Bitcoin’s Footprint (& Bootprint) Is Tiny Next To The Petrodollar

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With Tesla’s recent announcement that it will purchase $1.5 billion worth of bitcoin, the usual environmental smears against bitcoin (and Elon) are all over the place. In a previous article, I compared the environmental impact of the US dollar with Bitcoin, but I forgot one big detail: the petrodollar.

A Graphic Example: One Billion Barrels Burnt

When coalition forces drove the Iraqi military out of Kuwait in 1991, it was a big relief for everyone but the Iraqi regime. Saddam Hussein promised the “mother of all battles” with a military that could have exceeded a million troops. Instead, better equipment, skilled troops, and overwhelming force by coalition forces led to the battle being over in about 100 hours, leading commentators to call it the “mother of all retreats.”

Despite massive US public support for the invasion of Iraq, coalition forces stuck with the original plan and the UN mandate, which was only to free Kuwait and repel Iraqi forces. President George H.W. Bush’s approval ratings skyrocketed, but public disappointment with Hussein remaining in power led to shrinking approval ratings later, contributing to his loss of the 1992 elections.

US domestic sentiment wasn’t the only disappointment for Bush. On the way out, Iraqi military units detonated explosives at hundreds of oil wells. They also spilled and lit up millions of barrels of oil out onto the sea and into lowlying areas on land, leading to massive “oil lake” fires in the desert and nasty impacts for marine wildlife. They also set fire to oil intentionally spilled into massive trenches, meant to block troops during an expected invasion. It took many months to put the fires out, and over a billion barrels of oil were burnt.

Hussein had several motivations for this scorched earth strategy. First, he had been involved in oil disputes with Kuwait for years, often accusing them of slant-drilling to steal Iraqi oil. Second, he owed great debts from the Iran-Iraq war, and asserted that these debts should be forgiven because the countries indirectly benefited from the war. His thinking was much the same as Reagan’s reasons for supporting Hussein during that war: the fear of Iran invading other oil-rich countries and controlling most of the world’s oil supplies. He arguably prevented that, and felt that Kuwait and Saudi Arabia owed him at least as much as he owed them.

Just like the Iran-Iraq war, the US got involved in kicking Iraq out of Kuwait over oil. Yes, there were other reasons given, like atrocities committed against Kuwaitis (much of this, especially the stories of infanticide, was later proven false), Kuwait’s sovereignty, and fear of appeasing a dictator. The elder Bush even compared Hussein to Hitler on a number of occasions. To be fair, Saddam Hussein was quite evil. His 1979 purge of opposition on live TV, among many other crimes against humanity were definitely enough for him to deserve removal and execution (a fate which eventually befell him).

Privately, though, most world leaders didn’t want to get involved in a war in Southwest Asia. They knew from experience that getting into wars in the region often led to protracted guerrilla fighting, with Afghanistan having already earned a reputation of being the “graveyard of empires.” Fighting in Afghanistan alone never solely brought down an empire, but unexpected spending on long wars in the region had been a factor numerous times.

It’s also hypocritical to see the concern over dictators and human rights violations when considered in context. The political leaders of developed countries have never showed much hesitation to ignore and even support evil dictators when it suited them. Saddam Hussein was a prime example, right up until he became a liability for European and US leaders. They thought he would keep the Iranian government in check, which only a few years earlier had kept Americans as hostages after another US-backed dictator with a bad human rights record was overthrown.

Even today, the Saudi Arabian royal family suffers nearly no political consequences after killing Jamal Khashoggi, dismembering his body, and sneaking the remains out of a consulate in bags. Human rights violations are something that only comes up when we don’t need something from the dictators in question.

With the excuses not holding water, the only thing left is oil.

In the Gulf War, coalition leaders and the UN didn’t want to get into a fight with a Tar Baby, but they weren’t in a position to decline involvement completely. For one, European and US leaders both were worried about Hussein expanding his invasion into Saudi Arabia and perhaps later Iran, leaving him in military control over most of the world’s oil supply. Beyond that, the US had an even bigger problem: the Petrodollar.

Why The U.S. Fights: Replacing the Gold Standard With Oil

One of the big reasons we see the US spending so much to control Southwest Asia starts with World War II. To help rebuild the economy after the war, allied countries agreed to the Bretton Woods System, in which the US dollar would serve as the global reserve currency, which could be traded in for gold. This allowed the countries to still have flexible monetary policy and trade freely, but with the gold standard to back the whole thing and keep it stable.

The great advantage to the United States is that the market for dollars was expanded to a much bigger population and over a number of national economies. That way, when the US printed more dollars, the impact of inflation would be more diluted. For more on why this is, see the Wikipedia article on Quantity Theory of Money.

This system was in place until 1971. The price of gold was going up in the 50s and 60s due to inflation (once again, Quantity Theory of Money), and the set price of $35/ounce of gold that the US would honor was too low. Countries were trading their dollar reserves for gold and then selling gold on the open market for a profit. This was draining the US gold reserves, which had fallen from 55% of dollars to only 22%.

At the same time, other allies in the system had grown a lot more wealthy since World War II, and they were dissatisfied with the system.

To keep the system from failing completely and to keep US gold reserves from depleting to nothing, Nixon ended the convertibility of dollars to gold, turning the US dollar into a fiat currency.

This left the US in a bit of a pickle, though. Without the ability to convert dollars to gold, there was nothing to entice other countries using the dollar as a reserve currency. After all, it wasn’t good as gold anymore. The US needed to find another valuable and universally-wanted commodity that the dollar could be pegged to. Thus, they could keep it valuable and not lose status as a global hegemon.

The US government entered into agreements with Saudi Arabia to make sure oil could only be paid for in dollars, starting not long after the gold standard ended. Other oil-producing countries did the same. The result was that the dollar was now effectively backed by oil.

The Downside

This was great for the US dollar, but came at costs. In order to keep the US dollar secure and working well, it became necessary to stay deeply involved in the politics of Southwest Asia. If there was too much instability or if countries started accepting other currencies for oil, the whole system could collapse, leaving the dollar with hyperinflation as its market shrinks and the number of dollars being used for reserves fall.

One prominent theory is that the US invaded Iraq in 2003 because Saddam Hussein wanted to start selling oil for euros instead of dollars. Whether this was the actual reason for the war is in dispute, but the constant involvement of the US in Southwest Asia since the 1970s would be a hard coincidence to otherwise explain. This is especially true when you consider that the Bush administration was already planning an invasion of Afghanistan prior to the 9/11 attacks.

The Environmental & Human Impacts

In my previous article about the environmental impacts of Bitcoin, I covered all of the stuff that keeps the dollar system running. The Federal Reserve System, US banks, armored cars, foreign central banks, foreign banks, and everything else in the system produce emissions.

What I forgot to mention was that the US dollar is effectively backed by oil, as I explained above. This yields a lot of nasty impact.

First, the normal peacetime use of oil is all effectively part of what props up the US dollar. Global warming, air pollution, health problems, and all of the other nasty effects of oil are comparable to the “mining” of bitcoin. Pollution and greenhouse gases are a key part of what makes the US dollar work. Bitcoin can at least be processed using renewable power at some point, but the dollar is stuck in a polluting rut.

Second, all of this drives polluting military conflict. We are told by corrupt governments that the military is being sent around the world to secure liberty, end oppression, and keep America safe, and that’s partially true, but the evidence doesn’t support the assertion that fighting for freedom is the primary motivation. Reliance on petrodollars has led the US government to make some very poor decisions that spew all sorts of pollutants into the atmosphere. In the Gulf War, the result was over a billion barrels of oil simply burnt with no economic good coming from it at all.

Worse are the human impacts of all this, or the US dollar’s “bootprint.” To keep things secure for the US dollar and a fossil fuel-powered economy, the US government has backed dictators who murder and abuse their people, and it still does that to this day. Thousands upon thousands of American families have lost their children to these wars, and millions and millions of foreign families have lost their loved ones. The death and destruction, and the non-deadly but very real suffering of millions of people has become a key part of the US monetary system that we can’t just ignore for convenience sake.

In theory, Elon Musk is bad for buying a bunch of Bitcoin and accepting it as payment. In reality, it’s nothing compared to the pollution, death, and destruction that it takes to keep your debit card working and keep the price of bread below $100 trillion. Keep that in mind.

Featured Image: A US Navy F-144A “Tomcat” from the USS Abraham Lincoln flies over oil wells set ablaze by Iraqi forces in September 1991. Image by Lt. Steve Gozzo, USN (Public Domain, The appearance of US Department of Defense (DOD) visual information does not imply or constitute DOD endorsement)