Part One

excerpted from the book

A Century of War

Anglo-American Oil Politics and the New World Order

by William Engdahl

Pluto Press, 2004, paperback (original edition 1992)

War in Iraq was about the very basis of America's 'national security,' of future American power. America's role as the sole hegemon was the unspoken reason for the war, and for this reason neither of the major presidential candidates offered an alternative to American military occupation of the vast oilfields of Mesopotamia.

[After WWII] the combined power of its military dominance and monetary dominance allowed the United States the enviable luxury of printing endless paper certificates, its dollars, and giving them to the rest of the world in exchange for well-engineered cars, machinery, textiles and every imaginable product. It was the greatest confidence game the world had ever seen. Americans bought the imports with more dollar debt, creating an edifice of dollar debt on which the entire world was dependent. This special hegemony also allowed the United States to become the world's largest debtor, to run endless trade imbalances, to inflate its currency beyond imagination, to create a buildup of private and public debt unprecedented in world history. So long as other nations depended on American markets for their trade, and on American military protection for their national security, the game appeared endless. Japan's role as 'lender of last resort' to the U.S. was supplemented at the turn of the century by China. Hundreds of billions of dollars in Japanese, Chinese and other foreign purchases of U.S. Treasury debt, U.S. real estate debt, and other assets, propped up the American economy long after it made any economic sense.

The power of the dollar and the power of the U.S. military had been uniquely intertwined with one commodity, the basis of the world economic growth engine, since before the First World War. That commodity was petroleum.

In 1912, the United States produced more than 63 per cent of the world's petroleum.

Why would Britain risk a world war in order to stop the development' of Germany's industrial economy in 1914? The ultimate reason she declared war in August 1914 lay fundamentally "in the old tradition of British policy, through which England grew to great power status, and through which she sought to remain a great power", stated German banker Karl Helfferich in 1918. "England's policy was always constructed against the politically and economically strongest Continental power," he stressed.

Ever since Germany became the politically and economically strongest Continental power, did England feel threatened from Germany more than from any other land in its global economic position and its naval supremacy. Since that point, the English-German differences were unbridgeable, and susceptible to no agreement in any one single question.

Many in the British establishment had determined well before 1914 that war was the only course suitable to bring the European situation under control. British interests dictated, according to her balance-of-power logic, a shift from the traditional 'pro-Ottoman and anti-Russian' alliance strategy of the nineteenth century, to a pro-Russian and anti-German alliance strategy.

On November 2, 1917, in the darkest days of the Great War, with Russia's war effort on behalf of the Anglo-French alliance collapsing under economic chaos and the Bolshevik seizure of power, and with the might of America not yet fully engaged in Europe as a combatant on the side of Britain, Britain's foreign secretary, Arthur Balfour, sent the following letter to Walter Lord Rothschild, representative of the English Federation of Zionists:

Dear Lord Rothschild, I have much pleasure in conveying to you, on behalf of His Majesty's Government, the following declaration of sympathy with Jewish Zionist aspirations which has been submitted to, and approved by, the Cabinet:

'His Majesty's Government view with favour the establishment in Palestine of a national home for the Jewish people, and will use their best endeavours for the achievement of this object, it being clearly understood that nothing shall be done which may prejudice the civil and religious rights of existing non-Jewish communities in Palestine, or the rights and political status enjoyed by Jews in any other country.' I should be grateful if you would bring this declaration to the knowledge of the Zionist Federation. Yours sincerely, Arthur James Balfour.

The letter formed the basis on which a post-1919 British League of Nations mandate over Palestine was established under whose guiding hand territorial changes of global consequence were to be wrought. The almost casual reference to 'existing non-Jewish communities in Palestine' by Balfour and the cabinet was a reference to the more than 85 per cent of the population &ho)were Palestinian Arabs; in 1917, less than 1 per cent of the inhabitants of Palestine were Jewish.

It is notable that the letter was an exchange between two close friends. Both Balfour and Lord Rothschild were members of an emerging imperialist faction in Britain, which sought to create an enduring global empire, one based on more sophisticated methods of social control.

Also notable is the fact that Lord Rothschild spoke, not as head of any international organization of Jewry, but rather as a member of the English Federation of Zionists, whose president at the time was Chaim Weizmann. Rothschild money had essentially created that organization, and had subsidized the emigration to Palestine of hundreds of Jews, fleeing Poland and Russia since 1900, through the Jewish Colonisation Association of which Lord Rothschild was president for life. Britain was generous in offering lands far away from her shores, while in the same period she was far from open-armed in welcoming persecuted Jewish refugees to her own shores.

But more relevant than the evident hypocrisy in the Balfour-Rothschild exchange was the British Great Game, which lay behind the Balfour note. It is not insignificant that the geographical location for the new British-sponsored Jewish homeland lay in one of the most strategic areas along the main artery of the enlarged post-1914 British Empire, in a sensitive position along the route to India as well as in relation to the newly won Arab petroleum lands of Ottoman Turkey. The settlement of a Jewish minority under British protectorate in Palestine, argued Balfour and others in London, would give London strategic possibilities of enormous importance. It was, to say the least, a cynical ploy on the part of Balfour and his circle.

Beginning approximately in the early 1890s, a group of British elites, primarily from the privileged colleges of Oxford and Cambridge, formed what was to become the most influential policy network in Britain over the next half century and more. The group denied its existence as a formal group, but its footprints can be found around the establishment of a new journal of empire, the Round Table, founded in 1910.

The group argued that a more subtle and efficient system of global empire was required to extend the effective hegemony of Anglo-Saxon culture over the next century.

... In place of the costly military occupation of the colonies of the British Empire, they argued for a more repressive tolerance, calling for the creation of a British 'Commonwealth of Nations.' Members nations were to be given the illusion of independence, enabling Britain to reduce the high costs of far-flung armies of occupation from India to Egypt, and now across Africa and the Middle East as well. The term 'informal empire' was sometimes used to describe the shift.

This emerging faction was grouped around the influential London Times, and included such voices as Foreign Secretary Albert Lord Grey, historian and member of British secret intelligence Arnold Toynbee, as well as H.G. Wells, Alfred Lord Milner of the South Africa project, and the proponent of a new field termed geopolitics, HJ,. Mackinder of the London School of Economics. Its principal think tank, which was formed in the corridors of Versailles in 1919, became the Royal Institute for International Affairs (Chatham House).

The idea of a Jewish-dominated Palestine, beholden to England for its tenuous survival, surrounded by a balkanized of squabbling Arab states, formed part of this group's [British Round Table Group] concept of a new British Empire.

The Round Table group's grand design was to link England's vast colonial possessions, from the gold and diamond mines of Cecil Rhodes and Rothschild's Consolidated Gold Fields in South Africa, north to Egypt and the vital shipping route through the Suez Canal, and on through Mesopotamia, Kuwait and Persia into India in the East.

The British conquest of the German colony of Tanganyika (German East Africa) in central Africa in 1916, was not a decisive battle in a war to bring Germany to the peace table, but rather the completion of a vital link in this chain of British imperial control, from the Cape of Good Hope to Cairo.

The great power able to control this vast reach would control the world's most valuable strategic raw materials, from gold, basis of the international gold standard for world trade, to petroleum, in 1919 emerging as the energy source of the modern industrial era.

This remains a geopolitical reality every bit as much during the early years of the twenty-first century as it was in 1919. With such control, every nation on earth would fall under the scepter of the Britannic Empire. Until his death in 1902, Cecil Rhodes was the prime financial backer of this elite new 'informal empire' group.

The Boer War (1899-1902) was a project of the group, financed and personally instigated by Rhodes in order to secure firm British control of the vast mineral wealth of the Transvaal, at that time in control of the Boer minority, who were of Dutch origin. The war itself, in which Winston Churchill rose to public notice, was precipitated by Rhodes and Alfred Miler, and others of their circle, in order to bring what was believed to be the world's richest gold-producing region firmly under British control.

The Transvaal was the site of the world's largest gold discovery since the 1848 California Gold Rush, and its capture was essential to the continued role of London as the capital of the world's financial system and of its gold standard. Lord Miler, Jan Smuts and Rhodes were all part of the new empire faction which, as part of the Great Game, defeated the independent Boers and created a Union of South Africa.

By 1920, Britain had succeeded in establishing firm control over all of southern Africa, including the former German South West Africa, as well as the vast newly discovered petroleum wealth of the former Ottoman Empire, by means of her military presence, conflicting promises and the establishment of a British protectorate over Palestine as a new Jewish homeland.

Britain emerged from the deliberations of the 1919 Versailles conference in most apparent respects the dominant superpower in the world. One small detail, pushed to the background during the actual conduct of war between 1914 and 1918, however, was that ,is victory was secured on borrowed money.

American savings amounting to billions of dollars, organized by the Wall Street house of J.P. Morgan & Co., were a decisive component of the British victory. At the time of the Versailles peace conference in 1919, Britain owed the United States the staggering sum of $4.7 billion in war debts, while its own domestic economy was in a deep postwar depression, its industry in shambles, and domestic price inflation 300 per cent higher after the four years of war. The British national debt had increased more than ninefold, some 924 per cent between 1913 and the end of the war in 1918, to the then-enormous sum of £7.4 billion.

If Britain emerged as the territorial victor of Versailles, the United States, or at least certain powerful international banking and industrial interests, emerged in the early 1920s with the clear idea that they, and no longer Britain, were now the most powerful world economic power.

By January 1915, four months into the Great War [WWI], the British government had named a private New York banking house, J.P. Morgan & Co., to be its sole purchasing agent for all war supplies from the United States. Morgan was designated Britain's exclusive financial agent for all British war lending from private U.S. banks as well. In a short time, Britain in turn became the guarantor for all such war purchases and loans by the French, Italians and Russians in the war against the German-Austrian Continental powers. It was a giant credit pyramid on top of which sat the influential American house of Morgan. Never had a single banking house gambled on such high and risky global stakes.

The British Empire and Britain herself were virtually bankrupt at the outbreak of war in 1914 ... But British financial officials were confident of the backing of the United States and the Anglophile circles of New York banking.

The role of Morgan and the New York financial community was of supreme importance to the war [WWI] efforts of the Entente powers. Under an exclusive arrangement, purchase of all American munitions and war materials, as well as necessary grains and food supplies for Britain, France and the other Allied powers in Europe, was funneled through the house of Morgan. Morgan also utilized its London affiliate, Morgan Grenfell & Co., whose senior partner, E.G. Grenfell, was a director of the Bank of England, and an intimate friend of Chancellor of the Exchequer Lloyd George. Morgan's Paris office, Morgan Harjes & Co., completed the essential Entente circle. Such power in the hands of a single investment house, given the scale of the British war requirements, was without precedent.

Morgan, with its franchise as sole purchasing agent for the entire Entente group, became virtual arbiter over the future of the U.S. industrial and agricultural export economy. Morgan decided who would, or would not, be favored with very sizeable and highly profitable export orders for the European war effort against Germany.

Firms such as DuPont Chemicals grew into multinational giants as a result of their privileged ties to Morgan. Remington and Winchester arms companies were also favored Morgan 'friends.' Major grain trading companies grew up in the Midwest as well, to feed Morgan's European clients. The relations were incestuous, as most of the Morgan loans raised privately for the British and French were raised through the corporate resources of DuPont and friends, in return for a guarantee of the huge European munitions market.

The position of this private banking house was all the more remarkable since Woodrow Wilson's White House at this time was professing strict neutrality. But that neutrality became a thinly veiled fraud, as billions of dollars of vital war supplies and credits flowed to the British side over the next years. As purchasing agent alone, Morgan took a 2 per cent commission on the net price of all goods shipped. The business grew so large that Morgan took in E.R. Stettinius, later to become Secretary of State, as a senior Morgan partner to handle war purchases for what was becoming a colossal operation.

All of this activity was in strict violation of international law regarding a neutral, which forbade allowing belligerents to build supply bases in neutral countries. Morgan himself was later charged in a U.S. Senate inquiry with having made excess profits, and with having directed purchases to firms in which Morgan partners had an interest. By 1917, the British War Office had placed purchase orders totaling more than $20,000,000,000 through the house of Morgan. This is not to mention the direct loans raised by Britain, France and others through Morgan and his New York financial syndicate.

In 1915, U.S. Treasury Secretary McAdoo convinced a nervous President Wilson that such private American loans were necessary in order to 'maintain American exports.' The flows continued. By 1915, American exports to Britain had increased 68 per cent from the level of 1913. By the eve of the American entry into the war in 1917 on the side of Britain, the Entente powers had raised some $1,250,000,000 through the private efforts of Morgan, Citibank, and the other major New York investment houses, a staggering sum in that day. Morgan's relation to the financial powers of the newly created New York Federal Reserve Bank, under the control of former J.P. Morgan banker Governor Benjamin Strong, was essential to the success of the private financial mobilization. Even so, the risky enterprise several times threatened to break down.

The threat in January 1917 of British and French collapse, after Russia fell back in exhaustion from the war effort, provided more than enough incentive for Morgan and his New York financial syndicate to mobilize their combined propaganda and other resources. They did this with the careful assistance of the highest levels of British secret intelligence and friendly American press outlets, when it became clear that nothing else but American entry into the war would turn the looming disaster in Europe facing J.P. Morgan and Morgan's European clients. They organized that America would enter the European war on the 'right' side-in support of British interests. Morgan & Co., and Britain as well, faced complete financial ruin by early 1917 if they did not succeed.

Fortunately for Morgan and for London, German General Erich Ludendorff provided the basis for the Anglo-Morgan interests to avert financial ruin. In February 1917, Germany declared unrestricted submarine warfare, in an attempt to cut off the supply of American oil to the Allies, among other things. The sinking of American tankers was the excuse needed for the Morgan-controlled press to demand an end to American neutrality.

Once the Congress of the United States declared war against Germany, on April 2, 1917, the New York financial community, with the backing of the New York Federal Reserve's Governor Strong, launched the most ambitious financial operation in history.

Had Woodrow Wilson not been persuaded to sign the Federal Reserve Act into law on December 23, 1913, it is questionable whether the United States would ever have committed the resources it did to a war in Europe. Without the new law, it is also doubtful whether Britain would have launched her bold designs against the rival empires of the Continent in August 1914. The house of Morgan and the powerful international financial interests of the City of London played the critical role in shaping a U.S. Federal Reserve System in the months just before outbreak of the European war.

In stark contrast to the German experience, with the Reichstag severely restricting financial speculation in the 1890s, the group of interests which shaped the Federal Reserve Act in 1913 were dominated by the elite circles of the house of Morgan, for the benefit of New York's emerging role as an international capital center. New York bankers were beginning to adopt the style of British imperial finance.

In August 1917, the Federal Reserve mobilized sales of Liberty Loans and bonds, to finance U.S. government war costs. Bonds of the U.S. Treasury sold to private investors in this great 'patriotic' mobilization were sold through Morgan and the other leading New York investment houses. The total of these Liberty Loans and bonds had reached the breathtaking sum of more than $21,478,000,000
by June 30, 1919. Never before in history had such sums been mobilized in so short a time. Morgan's commission on this business was handsome indeed.

By 1920, Morgan partner Thomas W. Lamont noted with obvious satisfaction that, as a result of the four years of war and global devastation, 'the national debts of the world have increased by $210,000,000,000 or about 475 per cent in the last six years, and as a natural consequence, the variety of government bonds and the number of investors in them have been greatly multiplied.' Lamont added, 'These results have made themselves manifest in all the investment markets of the world; but nowhere, perhaps, in greater measure than in the United States.

Once the house of Morgan and the allied New York investment community had tasted playing the role of the world's leading financial power, they seemed willing to do anything to keep their grip on that power.

Morgan's men, including Thomas Lamont, as well as fellow Wall Street crony Bernard Baruch, sat at the table during the closed-door Versailles sessions which drew up the 'bill' for the Great War. They jointly established a special Commission for Reparations, to be permanently established in order to devise the precise amount and means for Germany to repay its war damages to the Entente powers.

And, being good conservative bankers, Morgan and friends could not let the war loans of the Allied powers simply be forgotten in the euphoria of peace, despite the assumptions of A.J. Balfour and others in the British government that such magnanimity would follow. Morgan & Co. had quietly shifted their private British government loans over to the general debt of the U.S. Treasury as soon as the United States officially entered the war, in effect making the British debts the burden of the American taxpayers after the war. Despite this, Morgan interests made sure they had a major stake in the postwar Versailles reparations financing. As the U.S. war debt grew beyond anything known before in her history, the distinction between Morgan's interests and that of the government became blurred. The U.S. government increasingly made itself simply a useful instrument for the extension of the new power of New York's international bankers.

During the course of the Versailles talks, a new institution of Anglo-American coordination in strategic affairs was formed. Lionel Curtis, a longtime member of the secretive Round Table or 'new empire' circle of Balfour, Milner and others, proposed organizing a Royal Institute of International Affairs. The proposal was made on May 30, 1919) in the midst of the Versailles deliberations, at a private gathering at the Hotel Majestic. Philip Kerr (Lord Lothian), Lord Robert Cecil and other members of the Round Table circle attended that formative meeting. The first nominal mission of the new institute would be to write the 'official' history of the Versailles peace conference. The Royal Institute received an initial endowment of £2,000 from Thomas Lamont of J.P. Morgan. Historian Arnold J. Toynbee was the institute's first paid staff member.

The same circle at Versailles also decided to establish an American branch of the London Institute, to be named the New York Council on Foreign Relations, so as to obscure its close British ties. The New York Council was initially composed almost entirely of the Morgan men, financed by Morgan money. It was hoped that this tie would serve to weld American interests into harmony with England's after Versailles. This was not to occur for some years, however.

It took the entirety of the 1920s, in often bitter, almost military, conflicts over war-debt repayment terms, rubber agreements, naval accords, the parity of a new gold standard and most significantly, control of untapped oil regions of the world, before the Anglo-American condominium emerged in its present form, and before the policy harmony between the circles of Morgan's Council on Foreign Relations and London's Royal Institute could take hold. In 1922, a Wall Street lawyer John Foster Dulles, a key participant at the Versailles talks, who had authored the Treaty's Article 231, the infamous German 'war guilt' clause, wrote in the Council on Foreign Affairs magazine Foreign Affairs about the thinking of Morgan and his fellow New York bankers. It was quite simple; he stated: "There cannot be a war without losses. The resulting losses are measured by debts. The debt assumes varying forms - internal, reparations, Inter-allied, etc. - and is generally represented by bonds or notes."

Dulles calculated that Britain and the other Allied powers owed the United States $12,500,000,000 at 5 per cent interest. Britain, France, and the other Entente countries, in turn, were owed by Germany, according to the Versailles demands, the sum of $33,000,000,000. The figures were beyond the scale of imagination at that time.

The American Congress refused to sign the Versailles Treaty and the included League of Nations apparatus to enforce it, but Morgan and the New York Federal Reserve axis proceeded to dominate the financial destiny of Europe in the postwar period. The combined burden of the Versailles German reparations debt, as well as the inter-Allied debts of the respective 'victors'-the war debts of France, Italy and Belgium to Britain, and in turn, of Britain to the United States-overwhelmed world finance and monetary policy from 1919 through to the October 1929 Wall Street crash. The entire pyramid of post-Versailles international finance was propped up on the edifice of the punitive war-debt structure. Morgan and the newly powerful New York banks refused to compromise on the debt issue.

The scale of the combined war debt burden of Europe was so large that its annual debt service demands on the world financial system were greater than the entire annual foreign trade of the United States during the 1920s. New York's international banking community redirected world capital flows to the service of this staggering debt burden. The debt servicing was carried out at the expense of the desperately needed investment in rebuilding and modernizing the war-torn economies of Europe.

J.P. Morgan & Co. enjoyed the competitive advantages provided by a devastated European economy, in which New York credit could dictate the terms. Profits from the new European lending were far greater than gains from investment in the postwar U.S. economic expansion. New York financial interests centered around Morgan and the New York Federal Reserve under Morgan's Benjamin Strong deliberately kept U.S. interest rates low. As a consequence, American loans flooded postwar Europe and the rest of the world where capital earned a higher risk premium than at home, while London and a new Bank of England governor, Montagu Norman, looked on nervously at the American financial incursion into their traditional markets.

The ink on the Versailles treaty had barely dried when the powerful American oil interests of the Rockefeller Standard Oil companies realized they had been skillfully cut out of the spoils of war by their British alliance partners. The newly carved Middle East boundaries, as well as the markets of postwar Europe, were dominated by British government interests through Britain's covert ownership of Royal Dutch Shell and the Anglo-Persian Oil Company.

... the Anglo-American power struggle for primacy in world finance and economic affairs had been resolved. The oil wars, which had shaken the world for more than a decade, were finally resolved in a 'ceasefire,' which resulted in the creation of an enormously powerful Anglo-American oil cartel, later dubbed the 'Seven Sisters.' The peace agreement was formalized in 1927, at Achnacarry, the Scottish castle of Shell's Sir Henri Deterding. John Cadman, representing the British government's Anglo-Persian Oil Co. (British Petroleum), and Walter Teagle, president of Rockefeller's Standard Oil of New Jersey (Exxon), gathered under the cover of a grouse shoot to conclude the most powerful economic cartel in modern history. The Seven Sisters were effectively one.

Their secret pact was formalized as the 'As Is' agreement of 1928, or the Achnacarry agreement. British and American oil majors agreed to accept the existing market divisions and shares, to set a secret world cartel price, and to end the destructive competition and price wars of the previous decade. The respective governments merely ratified this private accord the same year in what became the Red Line agreement. Since this time, with minor interruption, the Anglo-American grip over the world's oil reserves has been hegemonic.

... By 1932, all seven major companies in the Anglo-American sphere - Esso (Standard of N.J.), Mobil (Standard of N.Y.), Gulf Oil, Texaco, Standard of California (Chevron), as well as Royal Dutch Shell and Anglo-Persian Oil Co. (British Petroleum) - were part of the Achnacarry cartel.

The unstable international monetary order imposed after Versailles by London and New York bankers on a defeated central Europe came to an abrupt, if predictable, end in 1929. Montagu Norman, then the world's most influential central banker as governor of the Bank of England, precipitated the crash of the Wall Street stock market in October 1929. Norman had asked the governor of the New York Federal Reserve Bank, George Harrison, to raise U.S. interest rate levels. Harrison complied, and the most dramatic financial and economic collapse in U.S. history ensued in the following months.

J.P. Morgan bankers had already proved to themselves the usefulness of radical top-dawn political solutions to ensure repayment of bank loans, when they gave foreign credit to the fascist regime of Italian strongman Benito Mussolini. In November 1925, Italian Finance Minister Volpi di Misurata announced that the Mussolini government had reached an agreement on repaying the Versailles war debts of Italy to Britain and the United States. One week later, J.P. Morgan & Co., financial agents of the Mussolini government in the United States, announced a crucial $100 million loan to Italy to 'stabilize the lira.'

In reality, Morgan had decided to stabilize Mussolini's fascist regime. On the urging of J.P. Morgan & Co. and Montagu Norman, governor of the Bank of England, Volpi di Misurata established in 1926 a single Italian central bank, the Bank of Italy, to control national monetary policy and further ensure repayment of foreign debts. Mussolini had shown himself to be the ideal strongman to discipline Italian labor unions, drive down wages and enforce sufficient austerity to guarantee foreign bank lending, or so thought Morgan's people in New York.

The man who controlled U.S. monetary policy at the time, former Morgan banker Benjamin Strong, an intimate personal friend and collaborator of Britain's Montagu Norman, met with Volpi and the Bank of Italy governor, Bonaldo Stringher, to confirm the final details of the Italian 'stabilization' program. From Poland to Romania during the 1920s, the same combination of powerful persons - J.P. Morgan & Co., Montagu Norman and the New York Federal Reserve - organized effective economic control over most countries of Continental Europe, under the pretext of the establishment of 'creditworthy' national policies - an informal precursor of the role of the International monetary Fund in the 1980s.

A Century of War

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