Why did we invade Libya? The official reason is that Gaddafi was murdering his own people so we had to stop him. Perhaps, but so are dictators in a number of other countries. Many skeptics of the official story believe that it may have something to do with securing our oil. The video below discusses a new wrinkle on that theory. According to the report, some observers believe that Gaddafi was promoting a plan to establish an African/Middle Eastern currency backed by gold and to only accept gold for their oil.
Trying to deduce the real reasons for invading Libya without insider knowledge is just conjecture. This idea is a little too conspiracy theory-y for my tastes. (I wouldn’t rule it out though.) But irrespective of the true reasons for invading Libya, the video brings up an interesting question:
What would happen if OPEC nations agreed to accept only gold for their oil?
The chain reaction of major events that would ensue is impossible to fully grasp. I’m not even going to attempt to do a full analysis of this, but let’s have a little fun with the numbers. For our purposes, we will assume that this act doesn’t start WWIII.
At today’s prices and rate of oil consumption, how many years worth of OPEC oil could the US gold reserves buy?
Well, US government gold reserves are around 287 million ounces. At a price of $1500/oz that comes to $430 billion. US oil consumption is 20 million barrels a day. At $100 per barrel that comes to $2 billion per day we spend on oil. (Wow!) Now, divide by 2, carry the 3, and we discover that America can buy 215 days worth of oil with our gold reserves before we’re tapped out. All of our gold is only worth 7 months of oil? Hmm.
[Before you start yelling, keep in mind this is a very simplified example. I realize we get most of our oil from Canada. I realize that prices would adjust to meet demand. Etc. Etc.]
Of course, we wouldn’t just run out of gold and then our cars would sit idly wherever they ran out of gas. What would happen is the price of gold would skyrocket in terms of dollars. Oil importers around the world would no longer need to hold large reserves of dollars and would instead use their dollars to bid up the price of gold. With dollars dropping in value, the price of oil from countries like Canada, (assuming they continued to accept dollars for oil) would go through the roof. In fact, the price of everything would go up as the dollar instantly became a much less useful piece of paper.
Whether we like it or not, oil makes the world go ’round. If the largest oil production cartel decided to accept only gold for oil, the world would soon be on a de facto gold standard. The US would need to sell food, clothing, cars and other real goods to OPEC nations in exchange for gold so we could buy more oil. We could no longer just print up dollars and trade them to other nations for real goods. The party would be over for the US.
Now you may say that it would never happen; that the world will never go back to a gold standard; that gold is a barbarous relic and it’s a stupid metal that just sits there acting shiny and heavy. Perhaps. Unfortunately, OPEC wouldn’t need to demand gold for oil to cause serious disruptions to the world monetary system.
What if oil-producing nations in the Middle East and North Africa say to themselves, “You know, the dollar doesn’t buy what it used to. Food and clothing is getting much more expensive and our people are starving and rioting in the streets. The Federal Reserve bank just keeps printing up money and doesn’t appear likely to stop anytime soon. Perhaps we should accept payment in euros, yen, yuan, rupees and pounds as well.”
If OPEC nations did accept other currencies or a “basket of currencies” as many have been discussing, the dollar hegemony would end, and the party would just as surely be over for the US government and the petrodollar.
Perhaps the premise of this video isn’t so outlandish. Perhaps the dollar is backed by more than just the full faith and credit of our government. Perhaps it’s really backed by the full might and wrath of our military.
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