The Firm Conviction
During the First World War, Woodrow Wilson, the 28th President of the United States (US) (1913-1921) had very clearly stated on record, “Is there any man, is there any woman, let me say any child here that does not know that the seed of war in the modern world is industrial and commercial rivalry?” What did this prophetic declaration mean? It was undoubtedly a clear message that the quest to dominate and protect own economic security had become a major pre-condition of any war. If this was the conviction of the US President a hundred years ago, then in the light of recent trade war with China, what has changed today?
Discovery of Energy Resource
After hundreds of thousands of years of existence of the human race, it was in the year 1903 that an aircraft was invented which flew for 12 seconds. But only 65 years later in the year 1969, humankind had managed to land the first man on Moon. It is estimated that the world population reached one billion for the first time in 1804. It was another 123 years before it reached two billion in 1927, but it took only 33 years to reach three billion in 1960. What induced such a huge growth rate of both technology and population? It was undoubtedly the discovery of oil in the middle of the 19th century or rather to be precise, in the year 1830 and resultant availability of energy resource at the disposal of human beings that led to rapid growth in such a short time which mankind had never witnessed before despite over 400 thousand years of existence.
Seeds of Rivalry and War
Four decades after the discovery of oil, the year 1870 was declared as the year of Great Oil Rush. Thus, with the discovery of oil, which accelerated an unprecedented rapid growth and development, protecting the industrial and commercial interests became the deep-seated conviction and sole aim of all-powerful countries of the world in the twentieth century. This also led to a rush towards seizing control over such resources wherever available in the world by any means necessary and as a result, sowing the seeds of war. In fact, interestingly, over one hundred years ago in the year 1904, Germany had attempted to build a railway line through Turkey into Iraq for gaining access to Middle East’s energy reserves, but the United Kingdom, France and the US jointly intervened and successfully scuttled it. This is why one of the first battles of the First World War didn’t take place in Europe but instead took place in Iraq between the British Indian Army and the Ottoman Empire. Cutting off Europe’s access to the Middle East oil fields was one of the early primary objectives of the war.
Hegemony of the Petro Dollar
After the collapse of the Soviet Union in 1991, the United States became the sole superpower in the unipolar world that emerged thereafter. In the follow-up years, the world witnessed a number of flashpoints and regime changes in the quest to maintain the hegemony of the Petro-Dollar system. The term PetroDollar actually originated in 1973 when the US agreed to provide military protection to Saudi Arabia and even sell them arms and other military equipment in a deal that would see Saudi oil sold the world over in US dollars. Saudi Arabia would also recycle the excess dollars back into the US financial system through US Treasury Bonds. By 1975, every OPEC member had adopted the PetroDollar system agreeing to sell their oil in the American currency. Today, the US dollar makes up for nearly two-thirds of the global economy and serves as the reserve currency for most of the world’s central banks due to the dollar being the primary currency required for purchase or sale of oil and natural gas.
The Emergence of the Petro Dollar and the Bretton Woods Agreement
The origin of the current American hegemony can be traced all the way back to the 1944 Bretton Woods Agreement. In 1944, world leaders and economists met to form a New World Monetary System for the post-war era. With the Bretton Woods Agreement, the American dollar became the reserve currency of the world, promising other Nations that they could redeem their dollars for gold. While the dollar’s value was set in gold, valuations of the currency of other countries were fixed to the dollar. The value of the dollar was set at Franklin D Roosevelt’s 1934 revaluation of $35 per ounce of gold.
However, this was not a true gold standard and it heavily favoured the US. In a true gold standard, the currency is convertible by a private citizen or foreign central bank. However, under the Bretton Woods Agreement, it was mandated that only foreign central banks could convert their dollars to gold. It thus, favoured the US because while the US could settle its foreign payments in dollars, the other Nations had to settle their foreign payments only in gold. This, therefore, ensured that the US could simply keep printing dollars and sending them overseas until foreign central banks start to demand gold in exchange for their dollars.
After the Second World War, the US offered to rebuild Europe which had suffered extensive damage and destruction. However, due to the rising overseas expenditure including both in the military and foreign aid provided to Europe, the US realised by the year 1961, that it was left with no option but to resort to printing excess dollar to meet with the ever-increasing requirement. But by 1967, the excess printing of dollar led to US foreign liabilities soar to $36 billion while the US had only $12 billion in gold reserves, that is, only one-third of the total obligation.
The problem for the US had actually begun in 1965 when General Charles de Gaulle, President of France, who by that time, had made France a resurgent economic powerhouse through austerity programmes and had managed to build up gold reserves of the Nation. After he returned to power in 1965, he started demanding the other Nations of the world to follow France’s lead and exchange their dollars for gold in return.
By the end of 1970, the economic situation in the US economy deteriorated while the war in Vietnam was still raging. For the first time in the 20th century, the US faced a trade deficit. This flood of new dollars to other countries almost always found their way back home in the form of gold demands which the US was no more in a position to cover. By 1971, the total US gold reserves had fallen further to just $10 billion, while foreign central banks held some $80 billion, that is eight times the total gold reserves with the US. The situation further deteriorated when around the same time, France redeemed $3 billion for gold by sending a French battleship to New York to take delivery of the gold from the Federal Reserve and bring back to France. This was roughly one-third of the total gold reserves of the US at that time. The same day, Congress released a report recommending devaluation of the dollar in an effort to protect the dollar from “foreign price-gougers.”
However, it was too little and too late. The dollar was already in a full-blown crisis and was on the brink of collapse and hyperinflation. Countries had lost faith in the dollar. So, finally, on 15 August 1971, President Richard Nixon, in an event presented as “Nixon Shock” for the World to remember, unilaterally closed the US gold window. The dollar was now a free-floating currency backed by nothing but trust in the US economy – which at the time under President Nixon was at its lowest since the Second World War.
Thereafter, as part of next move, Henry Kissinger, National Security Advisor under the Nixon administration, visited Saudi Arabia in 1973 and managed to coerce the Saudis to conduct all their petroleum sales in US dollar in exchange for US military protection and aid. Thus, emerged the PetroDollar system which to date has a complete stranglehold of the World’s Financial Markets. The demand for the dollar, therefore, once again began to soar, fuelled by the increase in demand for oil. Every country who now wished to purchase petroleum from the Saudis needed to maintain reserve only in terms of dollar to facilitate trade.
The US, now bolstered with the high demand of dollar from every corner of the world, started to print more and more dollars without getting affected by the inflation. Thus, it became necessary for the US to seek more and more control of oil and gas reserves world over through covert and over militaristic means. After the fall of the Soviet Union, the world began to witness the US, now unchecked and unchallenged as the sole superpower, adopting a more militaristic approach rather than covert means to protect its hold over the energy markets.
CIA – An Instrument of Power
The Central Intelligence Agency (CIA) of the US was constituted in 1947. From the available records with US National Security Archives at George Washington University Library declassified up to the year 2004, the strategic and tactical employment of the CIA as an instrument of power, comes out quite clear. As per the report published in Washington Post, between the year 1947 and 1991, there were 72 attempts to change those Regimes that did not toe Washington’s line. These 72 attempts included 66 covert operations and Six overt. 16 elections meddled with 75 percent success. Within a few years of the CIA getting constituted, memories of two famous incidents of Regime Change are still fresh in mind. One was the coup in Iran in 1953 and a year later in Guatemala in 1954 where the CIA is known to have eliminated two popular leaders whose refusal to accommodate foreign capital, made them the enemy of Washington.
In Iran, the US managed to get democratically elected Mossadegh removed by the Shah of Iran and in his place get General Zahedi nominated as Prime Minister, thus restoring full control. This was called Operation AJAX handled by Colonel Kermit Roosevelt of the CIA. Similarly, in Guatemala, the CIA launched Operation PBSUCCESS and managed to depose another democratically elected leader Jacobo Árbenz and install a Washington favoured dictator called Colonel Castillo, thus restoring full control on the resources of the country. Two Regime changes set the US on a course that still holds good. Over the last 60 years, successive American Governments have assumed the right to topple any Government around the world in a bid to protect their own interests.
Once the US succeeded in introducing the PetroDollar and consequently, when the economy headed for huge growth, the period between 1975-1990 saw a number of successful covert and overt operations launched by the US to protect their trade and energy security interests. Some of the well-known operations or incidents the world got to witness were like the contra affair in Nicaragua, overthrowing the Government in Chile and installing another dictator in Pinochet, military invasion of Grenada and skirmishes with Gaddafi’s Libya. In the year 1979, however, the US faced a major setback when they were pushed back by the Ayatollah in Iran. This setback opened a new chapter in the history of the war-ravaged Middle East when the US started to extend covert support to not only the Mujahideen in Afghanistan as part of a long-term agenda against the Soviet Union but also covert support to Saddam against Iran.
Post Collapse of the Soviet Union
After the collapse of the Soviet Union in 1991, the US emerged as the sole superpower. Emboldened with unparalleled military power, the US concentrated its focus and might on gaining access and control over the oil and the gas-rich Middle East. The US began using military power overtly to effect Regime changes. The period especially between the collapse of the Soviet Union and pre 9/11, witnessed an unprecedented rise in conflicts raging virtually on every continent, even where the US initially had no role to play such as the military intervention in Kuwait, NATO-led operations in Kosovo, invasion of Panama and airstrikes in Sudan. Thus, the quest for energy dominance had begun ensuring the dominance of the PetroDollar as the main currency of the world to trade-in.
Post 9/11, the world witnessed more and more flashpoints emerging encompassing countries such as Afghanistan, Iraq, Libya, Syria, Lebanon, Sudan and Somalia. The US Congress had empowered the President of the US to militarily intervene and bomb any part of the World in the war against global “Terror and Weapons of Mass Destruction”. Even though the Soviet Union had ceased to exist from the year 1991 and so was the Warsaw Pact, but strangely, NATO continued to grow from 17 members in 1990 to 29 members by 2009. While Russia was struggling to revive itself, NATO kept expanding into Eastern Europe and Baltics closer to Russian heartland deploying both conventional and nuclear-capable missile defence.
The world also witnessed the US supporting anti-government uprisings and Regime change around the Russian periphery in addition to extending covert assistance to opposition movements and parties inside Russia. A similar expansion of the US was also noticed taking place in the Asia-Pacific Region closer to the East and the South China Sea. By the year 2010, the US had managed to successfully close in on the Western side of Russia as well as the Coastal side of China, thus effectively endangering Russia’s access to warm water ports – the main trading route.
By this time, the overt and covert military spending of the US had more than doubled and was equal to the military spending of all developed Nations taken together. The US had also established 800 major Military Bases spread over 74 countries as compared to other military powers like France and Russia which had only 13 and Nine bases respectively.
Slowly Changing Dynamics- Ups & Downs
Amidst the ongoing coercive expansion of the US might, the silver lining on the horizon, however, was that Russia under President Vladimir Putin managed to silently pay off all its debt owed to the International Monetary Fund (IMF) by early 2005 and was onto the road of economic recovery. Russia achieved this feat by quietly expanding its oil and gas exports and capturing the majority of the market in Eastern and Central Europe. Europe consists of highly developed Advanced Industrial Nations requiring an exponential quantity of energy. The US had only two major oil pipelines going into Europe. Thus, with Europe’s limited connectivity to pipelines and absence of any potential alternative to Russian oil and gas resources, it made them more dependent on Russian supplies, thereby marginalising US energy exports to the region. As Russia’s control over the energy market stabilised significantly, its economy too started to grow rapidly. By the year 2008, oil was virtually selling at $140 a barrel.
Somehow, this golden phase did not last long. While President Putin in an attempt to diversify the Russian economy from its heavy dependence on oil and gas exports decided to take on huge loans once again, the US, on the other hand, chose this as an opportune time to double the production of its continental oil using fracking technology which resulted in flooding the market with cheaper oil. Even though the know-how of fracking technology was known since the 1980s, the Obama Administration, however, chose to widely deregulate the use of this process only at the time when Russia had once again taken on massive debt. By then, Russia was under so much of debt burden due to heavy loan that they needed the price of oil to be at least $85 dollars a barrel to be able to continue to service debts.
Around the same time, another factor which contributed to the sliding oil prices was the signing of the Joint Comprehensive Plan of Action (JCPOA) between Iran and six other nations. Sanctions on Iran by the West were lifted and Iran re-entered the market furthering the decline in oil prices. This led to the undoing for Russia in 2014-15 when the international price of oil came down to as low as $48 a barrel putting the Russian economy once again in danger. During the same period, while NATO was continuing to inch closer and closer to Russia’s Western border, the US went ahead imposing sanctions on an already financially struggling Russia. This period also saw Russia getting embroiled in a proxy war with the West in Ukraine from where the bulk of Russian gas and oil supply passed into Europe.
It is said that the enemy’s enemy is a friend and this was proved beyond doubt when the World saw China immediately stepping in to help bail out Russia from the economic crisis. Nearly Forty Agreements pertaining to Trade were signed between Russia and China in the year 2015, which ranged from purchasing Russian gas for the next 30 years for over $400 billion to the manufacturing of machinery, IT, telecommunication, robotics, microelectronics, forestry, agriculture etc. While they also signed off on a New Double Tax Treaty, China offered to assist in the supply and transport of Russian goods to Eastern Europe, South East Asia and Africa. This bonhomie led to the revival of Eastern Bloc which seemed a reminiscence of the Soviet Union and the Warsaw Pact.
A New Threatening Shift
As Russia – China partnership strengthened, Iran too joined the Bloc and a process of dumping dollar began initiating a rush for purchasing gold by their respective central banks instead. An increasing effort to trade in yuan and non-dollar denominated currencies in the energy markets began to be noticed. This undoubtedly opened the doors for the devaluation of the dollar which started to appear as no longer the currency of choice for international trade. Demonstrating farsightedness, India too went ahead and signed currency swap agreement with countries such as Japan, UAE and few others cumulatively adding up to over a $100 billion.
With Europe’s dependency continuing to increase on Russia and Iran, the US under Trump administration decided to pull out from Iran Nuclear Deal and reinstate sanctions on Iran. This began the process of Iranian oil leaving the international market and US managing to grab larger share of international oil market. This was achieved by deregulating nearly the entire US coastline to offshore drilling as also nearly 42 National Parks for extracting oil. By the beginning of 2019, the US became the largest producer of oil in the world.
On the other hand, the US also went ahead and announced that the war in Syria was over claiming to have wiped out ISIS. This claim of US was completely opposed to the earlier belief of the US intention to topple Assad. However, in all likelihood, it is believed that a tacit Syrian Peace Deal behind doors had taken place in Oct 2018 between major oil buyers – Germany and France, oil transporter- Turkey and supplier Russia. The likes of Exxon Mobil, Chevron, British Petroleum and Russia’s Gazprom carved up their respective routes through Anti-West Assad regime-controlled Syria and Pro-West Kurd controlled newly established the State of Rojava for their oil and gas pipelines. Now the US will take the gas from Qatar through the pipeline from a much shorter route through Iraq-Syria (Kurds controlled) into Turkey and Europe.
Similarly, a US-Taliban peace deal has also been signed few months ago thus ending a long war in Afghanistan. This is likely to open up the long-awaited avenue for the US to take the gas pipeline from the landlocked country Turkmenistan through Taliban controlled Afghanistan either through Baluchistan into the Arabian Sea or link with existing Azerbaijani – Turkey pipeline.
Multi-hued Threat Prism
Thus, the future of unfolding global security scenario must be seen through the combined prism of emerging threat on US dollar, the US losing control over oil and gas reserves of the Middle East, re-emergence of the Eastern Bloc and the need to dominate South China Sea and the Indian Ocean Region which is the main trading route for all major economies of the world.
Where Does India Figure?
India presents itself as a natural geographical segment acting as a strong pivot extending deep into the Indian Ocean enabling a long reach to India’s Expeditionary Forces to be able to effectively dominate the major sea trading route of the Indian Ocean Region covering from Chabahar, Gwadar, Hambantota, Chittagong to Strait of Malacca.
India needs to give a big push to indigenous defence production riding on the back of emerging new technologies with the aim of not only becoming self-reliant, but also a major arms exporter in order to build India’s economic strength. This will help India in the long run to build a strong Navy and Air Force and thereby extend India’s military reach beyond the confines of immediate borders and get to be recognised as a Regional Power.
Setting own terms, India may also consider becoming a bridge to countries especially China, seeking access to the Indian Ocean. As far as Pakistan is concerned, India must maintain its focus with full preparation for any physical intervention required at a short notice in view of the engulfing unrest in Baluchistan and Khyber Pakhtunwa, which may lead to bloodbath and heavy military action against the insurgents by the Pakistani state in the Af-Pak border region.
India is blessed with a huge hardened work force, youth with fertile brain, friendly climate and natural resources including globally scarce fresh water due to the Himalayas. Taking advantage of these resources, India must encourage business houses of major countries to establish themselves on Indian soil in collaboration with Indian companies utilising India’s increasingly skilled populace, cheap land and easily available labour.
With increasing visibility of an assertive Eastern Bloc, India must continue to maintain strategic autonomy. Without getting into any binding military alliance at this stage, India must continue with existing close relationship with Russia, the US, France, Israel, Japan and immediate neighbours like Nepal, Bangladesh, Bhutan and Sri Lanka serving and safeguarding each other’s mutual interests.
Breton Wood Institutions today do not reflect the geopolitical realities of the world they currently operate in because these systems came in the aftermath of World War II. Since countries like India, China, Brazil and war-ravaged Japan were nowhere close to their current economic and military standing, the West in those days, rightly felt that the new world order would be shaped to the image of their liking. The West thus, chose to design these Institutions skewed in their favour assuming that the Earth was their inheritance in spoils of war.
But much has changed since the late 1940s, India now stands as the sixth largest economy in the world and increasingly assertive of her objectives at the international stage. With indigenous defence production taking deeper roots and other export-oriented industries to include pharma, base metals, jewels, IT services dominating respective global market, India is anticipated to rise to become the third largest economy in the next few years. As India’s economy grows, so too does its geopolitical clout and, therefore, India will not only continue maintaining strategic autonomy, but with her growing clout at the global level, will seek to reform International organisations and bodies such as the International Monetary Fund (IMF), World Trade Organisation (WTO) among others shifting the balance of power in these bodies away from the old western powers thus creating a multi-polar world, which would fairly reflect the new geo-political realities of the world.
India in her endeavour to reform these international organisations has taken bold unprecedented steps by challenging the US in WTO’s courts over her farm subsidies. India along with China and Russia has established the New Development Bank (NDB) to provide alternative to developing countries seeking aid from the debt traps and western backed privatisation programmes of the IMF and World Bank. India had started the Non-Aligned Movement many decades ago so as to maintain a multi-polar world and a large number of countries did join. But it could not have a very effective negotiating power for long due to internal differences among the member countries, lack of economic strength and eventual dissolution of the Soviet Union. But now the situation is different and thus, India must continue to move firmly towards creating a multi-polar world backed by the likes of Indonesia, Japan, Germany and Brazil who despite their post-World War II resurgent economic prosperity just like India have next to no say or voting power at various international forums.
To achieve a more balanced world order, India undoubtedly needs to first grow militarily in view of the current geopolitical scenario which clearly indicates the possibility of global conflict is not too distant a future. With the re-emergence of the Eastern Bloc challenging the major World Powers in the West and increasing ongoing tussle between the two blocs for protecting one’s own trade and energy security, may compel the World to witness history repeating itself. Under such circumstances, will India manage to clearly stay out of it? The answer can be both Yes and No. Therefore, in such an ambiguous situation, the best option for India will be to prepare herself in as many domains as possible to be able to choose the best option prevailing at that time.
One major threat, looming large on India, though yet not very clearly visible to the Indian masses today, is the enemy within. There is no dearth of such souls in India who survive on the crumbs thrown at them by Foreign Instruments of Power meant for launching covert operations to bring about Regime change. The continued demographic invasion into India from neighbouring countries, cyber terrorism, data colonization, ever increasing pseudo armchair intellectualism, foreign funded NGOs, foreign funded print and electronic media, political parties which choose to divide the masses on caste or religious affiliations and self-appointed crusaders and ombudsmen pose a big threat as knowingly or unknowingly they are being used by inimical forces from outside the country as a tool for pressuring the current government with unrest on the streets and using the said unrest as a leverage during closed negotiation meetings. There are umpteen examples in World history of such tactics being employed against Regimes in Latin America and Africa which refused to toe the line of the West. Unfortunately, India too has started to witness the effectiveness of such instruments of covert operations through a number of well organised and coordinated mass protests and riots that took place in various parts of the country in the last couple of years.
Both the Politicians and the Citizens of India have to realise sooner than later that to successfully tackle the fallout of the current unfolding global security challenges, India has to seriously strengthen all available Instruments of Power on a multifaceted domain which also includes building one National Identity and weeding out these hidden tukde tukde gang serpents poisoning and weakening the country from within.
Lt Gen Abhay Krishna, PVSM, UYSM, AVSM, SM, VSM, (Retd)
Former Army Commander South Western Command, Eastern Command and Central Command