Nos. 33 & 34, December 2002


Why this Special Issue: India as a Pillar of US Hegemony

From Colony to Semi-Colony

Towards Nationalisation

The Iran-Iraq War: Serving American Interests

The Torment of Iraq

Return of Imperialist Occupation
The Current Strategic Agenda of the United States

Home Front in Shambles

Military Solution to an Economic Crisis
US Declares India a Strategic Pillar

The Pages Ripped out by the US from the Weapons Report

Real Reasons for the US Invasion:
Military Solution to an Economic Crisis

Indeed the US has taken the contrary course. It plans to reverse the various trends mentioned above by seizing the world’s richest oil-producing regions. This it deems necessary for three related reasons.

1. Securing US supplies: First, the US itself is increasingly dependent on oil imports—already a little over half its daily consumption of 20 million barrels is imported. It imports its oil from a variety of sources—Canada, Venezuela, Nigeria, Saudi Arabia, even Iraq. But its own production is falling, and will continue to fall steadily, even as its consumption continues to grow. In future, inevitably, it will become increasingly dependent on oil from west Asia-north Africa—a region where the masses of ordinary people despise the US, where three of the leading oil producers (Iraq, Iran and Libya) are professedly anti-American, and the others (Saudi Arabia, Kuwait, the United Arab Emirates) are in danger of being toppled by anti-American forces. The US of course doing its best to tie up or seize supplies from other regions—west Africa, northern Latin America, the Caspian region. And yet the US cannot escape the simple arithmetic:

“The US Department of Energy and the International Energy Agency both project that global oil demand could grow from the current 77 million barrels a day (mbd) to 120 mbd in 20 years, driven by the US and the emerging markets of south and east Asia. The agencies assume that most of the supply required to meet this demand must come from OPEC, whose production is expected to jump from 28 mbd in 1998 to 60 mbd in 2020. Virtually all of this increase would come from the Middle East, especially Saudi Arabia.

“A simple fact explains this conclusion: 63 per cent of the world’s proven oil reserves are in the Middle East, 25 per cent (or 261 billion barrels) in Saudi Arabia alone...

“Although Asian demand for oil is expected to grow dramatically in coming decades, no other economy rivals that of the United States for the growth of its oil imports. Over the past decade, the increase in the US share of the oil market, in terms of trade, was higher than the total oil consumption in any other country, save Japan and China. The US increase in imports accounts for more than a third of the total increase in oil trade and more than half of the total increase in OPEC’s production during the 1990s. This fact, together with the fall in US oil production, means that the US will remain the single most important force in the oil market.” (“The Battle for Energy Dominance”, Edward L. Morse and James Richard, Foreign Affairs, March-April 2002; emphases added)

Given its growing dependence on oil imports, the US cannot afford to allow the oil producing regions to be under the influence of any other power, or independent.1

2. Maintaining dollar hegemony: Secondly, if other imperialist powers were able to displace US dominance in the region, the dollar would be dealt a severe blow. The pressure for switching to the euro would become irresistible and would ring the death knell of dollar supremacy. On the other hand, complete US control of oil would preserve the rule of the dollar (not only would oil producers continue to use the dollar for their international trade, but the dollar’s international standing would rise) and hurt the credibility of the euro.

In the 1990s the major OPEC countries, after two decades of discouraging or prohibiting foreign investment in oil and gas fields, raced to invite foreign investment again to carry out massive new developments. In the late 1990s Venezuela, Iran, and Iraq struck massive deals with foreign firms for major fields. Even Saudi Arabia invited proposals for development of its untapped natural gas reserves, a move that oil giants responded to with alacrity in the hope the country’s mammoth oil fields too would later be opened to foreign investment. However, American firms were shut out of Iran and Iraq by their own government’s sanctions; French, Russian and Chinese firms got the contracts instead. Chavez’s increasing assertiveness threatens to shut American firms out of Venezuela as well. The Saudi deal—which the American firms were to lead—stands cancelled, apparently because of the Saudi government’s fear of public resentment. Thus, if it does not invade the west Asian region, the US stands to lose dollar hegemony by losing control of the major oil field development projects in the next decade.

3. Oil as a weapon: Thirdly, direct American control of oil would render potential challengers for world or regional supremacy (Europe’s imperialist powers, Japan and China) dependent on the US. It is clear the US is following this policy:

  • As mentioned above, French, Russian and Chinese firms will get evicted from Iran and Iraq once the US troops enter.

  • The US has gone to great lengths to frustrate alternatives to its Baku-Ceyhan pipeline (which is to run from the Caspian through Turkey to the Mediterranean). With the US invasion of Afghanistan, the US has set up a chain of military bases in Central and South Asia—Pakistan, Afghanistan, Kyrgystan, Tajikistan, and Uzbekistan, with military advisers in Georgia as well.

  • The US is about to send two battalions of Marines to help suppress the insurgency in Colombia; it is training a new brigade to protect Occidental Petroleum’s pipeline in that country. At the same time it is actively organising the overthrow of the elected Chavez government in Venezuela.

  • The Institute for Advanced Strategic and Political Studies, an Israeli lobby group that met President Obasanjo of Nigeria in July 2002, claims the US is on the verge of a “historic, strategic alignment” with west Africa and that the region is “receptive to American presence”. The institute has advocated the setting up of a US Gulf of Guinea military command: the island of Sao Tome, south of Nigeria and a possible site for a naval base, hosted a visit from a US general in the same month. The activity comes while the Nigerian government is considering leaving OPEC, and developing its oil trading relationship with the US instead. The region already provides 15 per cent of US oil imports, and these are set to rise to 25 per cent by 2015 (“US takes good look at west African oil”, Michael Peel, Financial Times, 25/7/02)

  • A look at the relative dependence of various imperialist powers on oil imports is revealing. The UK is a net oil exporter, thanks to the North Sea. The US imported, in 2000, 9.8 million barrels a day of its 19.5 million barrel requirement—that is, about half. By contrast, Japan imported 5.5 out of 5.6 million barrels; Germany 2.7 out of 2.8; France 2.0 out of 2.1; Italy 1.8 out of 2.0; and Spain 1.5 out of 1.5. (“Top Petroleum Net Importers, 2000”, US Energy Information Administration, In other words, these countries imported 90 to 100 per cent of their oil requirements. They would therefore be very vulnerable to blackmail by a power which is able to dictate the destination of oil.

    The current US policy is not entirely novel. In the aftermath of World War II, the US had invested large sums in rehabilitating the devastated economies of Europe—what was known as the ‘Marshall Plan’. However, it used the Plan in order to dictate changes in European economies that made them switch from using their own coal to using oil which American oil majors in west Asia were in the best position to supply.

  • A major consideration in the US’s great oil grab is its desire to check China. In coming years, China, like the US, will become a major importer of oil and gas: it is projected to import 10 million barrels a day by 2030—more than eight per cent of world oil demand. (The US currently imports a little over 10 million barrels of its daily requirement of 20 million barrels.) As China attempts to arrange its future oil supplies, it finds itself checked at each point by the US:

    i) Since the mid-1990s, China has been pressing for a gas pipeline from the Caspian region to China. With a view to building a security-cum-economic organisation for the proposed pipeline, China took the initiative to form a group called the “Shanghai Five” (later six) consisting of China, Russia, and the relevant central Asian states (Kazakhstan, Kyrgyzstan, Tajikistan, and later Uzbekistan). The declared basis for the group was to control fundamentalism and terrorism in the region (stretching to China’s westernmost Xinjiang province). However, with the US’s invasion of Afghanistan, and the installation of its forces in the very countries who were to be in the Shanghai grouping, China’s initiative was sabotaged. On a visit to Iran, Chinese president Jiang Zemin declared that “‘Beijing’s policy is against strategies of force and the U.S. military presence in Central Asia and the Middle East region’.... Beijing would work together with developing nations to counter American ‘hegemonism.’” (“China opposes U.S. presence in Central Asia”, Willly Wo-Lap Lam, CNN, 22/4/02)

    ii) In 2002, Chinese firms have bought two Indonesian fields for $585 million and $262 million, respectively. Indonesian president Megawati Sukarnoputri has visited China twice since becoming president in 2001, hoping to bag a $9 billion contract to supply liquid natural gas to power industries in southern China. (“China Races to Replace US as Economic Power in Asia”) No surprise that the US has stepped up its activities in the vicinity of Indonesia—forcing the Philippines to accept its “help” in hunting fundamentalists, patrolling the Malacca straits in tandem with the Indian navy, and pressing Indonesia to accept US `cooperation’ in suppressing Al Qaeda elements in Indonesia itself. A December 2001 RAND Corporation presentation to a US Congress committee on “threats to the security and stability of Southeast Asia and to US security interests in the region” said that the “primary area of concern is China’s emergence as a major regional power.... China’s assertiveness will increase as its power grows”. It speculated that “conflict could be triggered by energy exploration or exploitation activities”, and recommended the creation of a “comprehensive security network in the Asia-Pacific region.” Discarding the then US cover that it was hunting for a handful of Abu Sayyaf guerrillas in the Philippines, RAND Corporation says that “the US should provide urgently needed air defence and naval patrol assets to the Philippines to help Manila re-establish deterrence vis-a-vis China and give a further impetus to the revitalization of the United States-Philippine defence relationship.... the US should expand and diversify its access and support arrangements in Southeast Asia to be able to effectively respond in a timely way to unexpected contingencies. After all, six months ago, who would have thought that US armed forces would be confronted with the need to plan and execute a military campaign in Afghanistan?” The Bali terrorist blast may prove a happy entry point for the US into Indonesia.

    iii) Finally, like the US, China cannot avoid reliance on west Asian oil. China has struck oil field development deals with the very countries in west Asia hit by US sanctions—Iraq, Iran, Libya and Sudan. With this entire region now to be targeted in the impending invasion, China’s deals are sure to meet the same fate as its central Asian pipeline. Hardly surprising, then, that “Chinese leaders believe that the US seeks to contain China and [the US] is therefore a major threat to its [China’s] energy security”, as the US-China Security Review Commission’s report points out. (“China digs for Middle East oil, US gets fired up”, Reuters, 24/9/02)

The thrust is clear: Once it has seized the oil wells of west Asia, the US will determine not only which firms would bag the deals, not only the currency in which oil trade would be denominated, not only the price of oil on the international market, but even the destination of the oil.

In the short term
In the short term, the US anticipates being in a better position than its rivals to absorb the immediate disruption arising from the war. It seems unlikely that the conventional armed forces of the Iraqi regime—depleted anyway to one-third of their 1990 strength—would pose much of a problem for the US’s initial occupation of Iraq.

While the oil price hike would have an impact on all countries, the US assesses that it would be in a better position to take the immediate impact of higher oil prices than other countries:
First, it has higher disposable income than the rest of the world, and net energy imports account for just one per cent of its GDP. The US being a bigger, more powerful economy, can better protect itself from the consequences of the price hike.2

Secondly, compared to other imperialist countries the US imports a smaller share of its energy needs. (It also has a strategic petroleum reserve of 580 million barrels - or almost two months’ imports.) Moreover, the US economy depends less on heavy industry than either the third world or other imperialist countries do, and therefore takes less of a hit when fuel prices rise.

Thirdly, and crucially, at times of international crisis capital docks at safe harbours. The US anticipates that as it demonstrates its might before the rest of the world, and the world’s oil supplies fall into its hands, investors would put their money on the dollar. If the dollar appreciates against other currencies, the US would feel the impact of the oil price hike less than other countries.(see “The Profits and Pitfalls of War in Iraq”, Strategic Forecasting,

Such a strategy, however, would have a perverse effect even if it succeeds. As the dollar’s value rises, American goods would be displaced at home by the then even cheaper imports. US business investment, which has already fallen “virtually to the capital replacement level”, would fall even further, shrinking the manufacturing base.3 The trade deficit—the difference between exports and imports—would widen even further, but the US would pay for it with inflows of foreign capital seeking security in the powerful dollar. As the values of other currencies fell against the dollar, other economies would be less able to absorb American imports, deepening the manufacturing recession in the US and the US trade deficit even further. The picture is one of consumption without production, dependent on inflows of borrowed foreign capital, which inflows are in turn dependent on American military supremacy. (see “The Unbearable Costs of Empire”, James K. Galbraith, The American Prospect, 18/11/02)

Expansion on a weakening base
The US’s grand strategy, while portending tremendous upheaval and suffering for the rest of the world, thus has its logic. It is a pattern familiar to students of imperialism—a declining imperialist power relying on military power and possession of colonies to make up for its ebbing economic strength. However, the US’s military-adventurist course to maintaining its long-term world hegemony is fraught with difficulties that, too, would be familiar to students of imperialism.

There are huge economic costs to a strategy of imperialist expansion on a weakening productive base. Even without a war US military spending swallows four per cent of the GDP: the US military budget this year is $379 billion, $48 billion over the previous year. By comparison, US military spending during the Cold War (when the US faced a formidable, nuclear-armed adversary) averaged $347 billion in 2002 dollars (see statistics compiled by Defense and the National Interest online magazine,

The cost of an invasion of Iraq is hard to estimate. Estimates put out by the US Congress range from $44 billion to $60 billion. These seem underestimates of even the direct costs. The 1991 assault on Iraq cost $61 billion, of which $48 billion was paid for by the US’s allies. Assuming the impending invasion would cost the same, the bill would come to $80 billion in today’s dollars. Moreover, the Congressional Budget Office estimates the costs of military occupation of Iraq at $17 to $45 billion a year, based on the low end of costs of the Kosovo occupation. Further, the US anticipates invading other states in the region, such as Iran or Saudi Arabia. That would make the war bill an annually recurring feature. Thus direct military spending would rise by around $100 to $200 billion—or another one or two percent of US GDP.

The required funds would have to be borrowed. This at a time when the US recession is pushing up the US budget deficit. Between the spring of 2001 and the autumn of 2002 the annual federal budget deteriorated by $360 billion.

As a well-known American economist, William D. Nordhaus, points out, the broader costs to the US are much greater: higher oil prices for the period in which supply is disrupted (particularly serious if oil wells are damaged), as well as the psychological effect of uncertainty, which would in turn trigger recession of the order of two to five per cent of GDP. Totalling the direct and indirect costs, Nordhaus arrives at a figure of $120 billion over 10 years in a completely favourable case. But he shows that if things go wrong for the US, the total direct and indirect costs could come to $1.6 trillion over 10 years. (“Iraq: The Economic Consequences of War”, New York Review of Books, 5/12/02)

Vast network of installations
In order to maintain its hegemony over diverse and shifting potential adversaries, the US is obliged to set up a vast network of military bases. In 1988, the break-up of US overseas or foreign bases by region was as follows: 627 in Europe, Canada and the North Atlantic; 121 in the Pacific and Southeast Asia; 39 in Latin America; seven in the Middle East and Africa; and zero in South Asia. Of course there was no question at the time of locating bases in Central Asia which was part of the USSR. (“US Military Bases and Empire”, The Editors, Monthly Review, March 2002, citing James R. Blaker, United States Overseas Basing, New York, 1990)

The 1991 assault on Iraq helped bring about the US bases in Saudi Arabia; its intervention in Bosnia, and later its assault on Yugoslavia, brought it bases on the rim of Europe in case Europe should secede from the US-dominated NATO.

Since the invasion of Afghanistan, the picture has changed dramatically. US bases—at first temporary but soon permanent—sprang up in Uzbekistan, Tajikistan, Kyrgyzstan, Afghanistan and Pakistan, and US military advisors are stationed in Georgia. (See map.) American naval vessels now regularly visit Indian ports, and a naval base in northern Sri Lanka appears in the offing with the US intervening in the Tamil national struggle there. “Overall, the American military global presence is more pervasive today than at any point in American history”, says John Pike, a military analyst in Washington. (“US Expands Military Ties Worldwide”, Sally Buzbee, Associated Press, 15/1/02)

But bases are not enough. The US needs to suppress the mass and political forces that are struggling against it in these diverse regions. To meet this need there is a massive hike in US spending to train foreign militaries—which had already risen steeply during the 1990s (by 1999 US Special Operations Forces were carrying out joint exercises with 152 countries). “It’s like the counter-insurgency era all over again”, a US Congressional aide is quoted as saying, referring to the Vietnam war era. “Only this time we’re going to be fighting ‘terrorism’ instead of ‘communism.’” (“Alarm bells ring over US overseas military spending”, Jim Lobe, Asia Times, 9/2/02) “On any given day before September 11, according to the Defence Department, more than 60,000 [US] military personnel were conducting temporary operations and exercises in about 100 countries.” (Los Angeles Times, 6/1/02, quoted in “US Military Bases and Empire”)

The crucial roadblock
It is indeed the “counter-insurgency era all over again”, or the insurgency era, if we look at it from the point of view of those being attacked by the US. The growing military assaults by the US are giving rise to a worldwide protest movement that is in some ways without precedent. It is also giving rise to the anger of greater and greater sections of people. Ironically, the single strong point of the US—its awe-inspiring high-tech military might—has not been able to deliver it a thoroughgoing success even in Afghanistan. Rather, its puppet ruler rules just the capital city and that too with the help of foreign troops and US bodyguards, amid growing anti-American sentiment. The anti-US forces are having such obvious success that even Time magazine (18/11/02) carried a piece titled: “Losing control? The US concedes it has lost momentum in Afghanistan, while its enemies grow bolder”.

In South Korea, where the US is struggling to retain its bases (that today house 37,000 troops) for targeting China at short notice, an extraordinary mass movement is raging at present calling for US withdrawal from the country. Witness the recent rally of 300,000 in the capital, as well as smaller rallies in other cities.

In the Philippines, the US bases were ousted in the early nineties through a sustained mass struggle. The fresh efforts to install US forces is already confronting mass protests from a people who were America’s first overseas colony.

In Pakistan, the only parliamentary platform campaigning for the removal of American bases made dramatic gains in Musharraf’s carefully managed elections. The New York Times reports that US plans for a war on Iraq are fuelling hatred of the US in Pakistan. It cites “a recent worldwide opinion poll by the Pew Research Center: 69 percent of Pakistanis held an unfavorable view of the United States and only 10 percent expressed a favorable one. Of the 44 countries surveyed, Pakistan tied with Egypt for the most negative perception of the United States.” (“Anti-American Feeling Rises in Pakistan as U.S. Confronts Iraq”, David Rohde, 22/12/02)

Even in Kuwait, as American troops prepare for the invasion of Iraq, they are facing repeated attacks from the population whom they supposedly saved in 1991. A Kuwait official is quoted as saying “The Americans have told us to downplay these incidents for fear of creating the sort of climate in which further attacks can happen”. (“US covers up killings of its troops in Kuwait”, Jack Fairweather, The Daily Telegraph, 22/12/02)

In Palestine, Israel—the most powerful military power in west Asia—was completely unprepared for the resistance it met in the refugee camp of Jenin. It had to despatch 10,000 troops and 200 tanks, change commanders five times, and struggle for 16 days to put down the poorly armed Palestinian defenders. The Palestinians paid homage to their fighters by referring to the town as “Jeningrad”—recalling the heroic battle of Stalingrad that marked the turning point of World War II. Jenin has been turned into rubble, and unknown numbers of Palestinians have been slaughtered; yet there is a seemingly endless stream of Palestinian youth ready to take the place of their dead fellow fighters.

And most striking of all, in Venezuela, it is a month since the pro-US forces have launched their second coup attempt, attempting to prevent the functioning of the oil industry and to paralyse the functioning of the government. They have been answered with a great wave of mass mobilisation—completely unreported by the world’s giant media corporations—in favour of the Chavez government, indeed in favour of their sovereignty and dignity.

The US defence secretary has announced that the US is ready and willing to fight more than one “major theatre conflict” at a time. As the US military offensive unfolds in Iraq, in the rest of west Asia, in Colombia, in Venezuela, and in so many other lands, that claim will be put to the test.

The US military juggernaut is still geared to knocking down targets that stand in place, but has a poor record against guerrilla resistance or mass upsurges. As the US forces get bogged down in struggles with no clear conclusion or exit, the calculations of the US’s present offensive drive may get unhinged.

For one, the other imperialist powers, now spectators on the sidelines, may take advantage of the US’s difficulties to obtain footholds in the very regions for which the US is contending. Already the European Union (pressed by France, whose TotalFinaElf is one of the world’s five largest oil corporations) has advanced a proposal regarding the Palestinian question that is distinct from the US plan, much to the irritation of the US. Such intervention may grow as the turmoil intensifies. While these rival powers are out to advance their own imperialist interests, the sharpening of their tussles with the US will help those facing the immediate brunt of the US attack.

As the US military machine gets tied up in the unending tasks of an occupying power in the third world, the costs—financial and political—would mount. The US economy, already in recession, may not be in a position to take such weight. US budgetary and trade deficits may veer out of control. Depressed demand conditions in the rest of the world as a result of US policy would boomerang on the US, as it faces less demand for its exports and sharper competition at home for its imports. The US’s hope that international uncertainty will boost the dollar is only one of two possibilities. It is equally possible that, under the weight of investors’ fears that the US would not be able to service its mounting obligations, a dollar slide might take place.

The political costs of a deeper recession are not to be forgotten. Indeed, the entire build-up of a vast domestic machinery of repression—under the name of the Office of Homeland Security and the USA PATRIOT Act—and the whipping up of chauvinism, xenophobia, racism and fascistic sentiments are in preparation for the possible resistance at home.

A worldwide anti-war movement has already begun. On 28 September London witnessed its largest rally since the 1930s, encompassing the entire range of society. The attendance of over four hundred thousand (four lakh) calling for “Freedom for Palestine” and “Hands off Iraq” constituted a sharp political challenge to the British rulers, junior partners in the US offensive. On the same day, a hundred thousand rallied in Rome; on the next day, 50,000 in Madrid. The culmination of the protests in Europe, and the largest anti-war rally there, took place on November 8 in Florence. Many from other parts of Europe joined, as the working people and their unions, political parties, teenagers, students, the elderly, campaigners for the cancellation of third world debt, anti-capitalism activists, artists, intellectuals, and other common people came carrying their banners, placards and effigies, raising the slogans “No War on Iraq”, “No to World War”, and “Bush, Blair and Berlusconi (the Italian prime minister) are murderers”.

On October 26 Washington, San Francisco, and other American cities witnessed the biggest anti-war rallies since the days of the Vietnam war, armed with slogans such as “Dump Bush not Bombs” and “No Blood for Oil”, under the banner “Act Now to Stop War and End Racism (ANSWER)”. Apart from the numbers—an estimated two hundred thousand in Washington alone—three points are worth noting about this protest. First, that it came as part of a whole series of protest actions throughout the country (including a massive April 20 march in Washington in support of the Palestinian people and a very large October 6 antiwar rally in New York City’s Central Park). Second, that a large section of the participants were ordinary people who were not part of any organisation and may not see themselves as ‘political’. Third, that whereas in the 1960s such large protests were only possible three or four years after the US sent its troops to Vietnam, they are now being organised before the war has started. The anti-war movement is picking up with unanticipated speed.

The exact shape of things to come is hard to predict. Yet it is clear that it is not the sophisticated military technology of the US, but the response of people worldwide that will play the crucial role in determining that shape.

1. There are three reasons for the recent US-engineered unsuccessful coup in Venezuela, and the current as yet unsuccessful repeat performance. First, under the leadership of Hugo Chavez, Venezuela is carrying out certain pro-people economic changes, extracting better terms from the oil multinationals, defying US hegemony, and trying to help others who are similarly doing so—thus providing an example very dangerous for the US grip over the rest of Latin America. Secondly, Venezuela is the biggest oil exporter in the western hemisphere, and a major source of US imports. Thirdly, Chavez has been taking certain initiatives to revive OPEC and free it of American influence: In August 2000, he invited American and British fury with a visit to Baghdad where he convinced Iraq of the need for maintaining OPEC production restraints to prevent a fall in oil prices. On the same trip he also visited Iran and Indonesia, attempting to weld unity among OPEC. (“Venezuela’s Chavez Holds Iraq Talks”, Leon Barkho, Associated Press, 11/8/2000) “What can I do if they (Americans) get upset?” Chavez said after crossing into Iraq from Iran. “We have dignity and Venezuela is a sovereign country”—precisely the reasons why the Americans got upset. (back)

2. At any rate in the US there is at present no threat of inflation (as in the rest of the developed world too); rather, the threat is of deflation, i.e. falling prices, which deters investment. (back)

3. No doubt arms manufacturers would get an instant boost. Already in the first half of 2002 the earnings of Northrop Grumman, General Dynamics, and Lockheed Martin had improved. Most American arms firms are now able to raise funds easily from the capital market, which anticipates a big boost to sales and profits by 2004.—“US defence sector cashes in on Bush’s war on terrorism”, Financial Times, 19/7/02. Demand from this sector will mitigate the recessionary trends somewhat. (back)



Next: Rehabilitating Colonialism


All material © copyright 2003 by Research Unit for Political Economy