Wall Street, Iraq and the Declining Dollar

…In the four years since the toppling of Saddam Hussein, the Iraqi oilfields and associated infrastructure have sustained 400 attacks. And because of the situation on the ground, Iraqi oil production, at 1.95 barrels per day during the first quarter of 2007, was far short of the government’s goal of 2.5 million barrels per day and the previous peak of 3.7 million under Saddam. In this asymmetrical war, our enemies are spending a fraction of our costs on improvised explosive devices, chlorine gas and suicide bombers, while we invest heavily in noneffective weapons systems and force structures.

US oil and gas production peaked in the early ’70s, and we are now by far the world’s largest energy importer. The largest oilfields in Saudi Arabia, Kuwait, Iran, Syria, Yemen and Oman are in decline, as are most oilfields in the former Soviet Union, Canada, Central and South America, and on-shore Africa. New fields will be discovered and new technologies brought to bear, but costs of production will be higher than in the past and will require more expensive investments in equipment and technology.

Even as existing fields age, the new economies of India and China require more and more oil to fuel their impressive growth. Although a worldwide depression might result in a temporary drop in the price of oil and other commodities, the long-term imbalance between growing demand and declining supply will eventually reassert itself, creating price increases over time.

Contemporaneously with the supply/demand imbalance in oil and other hard commodities, the Bush Administration’s response to 9/11 has weakened the position of the dollar in the world. The President’s request that Americans continue to spend has struck an all-too-sympathetic chord with the American people. The trade deficits caused by that spending have created a current account deficit equal to 6.2 percent of GDP, sending trillions of dollars into the hands of foreigners.

The Nation