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Should we fear the proposed Iranian oil bourse?
I have read that Iran will construct an "oil bourse" with oil priced in terms of Euros instead of dollars. Here is one such account:
The Iranian government has finally developed the ultimate “nuclear” weapon that can swiftly destroy the financial system underpinning the American Empire. That weapon is the Iranian Oil Bourse slated to open in March 2006.
Here is a related worry. I don't know much about what Iran is planning (nor does a Google search yield much trustworthy information), but this fear is based on faulty economics. As a first-order approximation, it doesn't much matter whether Iran prices its oil in terms of dollars, Euros, or some other currency. At the beginning of each day, investors (including the OPEC nations) are holding their preferred bundle of currency positions. You might need to hold or receive Euros for a moment to make a transaction, but moving from the dollar to the Euro, or vice versa, can be done easily.
Two qualifiers: First, some investors will hold more Euros to begin with. They don't know their periodic demands for oil, and they don't want to be bothered paying a bid-ask spread and calling a broker when the time comes to pay for oil. But this is likely to be a small effect. Major market players generally do not regard these conversion costs as a decisive investment factor. Bid-ask spreads in the dollar-Euro market are small, and if the dollar fell by a large amount it would be worth buying dollars cheaply and bearing subsequent transactions costs of a later reconversion at a superior rate.
Second, the dollar's status as reserve currency depends in part on perceptions. If pricing oil in terms of Euros altered those perceptions, the value of the dollar could fall. But most of all those perceptions depend on relative economic performance. An Iranian "oil bourse" is likely to be. in psychological terms, a non-event, especially if Iran continues down its path as international pariah. Note that Saddam's efforts to price oil in terms of Euros did not end up as a big deal.
If you are going to fear Iran, worry about the nuclear weapons.
Thanks to Michael Katsevman for the pointer.
Posted by Tyler Cowen on January 20, 2006 at 07:08 AM in Economics | Permalink
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» What Happens if Oil is Priced in Euros Instead of Dollars? from HouseTaker
Not much, according to Tyler Cowen. I agree with him: this probably won't have a huge impact on the perception of the USD's stability, and the ease with ... [Read More]
Tracked on Jan 20, 2006 11:22:45 AM
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Introduction to the US Dollars/Oil Bourse Conspiracy
Iran is scheduled in March to launch an oil exchange with the currency used for transaction being Euros as opposed to US dollars, such as in the two main oil bourse, International Petroleum Exchan... [Read More]
Tracked on Jan 21, 2006 6:42:21 AM
Comments
Tyler, check out
http://wallstreetexaminer.com/?itemid=1267#comments
for an excerpt from Petrodollar Warfare, regarding the possible effects of the Iranian exchange. While the author does seem to have an anti-bush sentiment, the arguments are pretty good.
The comments following the excerpt are quite good, too. This bourse will not have the volume to make a big splash initially. One comment claimed Iran can't produce the volume to guarantee physical delivery off a contract anyway. I think that's wrong -- they're the #3 producer!
The key will be, as Clark quotes OPEC in
http://www.energybulletin.net/7707.html
if Norway (with the benchmark Brent North crude) or Dubai (with the UAE crude) agree to price in euros. Then the "world's reserve currency" status of the dollar is psychologically shaken, and economically damaged because oil users and investors no longer need to hold dollars to buy oil.
Posted by: American bond investor at Jan 20, 2006 10:21:55 AM
The Euro will replace the Dollar as the reserve currency when European growth rates out-strip US growth rates.
The US economy may have significant structural problems, but if you had to bet on the future of the US versus France, Germany, Spain, and Italy with high unemployment rates, low growth, and a continued socialist stranglehold on their economies, the US still looks like the safer long-term bet.
The US economy is so vibrant that the government can do wild things (like the Iraq war, Medicare drug plan, etc.) and still end up slogging through reasonably OK.
Now the UK economy is pretty good and growing as well, but that is the Pound, not the Euro...
Posted by: Mr. Econotarian at Jan 20, 2006 11:10:41 AM
Euro growth rates will never exceed US rates (long-term) because Europe is depopulating.
Posted by: cb at Jan 20, 2006 11:42:54 AM
Lots of people in export industries
and import competing industries would
love to have the dollar replaced as a
reserve currency and see it depreciate
substantially in value for obvious
reasons. Are not members of both parties
in Congress browbeating the Chinese to
revalue/appreciate the yuan/renmimbi?
Posted by: Barkley Rosser at Jan 20, 2006 3:51:41 PM
Dr. Cowen,
How can you conclude that "Saddam's efforts to price oil in terms of Euros did not end up as a big deal?" Iraq's Euro oil payment program began in 2002 and the Bush administration quickly put an end to it a year later at immense cost.
Was it not a big deal because it was never allowed to become one, or was it such a big deal that it had to be stopped immediately?
Posted by: XB at Jan 20, 2006 5:41:46 PM
For those who haven't noticed it yet: the euro already has the status of reserve currency together with the US dollar. Any threat to the U.S. economy? None, whatsoever.
Posted by: Pavel at Jan 20, 2006 6:01:55 PM
I just read Britain's economy's not so hot.
Posted by: Sandy P at Jan 20, 2006 7:35:09 PM
I can come up with two situations in which that this may be a big deal, but I don't know if either are realistic:
1) Oil exporters tend to keep their assets in whatevery currency they sell their oil for. This means that pricing oil in a particular currency creates a sizable sink for that currency, as the oil exporting countries effective use it as their reserve currency.
2) Oil exporters recalculate their exchange rate (oil for $, or euro) less frequently than currency speculators do ($ for euro). In this situation, the stability of the exchange relationship between oil and the "petro-currency" that the petro-currency is the most stable currency around, which brings it all sorts of benefits (such as being held as a reserve currency).
Do the above conditions exist, or not?
Posted by: Adam at Jan 20, 2006 9:15:00 PM
XB--I'm looking into this, and multiple sources say that Iraq changed it's pricing system in 2000, not 2002.
Posted by: Adam at Jan 20, 2006 9:21:04 PM
Last post for now... promise:
First: it looks like Iran is distancing itself from Europe, economically. So changing to the Euro may not be realistic. How about the Chinese currency?
http://www.guardian.co.uk/frontpage/story/0,,1691815,00.html
Second: Sources for my above claims about the date of Iraq's change:
http://www.feasta.org/documents/papers/oil1.htm
http://www.thirdworldtraveler.com/Iraq/Iraq_dollar_vs_euro.html
I'm not vouching for the accuracy of those articles, but they are pushing the theory that petro-currency is important, so it's meaningful that they disagree with another proponent of the theory.
Posted by: Adam at Jan 20, 2006 9:24:08 PM
Adam, you are correct. It was November of 2000 when the U.N. let Iraq sell oil for Euros.
My point is that Dr. Cowen cannot conclusively say that this was not a big deal.
He also should not disregard the significant consequences that will be the result of the dollar's days as the international reserve currency drawing to an end. Should we fear this event? No. Should we have great confidence? No. Many things will change for better or worse depending on which side of the fence you sit on and which side your bread is buttered on. To get bogged down in "bid-ask spreads" is to miss the point entirely.
An Iranian bourse would only be the beginning.
Posted by: XB at Jan 20, 2006 11:29:12 PM
Look over here! It's the nukes, the nukes! Mushroom clouds over New York! Arabs unplugging incubators! Nukes! Nukes! The economy is bulletproof! It's the Nukes!
Posted by: ahb at Jan 21, 2006 7:54:03 PM
But, Israel is the only country in the middle east that has nuclear weapons.
Should we also be afraid of them Tyler Cowen?
Should we fear Israel before we fear Iran?
Posted by: Sam at Jan 21, 2006 11:51:31 PM
Well, it is not just the dollar being used as a reserve currency. It is also the dollar being used as a general medium of exchange in international transactions, both for trade and for financing. The dollar could well continue to serve as those, even if its reserve currency status were to decline.
Clearly the economic fear is that an Iranian bourse, especially if it were to lead to a more general shift to using the euro (the only serious possible alternative) as a more general such medium of exchange, could lead to a shift away from using the dollar as a medium of financial transactions. That could eventually have an impact in that the US might find it harder to borrow abroad using only dollars. This could eventually force a decline in the rate of consumption in this country. OTOH, such a decline is likely to be forced at some point as the scale of US net indebtedness continues to escalate, and the investment income part of the current account finally goes negative, which it is rapidly heading towards, despite all the mumblings by the "dark matter" crowd.
Posted by: Barkley Rosser at Jan 22, 2006 2:20:44 PM
How would the US lose money if the central banks of oil consuming contries traded (in part or whole) in EU?
I do not understand how that would hurt the Dollar?
Posted by: confused at Jan 29, 2006 7:11:08 PM
Don't forget the fundamental law of economics people...SUPPLY & DEMAND!!!
Well...I don't have a degree in economics or anything like that, but i've read many, many books and articles on the subject of oil (energy), gold, climate change, and politics. From different (right/left/center) sources as well, I might add. Here's my take on all of this:
I've read the article "The Proposed Iranian Oil Bourse", and i've read some dissenting articles and debates on the subject as well. One of the main arguments in that article on why a switch to the Euro will hurt the dollar is because of the fact that our economy in the USA is run in large part on debt. Consumer debt is in the trillions of dollars in this country, is it not? We do not manufacture a whole lot of anything anymore, and our oil exports have been decreasing ever since production peaked back in the early 70's. I doubt many would disagree with this statement (China being the chief manufacturer and India obviously providing many of the former services Americans used to). However, since oil is bought with dollars, other countries are basically forced to buy our currency financing our enourmous debt. True, the world economy will temporarily be screwed if the dollar is massively devalued, but many countries have already begun to start trading in their dollars for other currencies as they seek to diversify their reserves (for one "given" reason or another). See China, Venezuela, etc. I know i've left out a lot of details, but come on, I REALLY would like to see a good critical article on this subject. With all due respect, my buddy (who is still in college) gave a better dissenting critique on "The Proposed Iranian Oil Bourse" than Tyler Cowen and Michael Katsevman. It seems as if they, like most Americans, would rather sit in their utopian realities fed to them by media outlets who couldn't give a rats behind about Americans. For god's sake, the West Antartic Ice Sheet is melting and we're talking about the THREAT of Iran developing nuclear weapons? Which, by the way, Sam is correct with his point that Israel IS the only Mid-Eastern country which has nuclear weapons...if Iran even blinks with a missile Israel will blow the entire country up so quickly they won't even know what happened.
It seems to me that many in this country do not bother to inform themselves past the propaganda "sound bites" fed to them from static news sources...INVESTIGATE diligently and explain your position with facts, not speculation only.
Posted by: mike at Feb 2, 2006 7:09:01 PM
Good general statement to which I agree. However, one caveat, US is still the leading single country exporter in the world, although it is declining. And, if the dollar does decline precipitously, our imports which are about double our exports, would decline sharply as well. A much needed correction in our balance of trade would follow and though there would be trauma as the belts tightened, the end result would not be that bad.
Interesting that the Iranians have pulled billions from Europe. This could indicate, since there is growing demand from China, that selling oil in yuan or yen would be their intended play.
Posted by: Bob at Feb 3, 2006 2:24:27 PM
Thanks Bob. Thx also for the import/export facts. It seems to me like the Iranians are probably speculating that once they get their bourse up and running that other countries may follow suit. Namely, the Chinese and possibly a group of South American countries led by Chavez.
Another interesting note. I saw recently that Chavez was threatening to shut down Citgo refineries in the US and send his oil to China/Europe, etc. I'd be interested to hear some thoughts on this from others. My thought is that while this would be a crushing blow to our energy needs, it would not NECESSARILY be good in the short-run for Chavez. Mainly because you need refineries to sell oil and the Venezuelan crude needs "custom" refineries to refine it since it is so heavy.
Thoughts...???
Posted by: Mike at Feb 9, 2006 4:27:33 PM
If the Iranian Oil Bourse is so irrelevant why did the Fed announce it is ceasing publication of M3 figures recently and why is the U.S. preparing to attack the Republic if Iran? Me thinks this is a load of wishful C.I.A.psy/ops here. And to "confused" the point is when the Federal Reserve Notes come flooding back into the U.S. hold onto your inflation hat. Or buy some gold and/or silver now.
Posted by: Bob Roberts at Feb 13, 2006 12:40:42 AM
ahb,
i hope that was sarcasm cleverly hidden in internet filter....
you sound like the hawks right before the iraq war,
please don't tell me that you actually believe the line that iran will be lobbing nuclear missiles at us next week
also, it is difficult to predict the effect of a shift in reserve currency, but it is a fact that it would hurt the american economy ( or, correct it) and that the net effect would be negative fallout politically for the republicans. The american people would not bother themselves to find out why things went into the crapper, they would most likely simply react in such a manner that election manipulation would not be feasible. the exit polls would be heavily scewed to the point that the electronic polling machines being corrupted would be exposed.
oh, by the way, the ability to abuse the polling machines is well known and discussed, it's just not a thing the american people can be bothered to think about, the implications are too staggering.
Posted by: james at Feb 14, 2006 10:17:47 PM
the claim that the USA will continue to have superior growth rates than Europe is true but it is also misleading. At what peril is the USA producing such growth. Gross public spending in the military industrial complex is leading to potentially unsustainable levels of public debt. Americans are so quick to label Europeans as being so inefficeint and "backward" because of their socialistic tendencies. Europeans laugh (and depair) at the Americans, they have almost 25% of their population without health insurance. How efficient is their economy really? Everyone knows it is much more cost effective to prevent ill health than the American alternative.
Posted by: will at Feb 23, 2006 1:10:00 PM
Please see the national debt clock:
http://www.toptips.com/debtclock.html
you will come to know Iran is a red haring created to make every one busy, just look at the Millions borrowed in one single day, The new Or lien is anther disaster which this great nations leader ignoring its needs, there r people until now not counted for. American living below the poverty line reached 37 millions, and we want to take prosperity to Afghanistan and Iraq, is that the prosperity of destruction like New Or lien or Iraq?
In short America is in economical suicidal mission read this article please:
http://news.goldseek.com/JamesTurk/1142438460.php
The only thing left to junta is to create more wars, create new enemies, so the people will be frighten and busy with their new synthetic enemy as we all remember the big lies of 9 11. please watch 9 11 on trails and proven guilty:
http://www.wingtv.net/911ontrial.doc/911ontrialindex.html
The question the scholars asking the American Junta is : 9 11 is an inside job ( inside a demolition ) we can prove that scientifically, mathematically and physically, can the government prove it is not? Please see and vote for the scholars to keep Americ safe:
http://www.thepetitionsite.com/takeaction/929981172
Yr vote very important to keep America safe.
Posted by: ams alzidgali at Mar 19, 2006 1:46:42 AM
This notion that the United States is getting ready to attack Iran is simply ridiculous...Having said that, all options are on the table.”
– President George W. Bush, February 2005
Contemporary warfare has traditionally involved underlying conflicts regarding economics and resources. Today these intertwined conflicts also involve international currencies, and thus increased complexity. Current geopolitical tensions between the United States and Iran extend beyond the publicly stated concerns regarding Iran’s nuclear intentions, and likely include a proposed Iranian “petroeuro” system for oil trade.
Similar to the Iraq war, military operations against Iran relate to the macroeconomics of ‘petrodollar recycling’ and the unpublicized but real challenge to U.S. dollar supremacy from the euro as an alternative oil transaction currency.
It is now obvious the invasion of Iraq had less to do with any threat from Saddam’s long-gone WMD program and certainly less to do to do with fighting International terrorism than it has to do with gaining strategic control over Iraq’s hydrocarbon reserves and in doing so maintain the U.S. dollar as the monopoly currency for the critical international oil market. Throughout 2004 information provided by former administration insiders revealed the Bush/Cheney administration entered into office with the intention of toppling Saddam Hussein.[1][2]
Candidly stated, ‘Operation Iraqi Freedom’ was a war designed to install a pro-U.S. government in Iraq, establish multiple U.S military bases before the onset of global Peak Oil, and to reconvert Iraq back to petrodollars while hoping to thwart further OPEC momentum towards the euro as an alternative oil transaction currency (i.e. “petroeuro”).[3] However, subsequent geopolitical events have exposed neoconservative strategy as fundamentally flawed, with Iran moving towards a petroeuro system for international oil trades, while Russia evaluates this option with the European Union.
In 2003 the global community witnessed a combination of petrodollar warfare and oil depletion warfare. The majority of the world’s governments – especially the E.U., Russia and China – were not amused – and neither are the U.S. soldiers who are currently stationed inside a hostile Iraq. In 2002 I wrote an award-winning online essay that asserted Saddam Hussein sealed his fate when he announced in September 2000 that Iraq was no longer going to accept dollars for oil being sold under the UN’s Oil-for-Food program, and decided to switch to the euro as Iraq’s oil export currency.[4]
Indeed, my original pre-war hypothesis was validated in a Financial Times article dated June 5, 2003, which confirmed Iraqi oil sales returning to the international markets were once again denominated in U.S. dollars – not euros.
The tender, for which bids are due by June 10, switches the transaction back to dollars -- the international currency of oil sales - despite the greenback's recent fall in value. Saddam Hussein in 2000 insisted Iraq's oil be sold for euros, a political move, but one that improved Iraq's recent earnings thanks to the rise in the value of the euro against the dollar [5]
The Bush administration implemented this currency transition despite the adverse impact on profits from Iraqi’s export oil sales.[6] (In mid-2003 the euro was valued approx. 13% higher than the dollar, and thus significantly impacted the ability of future oil proceeds to rebuild Iraq’s infrastructure). Not surprisingly, this detail has never been mentioned in the five U.S. major media conglomerates who control 90% of information flow in the U.S., but confirmation of this vital fact provides insight into one of the crucial – yet overlooked – rationales for 2003 the Iraq war.
Concerning Iran, recent articles have revealed active Pentagon planning for operations against its suspected nuclear facilities. While the publicly stated reasons for any such overt action will be premised as a consequence of Iran's nuclear ambitions, there are again unspoken macroeconomic drivers underlying the second stage of petrodollar warfare – Iran's upcoming oil bourse. (The word bourse refers to a stock exchange for securities trading, and is derived from the French stock exchange in Paris, the Federation Internationale des Bourses de Valeurs.)
In essence, Iran is about to commit a far greater “offense” than Saddam Hussein's conversion to the euro for Iraq’s oil exports in the fall of 2000. Beginning in March 2006, the Tehran government has plans to begin competing with New York's NYMEX and London's IPE with respect to international oil trades – using a euro-based international oil-trading mechanism.[7]
The proposed Iranian oil bourse signifies that without some sort of US intervention, the euro is going to establish a firm foothold in the international oil trade. Given U.S. debt levels and the stated neoconservative project of U.S. global domination, Tehran’s objective constitutes an obvious encroachment on dollar supremacy in the crucial international oil market.
From the autumn of 2004 through August 2005, numerous leaks by concerned Pentagon employees have revealed that the neoconservatives in Washington are quietly – but actively – planning for a possible attack against Iran. In September 2004 Newsweek reported:
Deep in the Pentagon, admirals and generals are updating plans for possible U.S. military action in Syria and Iran. The Defense Department unit responsible for military planning for the two troublesome countries is “busier than ever,” an administration official says. Some Bush advisers characterize the work as merely an effort to revise routine plans the Pentagon maintains for all contingencies in light of the Iraq war. More skittish bureaucrats say the updates are accompanied by a revived campaign by administration conservatives and neocons for more hard-line U.S. policies toward the countries…’
…administration hawks are pinning their hopes on regime change in Tehran – by covert means, preferably, but by force of arms if necessary. Papers on the idea have circulated inside the administration, mostly labeled "draft" or "working draft" to evade congressional subpoena powers and the Freedom of Information Act. Informed sources say the memos echo the administration's abortive Iraq strategy: oust the existing regime, swiftly install a pro-U.S. government in its place (extracting the new regime's promise to renounce any nuclear ambitions) and get out. This daredevil scheme horrifies U.S. military leaders, and there's no evidence that it has won any backers at the cabinet level.[8]
Indeed, there are good reasons for U.S. military commanders to be ‘horrified’ at the prospects of attacking Iran. In the December 2004 issue of the Atlantic Monthly, James Fallows reported that numerous high-level war-gaming sessions had recently been completed by Sam Gardiner, a retired Air Force colonel who has run war games at the National War College for the past two decades.[9] Col. Gardiner summarized the outcome of these war games with this statement, “After all this effort, I am left with two simple sentences for policymakers: You have no military solution for the issues of Iran. And you have to make diplomacy work.” Despite Col. Gardiner’s warnings, yet another story appeared in early 2005 that reiterated this administration’s intentions towards Iran. Investigative reporter Seymour Hersh’s article in The New Yorker included interviews with various high-level U.S. intelligence sources. Hersh wrote:
In my interviews [with former high-level intelligence officials], I was repeatedly told that the next strategic target was Iran. Everyone is saying, ‘You can’t be serious about targeting Iran. Look at Iraq,’ the former [CIA] intelligence official told me. But the [Bush administration officials] say, ‘We’ve got some lessons learned – not militarily, but how we did it politically. We’re not going to rely on agency pissants.’ No loose ends, and that’s why the C.I.A. is out of there.[10]
The most recent, and by far the most troubling, was an article in The American Conservative by intelligence analyst Philip Giraldi. His article, “In Case of Emergency, Nuke Iran,” suggested the resurrection of active U.S. military planning against Iran – but with the shocking disclosure that in the event of another 9/11-type terrorist attack on U.S. soil, Vice President Dick Cheney’s office wants the Pentagon to be prepared to launch a potential tactical nuclear attack on Iran – even if the Iranian government was not involved with any such terrorist attack against the U.S.:
The Pentagon, acting under instructions from Vice President Dick Cheney's office, has tasked the United States Strategic Command (STRATCOM) with drawing up a contingency plan to be employed in response to another 9/11-type terrorist attack on the United States. The plan includes a large-scale air assault on Iran employing both conventional and tactical nuclear weapons. Within Iran there are more than 450 major strategic targets, including numerous suspected nuclear-weapons-program development sites. Many of the targets are hardened or are deep underground and could not be taken out by conventional weapons, hence the nuclear option. As in the case of Iraq, the response is not conditional on Iran actually being involved in the act of terrorism directed against the United States. Several senior Air Force officers involved in the planning are reportedly appalled at the implications of what they are doing – that Iran is being set up for an unprovoked nuclear attack – but no one is prepared to damage his career by posing any objections.[11]
Why would the Vice President instruct the U.S. military to prepare plans for what could likely be an unprovoked nuclear attack against Iran? Setting aside the grave moral implications for a moment, it is remarkable to note that during the same week this “nuke Iran” article appeared, the Washington Post reported that the most recent National Intelligence Estimate (NIE) of Iran’s nuclear program revealed that, “Iran is about a decade away from manufacturing the key ingredient for a nuclear weapon, roughly doubling the previous estimate of five years.”[12]
This article carefully noted this assessment was a “consensus among U.S. intelligence agencies, [and in] contrast with forceful public statements by the White House.” The question remains, Why would the Vice President advocate a possible tactical nuclear attack against Iran in the event of another major terrorist attack against the U.S. – even if Tehran was innocent of involvement?
Perhaps one of the answers relates to the same obfuscated reasons why the U.S. launched an unprovoked invasion to topple the Iraq government – macroeconomics and the desperate desire to maintain U.S. economic supremacy. In essence, petrodollar hegemoy is eroding, which will ultimately force the U.S. to significantly change its current tax, debt, trade, and energy policies, all of which are severely unbalanced. World oil production is reportedly “flat out,” and yet the neoconservatives are apparently willing to undertake huge strategic and tactical risks in the Persian Gulf. Why? Quite simply – their stated goal is U.S. global domination – at any cost.
To date, one of the more difficult technical obstacles concerning a euro-based oil transaction trading system is the lack of a euro-denominated oil pricing standard, or oil ‘marker’ as it is referred to in the industry. The three current oil markers are U.S. dollar denominated, which include the West Texas Intermediate crude (WTI), Norway Brent crude, and the UAE Dubai crude. However, since the summer of 2003 Iran has required payments in the euro currency for its European and Asian/ACU exports – although the oil pricing of these trades was still denominated in the dollar.[13]
Therefore a potentially significant news story was reported in June 2004 announcing Iran’s intentions to create of an Iranian oil bourse. This announcement portended competition would arise between the Iranian oil bourse and London’s International Petroleum Exchange (IPE), as well as the New York Mercantile Exchange (NYMEX). [Both the IPE and NYMEX are owned by a U.S. consortium, and operated by an Atlanta-based corporation, IntercontinentalExchange, Inc.]
The macroeconomic implications of a successful Iranian bourse are noteworthy. Considering that in mid-2003 Iran switched its oil payments from E.U. and ACU customers to the euro, and thus it is logical to assume the proposed Iranian bourse will usher in a fourth crude oil marker – denominated in the euro currency. This event would remove the main technical obstacle for a broad-based petroeuro system for international oil trades. From a purely economic and monetary perspective, a petroeuro system is a logical development given that the European Union imports more oil from OPEC producers than does the U.S., and the E.U. accounted for 45% of exports sold to the Middle East. (Following the May 2004 enlargement, this percentage likely increased).
Despite the complete absence of coverage from the five U.S. corporate media conglomerates, these foreign news stories suggest one of the Federal Reserve’s nightmares may begin to unfold in the spring of 2006, when it appears that international buyers will have a choice of buying a barrel of oil for $60 dollars on the NYMEX and IPE - or purchase a barrel of oil for €45 - €50 euros via the Iranian Bourse. This assumes the euro maintains its current 20-25% appreciated value relative to the dollar – and assumes that some sort of US "intervention" is not launched against Iran.
The upcoming bourse will introduce petrodollar versus petroeuro currency hedging, and fundamentally new dynamics to the biggest market in the world - global oil and gas trades. In essence, the U.S. will no longer be able to effortlessly expand its debt-financing via issuance of U.S. Treasury bills, and the dollar’s international demand/liquidity value will fall.
It is unclear at the time of writing if this project will be successful, or could it prompt overt or covert U.S. interventions – thereby signaling the second phase of petrodollar warfare in the Middle East. Regardless of the potential U.S. response to an Iranian petroeuro system, the emergence of an oil exchange market in the Middle East is not entirely surprising given the domestic peaking and decline of oil exports in the U.S. and U.K, in comparison to the remaining oil reserves in Iran, Iraq and Saudi Arabia.
What we are witnessing is a battle for oil currency supremacy. If Iran’s oil bourse becomes a successful alternative for international oil trades, it would challenge the hegemony currently enjoyed by the financial centers in both London (IPE) and New York (NYMEX), a factor not overlooked in the following (UK) Guardian article:
Iran is to launch an oil trading market for Middle East and Opec producers that could threaten the supremacy of London's International Petroleum Exchange.
…Some industry experts have warned the Iranians and other OPEC producers that western exchanges are controlled by big financial and oil corporations, which have a vested interest in market volatility.
The IPE, bought in 2001 by a consortium that includes BP, Goldman Sachs and Morgan Stanley, was unwilling to discuss the Iranian move yesterday. “We would not have any comment to make on it at this stage,” said an IPE spokeswoman. [14]
During an important speech in April 2002, Mr. Javad Yarjani, an OPEC executive, described three pivotal events that would facilitate an OPEC transition to euros.[15] He stated this would be based on (1) if and when Norway's Brent crude is re-dominated in euros, (2) if and when the U.K. adopts the euro, and (3) whether or not the euro gains parity valuation relative to the dollar, and the EU’s proposed expansion plans were successful.
Notably, both of the later two criteria have transpired: the euro’s valuation has been above the dollar since late 2002, and the euro-based E.U. enlarged in May 2004 from 12 to 22 countries. Despite recent “no” votes by French and Dutch voters regarding a common E.U. Constitution, from a macroeconomic perspective, these domestic disagreements do no reduce the euro currency’s trajectory in the global financial markets – and from Russia and OPEC’s perspective – do not adversely impact momentum towards a petroeuro. In the meantime, the U.K. remains uncomfortably juxtaposed between the financial interests of the U.S. banking nexus (New York/Washington) and the E.U. financial centers (Paris/Frankfurt).
The most recent news reports indicate the oil bourse will start trading on March 20, 2006, coinciding with the Iranian New Year.[16] The implementation of the proposed Iranian oil Bourse – if successful in utilizing the euro as its oil transaction currency standard – essentially negates the previous two criteria as described by Mr. Yarjani regarding the solidification of a petroeuro system for international oil trades. It should also be noted that throughout 2003-2004 both Russia and China significantly increased their central bank holdings of the euro, which appears to be a coordinated move to facilitate the anticipated ascendance of the euro as a second World Reserve Currency. [17] [18]
China’s announcement in July 2005 that it was re-valuing the yuan/RNB was not nearly as important as its decision to divorce itself from a U.S. dollar peg by moving towards a “basket of currencies” – likely to include the yen, euro, and dollar.[19] Additionally, the Chinese re-valuation immediately lowered their monthly imported “oil bill” by 2%, given that oil trades are still priced in dollars, but it is unclear how much longer this monopoly arrangement will last.
Furthermore, the geopolitical stakes for the Bush administration were raised dramatically on October 28, 2004, when Iran and China signed a huge oil and gas trade agreement (valued between $70 - $100 billion dollars.) [20] It should also be noted that China currently receives 13% of its oil imports from Iran. In the aftermath of the Iraq invasion, the U.S.-administered Coalition Provisional Authority (CPA) nullified previous oil lease contracts from 1997-2002 that France, Russia, China and other nations had established under the Saddam regime. The nullification of these contracts worth a reported $1.1 trillion created political tensions between the U.S and the European Union, Russia and China.
The Chinese government may fear the same fate awaits their oil investments in Iran if the U.S. were able to attack and topple the Tehran government. Despite U.S. desires to enforce petrodollar hegemony, the geopolitical risks of an attack on Iran’s nuclear facilities would surely create a serious crisis between Washington and Beijing.
It is increasingly clear that a confrontation and possible war with Iran may transpire during the second Bush term. Clearly, there are numerous tactical risks regarding neoconservative strategy towards Iran. First, unlike Iraq, Iran has a robust military capability. Secondly, a repeat of any “Shock and Awe” tactics is not advisable given that Iran has installed sophisticated anti-ship missiles on the Island of Abu Musa, and therefore controls the critical Strait of Hormuz – where all of the Persian Gulf bound oil tankers must pass.[21]
The immediate question for Americans? Will the neoconservatives attempt to intervene covertly and/or overtly in Iran during 2005 or 2006 in a desperate effort to prevent the initiation of euro-denominated international crude oil sales? Commentators in India are quite correct in their assessment that a U.S. intervention in Iran is likely to prove disastrous for the United States, making matters much worse regarding international terrorism, not to the mention potential effects on the U.S. economy.
…If it [U.S.] intervenes again, it is absolutely certain it will not be able to improve the situation…There is a better way, as the constructive engagement of Libya’s Colonel Muammar Gaddafi has shown...Iran is obviously a more complex case than Libya, because power resides in the clergy, and Iran has not been entirely transparent about its nuclear programme, but the sensible way is to take it gently, and nudge it to moderation. Regime change will only worsen global Islamist terror, and in any case, Saudi Arabia is a fitter case for democratic intervention, if at all.[22]
A successful Iranian bourse will solidify the petroeuro as an alternative oil transaction currency, and thereby end the petrodollar's hegemonic status as the monopoly oil currency. Therefore, a graduated approach is needed to avoid precipitous U.S. economic dislocations. Multilateral compromise with the EU and OPEC regarding oil currency is certainly preferable to an ‘Operation Iranian Freedom,’ or perhaps another CIA-backed coup such as operation "Ajax” from 1953. Despite the impressive power of the U.S. military, and the ability of our intelligence agencies to facilitate ‘interventions,’ it would be perilous and possibly ruinous for the U.S. to intervene in Iran given the dire situation in Iraq. The Monterey Institute of International Studies warned of the possible consequences of a preemptive attack on Iran’s nuclear facilities:
An attack on Iranian nuclear facilities…could have various adverse effects on U.S. interests in the Middle East and the world. Most important, in the absence of evidence of an Iranian illegal nuclear program, an attack on Iran’s nuclear facilities by the U.S. or Israel would be likely to strengthen Iran's international stature and reduce the threat of international sanctions against Iran.[23]
Synopsis:
It is not yet clear if a U.S. military expedition will occur in a desperate attempt to maintain petrodollar supremacy. Regardless of the recent National Intelligence Estimate that down-graded Iran’s potential nuclear weapons program, it appears increasingly likely the Bush administration may use the specter of nuclear weapon proliferation as a pretext for an intervention, similar to the fears invoked in the previous WMD campaign regarding Iraq.
If recent stories are correct regarding Cheney’s plan to possibly use another 9/11 terrorist attack as the pretext or casus belli for a U.S. aerial attack against Iran, this would confirm the Bush administration is prepared to undertake a desperate military strategy to thwart Iran’s nuclear ambitions, while simultaneously attempting to prevent the Iranian oil Bourse from initiating a euro-based system for oil trades.
However, as members of the U.N. Security Council; China, Russia and E.U. nations such as France and Germany would likely veto any U.S.-sponsored U.N. Security Resolution calling the use of force without solid proof of Iranian culpability regarding a terrorist attack in the U.S. A unilateral military strike on Iran would isolate the U.S. government in the eyes of the world community, and it is conceivable that such an overt action could provoke other industrialized nations to strategically abandon the dollar en masse.
Indeed, such an event would create pressure for OPEC and Russia to move towards a monopoly petroeuro system in an effort to cripple the U.S. dollar and thwart the U.S. global military presence. I refer to this in my book as the “rogue nation hypothesis.” (A similar tactic was used by the U.S. to end the 1956 Suez crisis.)
While central bankers throughout the world community would be extremely reluctant to ‘dump the dollar,’ the reasons for any such drastic reaction are likely straightforward from their government’s perspective – the global community is dependent on the oil and gas energy supplies found in the Persian Gulf.
Hence, industrialized nations would likely move in tandem on the currency exchange markets in an effort to thwart the neoconservatives from pursuing their desperate strategy of dominating the world’s largest hydrocarbon energy supply. Any such efforts that resulted in a dollar currency crisis would be undertaken – not to cripple the U.S. dollar and economy as punishment towards the American people per se – but rather to thwart further unilateral warfare and its potentially destructive effects on the critical oil production and shipping infrastructure in the Persian Gulf.
Barring a U.S. attack, it appears imminent that Iran’s euro-denominated oil bourse will open in March 2006. Logically, the most appropriate U.S. strategy is compromise with the E.U. and OPEC towards a dual-currency system for international oil trades.
Of all the enemies to public liberty war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes...known instruments for bringing the many under the domination of the few…No nation could preserve its freedom in the midst of continual warfare.
– James Madison, Political Observations, 1795
Posted by: samurai david at Mar 23, 2006 12:59:28 AM
The last post was cut and paste from several articles. However, it summed up my current thinking on the subject as a whole. I do think there is a lot of propaganda going around, but it is hard to doubt that something has to give. We, the US, are way to levereged. The gravest mistake we made was to decouple the dollar from gold in 1971. As it stands now the entire world is basically backed by the "good faith of the US government". LOL. That alone should be enough to scare you. Consider this: Gold has been the currency of man since the beggining of time. Each time a fiat currency has arrisen it ultimately fell to Gold. Will the worlds currencies once again be based on Gold? Sure makes sense to me. We should the rest of the world continue to trust the "good faith" of Uncle Sam. Right now the reason they do is because Oil is the backing for the US dollar much as gold used to be. If Iran is successful at decoupeling the dollar from oil then were will the all mighty greenback be? Please note I also think this bodes bad for all fiat currencies including the Euro which is on a potentially self destruct course any way. The people of this world need to demand honsesty from those that lead us. A good step in the right direction is to reset all the worlds currency back to a Gold/Silver standard.
At least check out the trailer here:
http://www.goldrush21.com/order.html
I do hope we are all wrong, but common sense tells me that America is abusing it's power and will soon fall from grace in the rest of the wolrd.
John
Posted by: John at Mar 24, 2006 6:04:22 AM
We should fear American Adminstration more than just fearing other for sake of fear. If America was Democrate and implementing justice to its own people, and helping the 37 millions living under porevety line, reacting to New Orleans neads, puting enough Bucks to help America rather than Bullet to kill people in their place of worship, than we should not fear this Juntas Admin, look this head line from one of writters:Bush's Divorce from Reality,Impeachment or Resignation: Pick Your Poison By Ralph Nader: http://informationclearinghouse.info/article12493.htm
if the matter reached to poison, it will be safer the Junta drink it instead all the population get the poison by the Junta.
Please see the national debt clock:
http://www.toptips.com/debtclock.html
than tel me if I should fear, and from whom?
America is in economical suicidal mission read this article please:
http://news.goldseek.com/JamesTurk/1142438460.php
Please tel me from whom We should fear?
we all remember the big lies of 9 11. please watch 9 11 on trails and proven guilty:
http://www.wingtv.net/911ontrial.doc/911ontrialindex.html
If u were given the both side of story and u discovered that yr selected govrenment lied on you, and wanted u to be used as Human fuel for others wars. from whom u should fear?
The question the scholars asking the American Junta is : 9 11 is an inside job ( inside demolition ) we can prove that scientifically, mathematically and physically, can the government prove it is not? Please see and vote for the scholars to keep Americ safe:
http://www.thepetitionsite.com/takeaction/929981172
Yr vote very important to keep America safe.
If you want yr grand children live safely you should know and do some thing about this poisn of fear, let see what will be yr conclution?
God bless America, Bless the World.
Posted by: ams alzidgali at Mar 27, 2006 1:32:00 AM
I thought I have to say some thing, I do not understand what happening to this world, why every one crying wolf?
Why we all can not see the real enemy?
Iran or Islam is not the enemy?
why we can not see the major wars of last century cried out and killed over 100 millions (WWI and WWII & civil Wars). These threat to humanity didn't come from Islam but came from so called the democratic systems ( not the great people of Europe)?
Just read this article for yr Chilled sake and tell me who the real threat is?
An excerpt from Ian Buckley's, latest article "Why is Islam so feared and derided today?" states:
"Muslims will have to face the fact that they are hated, not for their vices, but for their virtues. The normal mind to a large extent rebels against such a novel thought. As with the true story of what really happened on September 11th, the average person has a mental block when confronted by the perverse, amoral wickedness implied by 'hatred of virtues'."
And what is virtue: moral excellence, goodness, righteousness, ethical principles, and admirable qualities. Would these definitions of virtue be seen as fundamental to our very well being? If so, then I guess, Muslims may justly be called Fundamentalists. And the opposite of virtue or as Mr. Buckley so aptly put it, "hatred of virtues", could these be described as: pride, envy, gluttony, lust, anger, greed, and sloth? Are not these sins more apt to be associated with our culture than theirs? And if so, than do Muslims terrify us as they live a life of virtue? Is that what we mean by terrorists? Do we project unto them our fearful demons? And as the disease of narcissism progresses to our eventual unraveling, do we hope and secretly pray that the proverb of 'Do unto others as you wish them to do unto you', will never apply to us? The drums of our delusion as Masters of the Universe dissolve into suicide, homelessness, child prostitution, and addiction. We sell an empty bag of tricks, and others aren't buying it. It was never about land, or even oil, was it? It was about looking at our brother in the eye and knowing that we aren't even the lesser of two evils, we have reached first place. The full article is:
The Shadow Puppet's Master —•— Oct. 31st, 2005 by Barbra-renee Brighenti
http://www.crescentandcross.com/index.php?page=articles&author=barbra-renee_brighenti.
When Europe wake up and bark on the right tree?
God help Europe from the Satins, God bless you all.
Posted by: amsaar at Mar 31, 2006 8:59:09 AM
Please see scholar calls for release of 9 11 information, please read and vote, God bless America, bless u to make America safe:
http://www.thepetitionsite.com/takeaction/929981172
Posted by: amsaar at Apr 4, 2006 2:47:31 AM
Stop Bush before he attacks Iran
Thanks for some friends in letting me know the money master, it is an eye openning event,it has reminded me of little old story of wolf in a sheep dress while telling and warinning the sheep how the FOX is dangerous TO THE SHEEP, and the SHEEP did beilve that the FOX is No one enemy. Thats why we had all major wars, from our civil war to WWI , WWII , the Korean War, the cold wars, the Gulf wars,
their own word:
(“Never in her history has Israel had the luxury of having 500,000 foreigners fight her wars for her, until now.” –Abba Eban, Foreign Minister to Israel, in reference to the 1st Gulf War. )
lately the IRAQ war, and as the WOLF is so generous we planned more wars, like the coming Iran war,Syria, Labnon, Saudi Arab, Egypet, yr futur thinking and the sky is the limit.
I could not open the money master,WITH OUT the Google video player, I will add the address bar so it will help:
Historical shocking facts we r not allowed to know, c & let be seen please
The Money Masters - How International Bankers Gained Control of America - Part1 (Fixed Audio)
http://video.google.com/videoplay?docid=8442305921010099392&q=Money+Masters&pl=true
The Money Masters - How International Bankers Gained Control of America - Part2
http://video.google.com/videoplaydocid=6802938500605858947&q=The+Money+Masters+How+International+Bankers+Gained+Control+of+America&pl=true
The Money Masters - How International Bankers Gained Control of America - Part3
http://video.google.com/videoplay?docid=3510313821923167501&q=The+Money+Masters+How+International+Bankers+Gained+Control+of+America&pl=true
I hope you will be able to view this historical eye openning event, and remeber you will not become a WOLF, but a better SHEEP, who can recognises the WOLF, and knows the DANGER OF THE FOX
ENJOY WATCHING. and be better sheep
Posted by: amsaar at Apr 19, 2006 12:43:31 AM
Carly Sheehan: A Nation Rocked to Sleep
A Film by Peter Dudar and Sally Marr
http://www.informationclearinghouse.info/article11079.htm
2 min video worth watching.
Posted by: amsaar at Apr 26, 2006 5:56:43 AM
Carly Sheehan: A Nation Rocked to Sleep
A Film by Peter Dudar and Sally Marr
http://www.informationclearinghouse.info/article11079.htm
2 min video worth watching.
Posted by: amsaar at Apr 26, 2006 5:56:46 AM
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Posted by: levan at Sep 6, 2006 2:28:58 AM
