From Drugs, Oil, and War by Peter Dale Scott, Chapter Two, 41-42, 53-54:( Click here for more information about my book)

The US dependency on international oil and petrodollars has been accelerated, in the context of globalization and war.

At the height of the Vietnam War, with inflation threatening to wreck his domestic program for a “great society,” Lyndon Johnson relaxed the import quota system that had been introduced by Eisenhower to protect domestic US oil production. <19> This increased US vulnerability to the pressure of OPEC oil boycotts in the 1970s, and that vulnerability would be further heightened after Nixon abolished quotas altogether in 1973.

The US handled the quadrupling of oil prices in the 1970s by arranging, by means of secret agreements with the Saudis, for the recycling of petrodollars back into the US economy. The first of these deals assured a special and on-going Saudi stake in the health of the US dollar; the second secured continuing Saudi support for the pricing of all OPEC oil in dollars. <20> These two deals assured that the US economy would not be impoverished by OPEC oil price hikes. The heaviest burdens would be borne instead by the economies of less developed countries. <21>

From these developments emerged the twin phenomena, underlying 9/11, of triumphalist US unilateralism on the one hand, and global third-world indebtedness on the other. The secret deals increased US-Saudi interdependence at the expense of the international comity which had been the base for US prosperity since World War II. They also increased Saudi leverage on U.S. foreign policy, as was seen in the 1979 sale of F-15 fighter planes to Saudi Arabia, against strong Israeli opposition. <22> In particular they explain why George Bush moved so swiftly in 1990 to counter the threat posed by Saddam Hussein to U.S.-Saudi security in the Persian Gulf. The threat was not just that the US itself would lose oil from the Gulf, against which the U.S. was partially insured by the redundancy in world oil supplies. A bigger threat was that Saddam would become the dominant power in the Persian Gulf, directly controlling 20 percent of OPEC production and 25 percent of world oil reserves. <23>

The US-Saudi deals also increased the dependence of the US on oil- and drug-funded Arab assets such as BCCI, the Bank of Credit and Commerce International, which in the 1980s became a chief paymaster for the anti-Soviet Afghan mujahedin, and even ran arms directly to them from Karachi. <24> (The failure of the US Government to investigate and prosecute BCCI reflected not only the extent of BCCI penetration of US ruling circles, but also the dependency of the US economy on the continued influx of petrodollars and narcodollars. As a former NSC economist commented, “[Treasury Secretary James] Baker didn’t pursue BCCI because he thought a prosecution of the bank would damage the United States’ reputation as a safe haven for flight capital and overseas investments.” <25>

Some had expected that the successful OPEC revolt in the 1970s against Washington’s and London’s economic policies would presage a “new economic order” that would strengthen the South vis-а-vis the North. The secret Saudi-US deals led to a different outcome: a “new world order” that saw increasing US military dominance combined with increasing economic instability and occasional crises elsewhere. Statistics reveal the change in direction. Between 1960 and 1980 per capita income grew 73 percent in Latin America and 34 percent in Africa. Between 1980 and 2000 income grew less than 6 percent in Latin America, and declined by 23 percent in Africa. <26>

This loss of economic stability and momentum, combined with political impotence in the face of US military hegemony, are of course root factors to be addressed in any serious effort to combat terrorism.

<19> Yergin, The Prize, 538-39.

<20> David E. Spiro, The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets (Ithaca: Cornell UP, 1999), x: “In 1974 [Treasury Secretary William] Simon negotiated a secret deal so the Saudi central bank could buy U.S. Treasury securities outside of the normal auction. A few years later, Treasury Secretary Michael Blumenthal cut a secret deal with the Saudis so that OPEC would continue to price oil in dollars. These deals were secret because the United States had promised other industrialized democracies that it would not pursue such unilateral policies.” Cf. 103-12.

<21> “So long as OPEC oil was priced in U.S. dollars, and so long as OPEC invested the dollars in U.S. government instruments, the U.S. government enjoyed a double loan. The first part of the loan was for oil. The government could print dollars to pay for oil, and the American economy did not have to produce goods and services in exchange for the oil until OPEC used the dollars for goods and services. Obviously, the strategy could not work if dollars were not a means of exchange for oil. The second part of the loan was from all other economies that had to pay dollars for oil but could not print currency. Those economies had to trade their goods and services for dollars in order to pay OPEC” (Spiro, Hidden Hand, 121).

<23> See also below. John Loftus and Mark Aarons (The Secret War Against the Jews (New York: St. Martin’s Press, 1994), 343), who do not mention the two secret financial deals with the Saudis, offer a different and I think one-sided account of the sale of the F-15s; cf. Spiro, Hidden Hand, 123-24.

<23> Yergin, The Prize, 772.

<24> Cooley, Unholy Wars, 116-17.

<25> Jonathan Beaty and S.C. Gwynne, The Outlaw Bank: A Wild Ride into the Heart of BCCI (New York: Random House, 1993), 357.

<26> Greg Palast, The Best Democracy Money Can Buy (London: Pluto Press, 2002), 48. Palast supplies examples of how the IMF, created at Bretton Woods in 1944 to promote economic stabilization and growth, has since 1980 promoted the opposite by policies that contract economies to preserve debt payments. Cf. Nobel-winning economist Joseph Stiglitz, formerly of the World Bank, on the IMF response to the Asian crisis of 1997: “It went to the countries and told them to be more contractionary than they wanted, to increase interest rates enormously. It was just the opposite of the economic analysis that was the basis of the founding of the IMF. Why? In order to make sure that creditors got repaid” (Joseph Stiglitz [Interview with Lucy Komisar], Progressive [June 2000]: 34).