani warning of action to protect the shrines. News reports say that Qassem Suleimani, commander of the Quds force of the Iranian Revolutionary Guard Corps (IRGC), visited Baghdad last week to advise Prime Minister Nouri al-Maliki.
Of added concern are reports about foreign workers in Iraq, including 40 Indian construction workers in Mosul and stranded nurses in Tikrit. The ISIS is said to have caught 60 workers including 15 Turks who were building a hospital near the town of Dour in Salahuddin province near Kirkuk; previously 80 Turkish nationals were captured in Mosul, 49 from the Turkish consulate. There are no ransom demands so far.
Amidst reports that several British and American radicals are fighting on the side of the ISIS (Foreign Secretary William Hague has confirmed that British citizens are fighting the regime in Syria and are probably in Iraq as well), analysts point out that the formation of a terrorist entity encompassing Iraq and Syria was always part of a longstanding US agenda to split both Iraq and Syria into three separate enclaves: a Sunni Islamist Caliphate, an Arab Shia Republic, and a Republic of Kurdistan. The ISIS successes coincide with the success of Syrian Government forces against the US-sponsored insurgency in Syria and the failures of the Free Syrian Army (FSA) and the multiple “opposition” terror brigades.
Since the crisis broke out, Washington ostensibly sought Tehran’s cooperation to fight ISIS terrorism, through talks in Vienna. Observers, however, feel this is a pretext to drag Iran into the conflict without moving forward; others feel that Tehran is seeking a pretext to intervene more directly in Iraq as it is well aware that ISIS is a CIA asset. ISIS leader Abu Bakr al Baghdadi was the leader of al Qaida’s Iraq branch till he was kicked out over operational differences and created the ISIS.
If the ISIS moves towards Baghdad, it will have to fight the Iranian-trained Shiite militias who had resisted American troops for years. Baghdad is now a Shia-majority city and over the past few days, following a call from Grand Ayatollah Ali Sistani, thousands of Shia volunteers have begun to converge on the city to fight the ISIS. Baghdadi may not be able to hold the territory, especially if reports that Syria and Iran are entering the fray are true. A Shia axis is fast emerging in the region. Iran has used Iraqi airspace to funnel arms to the Assad regime in Syria, and resisted US pressure to compel the Shia-dominated al-Maliki regime to negotiate with Sunni opponents.
Meanwhile, as the price of oil turns volatile, Prime Minister Narendra Modi will have to seriously ponder India’s energy options if we are to overcome the economic stagnation of the past decade and generate growth with employment. An obvious solution – for both the short term and long term – is Iran. New Delhi must urge Moscow and Beijing and if possible Japan to step up and fight the imposition of western (read American) diktat on nations that resist domination through economic sanctions. Seizing the sovereign wealth of target countries must be declared illegal.
Iran is a friend of India, Russia and China and has a critical role in the energy security of Beijing and New Delhi. Experts believe that Russia and China assisted Iran to withstand the stress of American-imposed economic sanctions (on the pretext of its nuclear quest); else Tehran would have faced serious difficulties by now, as happened to Iraq. The world needs to promote trade in multiple currencies, and a system whereby inter-bank transfer between nations is not held hostage to western diktat. Indeed, this should have been done after the destruction of Libya and murder of Col Gaddafi for mooting the African gold dinar.
Moscow and Beijing are working proactively to undermine the US Dollar as the world reserve currency; their recent energy deal was a major step in that direction. Russia has also developed its own credit card companies, which has hit American credit card firms badly. If the BRICS (Brazil, Russia, India, China, South Africa) nations succeed in launching a new international development bank this July, a serious alternative to the IMF would emerge. On June 8, Russia opened its own oil exchange to trade crude oil and petroleum products for roubles and gold.
Further, after the crisis in Ukraine, Russia began to dump US bonds and in March alone sold 20 per cent of its holdings, a record $26 billion. Overall, it has dumped bonds worth $50 billion, or one-third of its holdings. International financial observers have noted that following Moscow’s dumping, tiny Belgium began making massive purchases of the US Treasury bonds; this has led to speculation that the Federal Reserve and/or the European Central Bank may be behind the frantic buying.
Bloomberg reports that simultaneously, the Russian central bank increased its gold reserves by 900,000 ounces worth $1.17 billion in April. The Russian central bank has announced that its gold reserves stand at 34.4 million troy ounces in April 2014, and the value of its gold holdings stands at $44.30 billion as of May 1, 2014. Gold as a percentage of the overall Russian reserves is now nearly 10%. Analysts say that Russia may be planning to give the rouble some form of gold backing to protect it from devaluations and protect Russia from an international monetary crisis as currency wars are clearly on the anvil.
The tide of history is in favour of the non-Western nations. Hence, they must actively work to end the Iranian oil embargo. Given its strategic position astride the Indian Ocean, India can offer safe access to the maritime corridors which are critical for trade with the Persian Gulf, Africa and Latin America. China needs Persian Gulf oil, as does India, which can also benefit from Iranian LNG. This may also be the appropriate time to revive the then Prime Minister Atal Bihari Vajpayee’s proposal for an Iran-India undersea gas pipeline.
Washington mistakenly believes that this is still a unipolar world, but the world is multipolar and Asia itself is home to rising economic and military powers which seek mutual cooperation with each other to end Western domination. They will increasingly trade with each other in non-dollar currencies.
Niticentral.com, 19 June 2014
http://www.niticentral.com/2014/06/19/iraq-conflict-oil-prices-and-the-dollar-231904.html