A Note on Economic Warfare - Richard Sale

By Richard Sale, author of Clinton’s Secret Wars 

For those of us who are victims of sentimentality and national conceit and who like to think of America as cuddly and warm-hearted, it does us good to remember that there are always cold, implacable ulterior motives that lie hidden in even the most generous foreign policy gesture. 

In a recent post, I related how the United States had crippled the British Empire soon after the close of World War II.  The United Kingdom controlled a huge area with a population of 540 million and from which the use of the U.S. dollar had been shut out. By the time the crisis ended, the exclusion of the dollar had ended, opening vast markets for U.S. goods, but at a cost of further laming a key wartime ally. 

There is a another example. We endlessly laud the Marshall Plan as having saved Europe from starvation after World War II, forgetting that U.S. intelligence operatives had a great role in formulation the plan and that the price for European participants was high, including having to impart extremely secret proprietary  data about their economies – such as their surge capability and the like. 

This is not to say we are not good hearted: we are. But we are also a very cunning and ruthless player in the game of nations, and there are opponents that must be matched in heartlesness if we are to survive, shelter and prosper. 

I was recently reminded of just how dangerous we are to taunt and defy when discovering some old files on the Reagan administration’s secret war on the Soviet Union.  Some of the incidents are colorful, such as the U.S.-Swedish plot to lure a Soviet nuclear submarine on the rocks in Swedish military waters. The activities of the Reagan group’s secret support of the Afghan rebels in bleeding to death the invading Soviet forces there have been superbly rendered by such books as Steven Coll’s Ghost Wars or Charlie Crile’s Charlie Wilson’s War among others. 

But an equally important but almost obscure scheme involved the Reagan group’s resolve to target Soviet hard currency earnings, reasoning that if Moscow were broke, its development of new nuclear weapons would slow, and it couldn’t pay the troops of its overextended military machine much less finance wars of liberation around the world.  It could talk tough, “but it would no longer be tough,” as a former Reagan official told me. 

The first blow was struck on May 1983 when American pressure forced the International Energy Agency to put a limit on European exports of natural gas, blacking huge sums of money from reaching Moscow. But Soviet natural gas earnings were only a Kremlin sideshow compared to its top engine of economic wealth  -- its oil industry, which generated half of its hard-currency earnings, former officials said. 

Under the direction of CIA chief William Casey and Defense Secretary Caspar Weinberger, the Treasury Department in early 1983 had completed a voluminous study of U.S. and Soviet energy costs.  The study discovered that the optimum price for a US purchase of a barrel of oil was $20, far below the $34 per barrel being charged in that year. If oil prices came down, the U.S. would save almost $72 million a year or almost one percent of the GNP. The question was what would a fall in oil prices do to the Russians? 

Very ugly things, apparently. The study concluded that while a cut in oil prices would boost U.S economic welfare, that same cut “would have a devastating effect on the Soviet economy, “ in the words of a source. In fact, then National Security Advisor Bill Clark told a friend of mine, Peter Schweizer, that Reagan was fully aware that energy exports were the “centerpiece of Moscow’s hard currency earnings,” and that a sharp drop in price would help hobble the strength of the Russian economy and stall its military buildup. 

Soon U.S. officials were huddling in Geneva with the key Saudi oil advisor Sheikh Ahmed Zaki Yamani. Not long after the meeting, the United States announced it was cutting its oil imports from 220,000 barrels a day to 145,000 barrels, and abruptly the Saudis boosted its production of oil, lowering world market prices.  By August of 1985, Saudi production jumped from 2 billion barrels a day to 9 billion. Since Saudi Arabia was the swing producer of OPEC, which used its production levels to control the market price for crude, the effect on Russia, was “calamitous,” said a former official. 

But how did the price cuts affect Saudi Arabia’s incomes? Did it lose much money on the deal. Hardly any. According to former senior CIA officials, in what appears to be an early form of High Frequency trading, the agency’s foreign currency specialists bounced billions of dollars of Saudi currency reserves from one foreign currency to another – from the Belgian franc to the British pound to the Deutschmark and back. The Sands earned “billions’ one former official said. 

Said a former White House staffer  “Regan’s doctrine was simple – no quarter for the Soviet Union, no concessions. Instead, counter it any way you could whether undermining its economy, supporting free unions or supporting groups resisting its encroachments.” 

Viewing such events may fill us with a certain moral uneasiness but the cost is small and the effect is great compared with a mistaken, fatal wasteful war like the one in Afghanistan.

 

A Brief Personal Note

 

I mistakenly sent Pat a rough draft in my reply to readers regarding the Liberty matter. The text was in disgraceful condition and I apologize. 

I also wanted to express my appreciation for all who made comments and I regret saying  of one’s reader’s remarks that they were “truculent” and adding that there were “errors of tone” as well as fact, thus committing one myself.

Comments

[VietnamVet]

I can't resist from pointing out that there is economic warfare taking place right now in Europe and American by the elites against the unemployed and poor. Yesterday, the Conservative Government in Great Britain came out with all guns blazing. France is raising the Retirement Age. America is next, especially if the GOP takes over Congress. Only the Chinese government is spending money to build high speed rail lines and infrastructure needed to avoid a double dip recession or worse.

This doesn't even mention the fraud and bad debt in America's Financial Industry. Nine Stories The Press Is Underreporting -- Fraud, Fraud And More Fraud.
The Obama Administration has yet to indict one Financial Fraudster and continues to ignore Foreclosure Corruption and Banks' Pile of Bad Debt.

[Carl O.]

"In a recent post, I related how the United States had crippled the British Empire soon after the close of World War II. The United Kingdom controlled a huge area with a population of 540 million and from which the use of the U.S. dollar had been shut out. By the time the crisis ended, the exclusion of the dollar had ended, opening vast markets for U.S. goods, but at a cost of further laming a key wartime ally."

Defending the British empire? Shame on you, Richard Sale. Franklin Roosevelt always intended to dismantle the British Empire, as well as all of the other European colonial empires, once the war ended. he knew what most Americans have since forgotten. Without the British Empire, there would have been no World War I, and hence, no World War II. FDR knew that empires always cause wars. He also knew they crushed their subject populations, a fact that he was determined to change. As a late former aquaintance who was once a colonial subject used to say: "The British Empire: Where the sun never sets and wages never rise."

[dan of steele]

I think there is a typo on the amount of Saudi oil produced and for whatever reason Mr Sale's account does not match the chart found here. http://www.indexmundi.com/energy.aspx?country=sa&product=oil&graph=production

I suppose that because the dollar was very strong in that period, it worked out for everyone except the Russians. pretty cool if you ask me.

[William R. Cumming]

Well interesting post. Of course the expansion of the American Empire by FDR policies ignored by Mr. Sale and US historians. Well right now the largest currency war in world history is underway with the US the most ruthless player. Willing to destroy many other economies including the UK in order to protect domestic US economy. This devaluation of the dollar will make the REAGAN and NIXON devaluations look like peanuts. The problem is that this a boomerang policy that may well destroy the US economy. Time will tell.

And as historians seem to agree empires are always bad if not that of your own nation-state, but good if your own and can achieve it dominance. That is the question for the US now--to be or not to be an Empire?

[Norbert N, Salamon]

Thank you for the informative recap of past economic warfare.

It appears that the USA at present is not in economic warfare with any individual state, rather it is in war with all states developed, developing, and the rest via printing money from thin air, aka, QE.

The problem is that the USA is effectually bankrupt, and to a large extent has lost her status of know-all in economic effectiveness, thus their leadership options to some degree.

Different nations will react differently to all the loose "instant money" being recirculated world wide: some will tax hot money [e.g. Brazil] some keep their money unconvertible to foreign denomination [e.g. China] some will design trading systems which bypass the USD [e.g. China C/w Russia, Brazil, Burma, etc], and some will work on ending the petro dollar system [Saudi Arabia and most Persian Gulf oil producers, and some will use their USD reserves to buy up commodities {China], farm land all over the world [Saudi Arabia] and some will be defenceless [e.g USA citizens, most of Africa, etc]] due to the rise of oil prices in USD terms [while possibly staying same in other currencies].

When Food prices, Health insurance costs, all medical related costs are rising at 10%+ rate per annum in the USA in USD terms, there is no way that the USA can win any trade wars for there is a certainity of double dip in a very short time frame.

[DaveGood]

Carl O.

An anecdote for you, the BBC recently ran a series on the breakup of the British empire, forcibly brought about at an accelerated pace by the US administration.

The BBC talked to a (now retired) senior diplomat of African country about what he recalls concerning the day his country was granted independence from British Rule.

He was a teenager then and was at the main airport of that countries capital city when the Vice President of the US flew in, and walked down the tarmac with a huge grin on his face shaking hands with the front ranks of the crowd waiting at the airport asking "What's it like to be free at last?"

The guy standing next to the future diplomat was one of those singled out by America's Vice President, given the full grin, the firm handshake and the jubilant Question, "What's it like to be free at last?"

The reply was " I wouldn't know, I'm from Mississippi."

And the Vice President was Nixon.

America has over seven hundred military bases worldwide on every continent that matters.

America is an Empire, just doesn't want to admit it.

DaveGood

[Pirouz]

Don't forget the current primary target of economic warfare being directed against the Islamic Republic of Iran, primarily through the application of sanctions.

The nakedness of this economic warfare was further exposed by the summary rejection of the 2010 Tehran Declaration, which came as a slap in the face to Brazil-Turkey, who had previously been given the green light to negotiate with the Iranians. The Americans were convinced the Iranians would reject any compromises. This backfired, the Iranians accepted compromises, yet two days later the Americans rejected what they had previously accepted and slapped down another round of sanctions. In spite of everything, the economic war against the IRI endures, according to the public planning of key policy advisors such as Dennis Ross.

[Jose L Campos]

Spare the submissive crush the courageous That is the imperial motto. Make them think as I do make them desire to be like me, to work for me because in the hegemon they will see their perfection fulfilled. Empire is not so much the capture of real estate as it is the capture and possession of minds. The free have to choose between abjection or death. The abject, the submissive, become slaves who are glad to be it.

[Freindly_Fire]

RS you say "If oil prices came down, the U.S. would save almost $72 million a year or almost one percent of the GNP. The question was what would a fall in oil prices do to the Russians? "

72 billion maybe?

[WILL]

Winston Churchill, from one man's point of view, destroyed the British Empire single handedly even though FDR may have driven a final nail in the coffin.

http://www.amazon.com/Churchill-Hitler-Unnecessary-War-Britain/dp/030740515X

[Jake]

The economic answer to Afghan war lies with the Pakistani Indian Cold War.
The Paki's don't want to give the Indians any leeway through Afghanistan....

[New Orleans]

Though I accept that falling oil prices had a significant impact on the Soviet Union, I am skeptical of Richard Sale's version of why those prices collapsed in the 1980s. My memory suggests that prices fell because of the glut of North Sea oil at the time, and the impact of that glut was being felt long before August 1985.

It might well be true that governments conspired against the Soviets in 1985; I would hardly be surprised. But in this case, I believe the key events occurred years earlier.

Perhaps somebody has a more definitive timeline than I.

[rkka]

I agree that the rapid development of North Sea oil had a much larger impact on the oil price. Somehow the Soviets survived the Saudis pumping over 9.8 Mbpd in 1981.

The Brits exported oil at $10/barrel in the 1980s.

They now import oil at $80/barrel. Looks like Maggie T screwed the UKs future at the same time.

[Castellio]

Off topic. Chas Freeman at about 6 minutes 30 seconds, opening the National Council on US-Arab relations annual Policymakers Conference, at:

http://www.cspan.org/Watch/Media/2010/10/21/HP/A/39747/Natl+Council+on+USArab+Relations+Annual+Policymakers+Conference.aspx

Well worth it.

I'd catch Flynt Leverett's comments at 2.22.20 as well.

[Fred]

Isreali's worried about wealth concentration?
http://www.businessweek.com/magazine/content/10_42/b4199010761878.htm

[Norbert N, Salamon]

Castellio:

Thank you for the link. Listened to the whole program, Amb Freeman's presentation was excellent! No wonder that Aipac opposed his elevation to high office. He is far too rational, analytic and honest to the aims of Likud and Aipac [and related Congressional Israel Firsters]. Dr. Leveret's comment on Brazil/Turkey/Iran deal vis-a-is President Obama [and related administration minions] was biting but truthful.
I noted that all the speakers for sanctions omited any reference to economic losses encountered by the USA due to this brainless measure [remeber effect on Cuba over 50 years, N Korea over 50 years, Iran over 30 years with concurrent business losses buy USA Corporations and business people, and the business opportunities given to other nations in many of these case, those antogonist to USA national interest].

The cheerful thought was expressed by many that there is no military plans for the immediate future to attack Iran. Conversely the pessimistic view expressed regarding the I/P problem, while realistic, ill serves the National Interst of any Country, but mostly the USA and ISrael.

[jerseycityjoan]

It seems to me that it's been years since Washington has recognized our interests on a consistent basis and acting accordingly.

Our recent history on that score seems like a very mixed bag to me, at least when it comes to the interests of the country in general and its citizens in general. Various special interests have gotten their way to the detriment of all. That's true when it comes to both domestic and foreign issues.

The American people, on average, are fed up. The American people, on average, are running on a treadmill on which they faster the run, the more they find themselves slipping behind. And that's true in terms of economic issues, healthcare and various "peace of mind" issues as well.

That's probably the #1 why the Democrats will lose so many seats on Nov. 2. However, the Republicans have already promised to ignore some issues or support even less effective policies on many others.

Right now we're stuck at lose with the Democrats or lose even more with the Republicans.

I am looking forward to the day when we snap out of our inertia and demand our government act according to our interests.

[Norbert N, Salamon]

In the second half of the Naional Council... [afternon session] numerous spokesman for the USA side appeared [mostly ex or present admininstration DoD personnel and Mr. Cordesman - less said about his presentation is the best], many indicating essentially business as ususal [in the main[, we maintain our empire in ME land] with scant reference to economic reality.

As Mr Freeman noted USA Federal Income [in 2010] is insufficient to cover interest on debt, Social Security and Medicare [in its various forms], yet the USA spends another 1.0 billion on war making [DoD, Vets, DoE etc], and more yet on other Depts.

So where is the rational of these spokeperson, never mind the warmonger neocons among them?

[Rider I]

Rider I
Special Library manager
http://rideriantieconomicwarfaretrisii.blogspot.com/