Hidden economics drove port deal

By Brian Ochsner baochsner@aol.com The now-abandoned deal turning over management of six major American ports to Dubai Ports World and the United Arab Emirates became a radioactive issue for President Bush. The administration's handling of this issue was clumsy at best. However, even had they been "PR perfect" on the Dubai ports deal, I still think it was destined to collapse.

While the thing didn’t make sense to me at first, after connecting the dots with some other events in the Middle East I got a clearer picture. The opening of a new Iranian oil exchange, combined with a vulnerable US dollar, suggests why President Bush was so committed this deal.

Defenders of the proposed sale, Rush Limbaugh and Larry Kudlow, for example, parroted the RNC talking points, saying that opponents of the port deal were racist, Islamophobic, or just don’t understand the deal. Hogwash. When a country fighting a global war on terrorism agrees to turn over management of key American ports to a company owned by a government friendly with Al-Qaeda, it hardly passes the common-sense test.

In addition to this, a former CIA officer pointed out that two of the top three world ports for smuggling, contraband and counterfeit activity (Dubai and Hong Kong) are controlled by Dubai Ports World. Color me skeptical when someone tells me to ignore these facts, and toe the patriotic line that it’s good for business hence good for America.

President Bush has never been real good at public relations and communications "strategery." He’s been able to govern fairly well without it, at least until now. The story about the proposed port purchases came out awkwardly, and the President responded that he wasn’t aware of it until recently. A day or two later, he comes out saying he’ll veto any Congressional bill that would kill this deal. Huh?

Mr. Bush - who up to now never met a bill he didn’t like – threatened to use the veto pen to make sure a company owned by a foreign government could buy several key American ports. He did it without addressing security concerns, or giving solid reasons why this deal is necessary for American prosperity and/or financial stability. Most Americans were confused and put off that President Bush would staunchly defend the right of a foreign company to do a business deal, but won’t go to bat for American citizens on critical issues such as border security, and responsible federal spending.

So these were the main reasons so many citizens and Congressmen were against the deal – not because of racism or Islamophobia. When over 90% of global terrorist acts around the world the past 25 years have been carried out by Arab fanatics, it’s probably wise to be wary of Bedouins bearing money or gifts.

Another curious item, deal or no deal, is that Homeland Security hasn’t been able to compile an accurate list of foreign companies that control up to 80% of the 3,200 American port terminals. It doesn’t make sense that we don’t know who’s in charge of these key American assets and entry points.

It seems to me the real reasons for the President’s support of this deal must have stemmed from the new Iranian oil bourse, the vulnerability of the US dollar, and America’s addiction to oil. Currently, there are just two international oil exchanges (New York and London) where oil is bought and sold, both in Yankee greenbacks. But in mid-March the Iranian oil exchange is scheduled to open, and there all transactions will be done in Euros or other foreign currencies.

More and more countries want to diversify their foreign currency reserves out of US dollars. That’s because America’s massive federal budget and trade deficits have required huge amounts of primarily foreign borrowing – which isn’t sustainable over the long term. The Iranian oil bourse gives Islamofascists another financial weapon to accelerate the flight of countries’ currency reserves from greenbacks, and weaken the US economy.

Oil-producing countries – such as the UAE – that take our dollars for their oil want to convert these dollars into more stable, tangible assets. They don’t want to be holding a big bag of American currency or Treasury notes if a severe dollar decline were to occur. Given America’s unhealthy balance sheet, it’s probably a matter of when, and not if this occurs.

I believe that the President, as a former oil man, understands this, but can’t say it publicly. This would damage the already shaky confidence that foreigners have in America’s financial predicament. Dubai Ports World probably understands this as well. Behind the scenes, they were probably using the Iranian oil bourse and the shaky US dollar as leverage on the Administration to get this deal done.

Geography also plays a role in this proposed deal. The Strait of Hormuz – where many ships sail in and out of transporting crude oil - is flanked by Iran on one side, and the UAE on the other. Iran could respond to Western sanctions or an attack on its nuclear facilities by blocking passage of ships through the Strait, or attacking these vessels.

The port sale may have been a form of "protection payment" the US felt it had to fork over, in hope of ensuring clear sailing for oil tankers through this critical passageway. If oil shipments are limited or halted for more than a couple of weeks, this would create another Katrina-like spike in crude oil and gasoline prices. Thus, it would mean bad things for the US economy, which is deeply dependent on the free flow of "black gold."

With Dubai having pulled out of the deal on Friday, these factors are moot points – at least for now. However, don’t be surprised to see more attempted purchases of American assets in the future. Now you can go beyond the noise and headlines, and know the rest of the financial and economic story.