Bending the Third Rail
Because We Should, We Can, We Do
Monday, March 06, 2006
Iranian Oil Bourse
Warning: long post
This article offers the best explanation I've seen on what the Iranian oil bourse is and why we should all be concerned.

In 1971, as it became clearer and clearer that the U.S Government would not be able to buy back its dollars in gold, it made in 1972-73 an iron-clad arrangement with Saudi Arabia to support the power of the House of Saud in exchange for accepting only U.S. dollars for its oil. The rest of OPEC was to follow suit and also accept only dollars. Because the world had to buy oil from the Arab oil countries, it had the reason to hold dollars as payment for oil. Because the world needed ever increasing quantities of oil at ever increasing oil prices, the world’s demand for dollars could only increase. Even though dollars could no longer be exchanged for gold, they were now exchangeable for oil.

The economic essence of this arrangement was that the dollar was now backed by oil. As long as that was the case, the world had to accumulate increasing amounts of dollars, because they needed those dollars to buy oil. As long as the dollar was the only acceptable payment for oil, its dominance in the world was assured, and the American Empire could continue to tax the rest of the world. If, for any reason, the dollar lost its oil backing, the American Empire would cease to exist. Thus, Imperial survival dictated that oil be sold only for dollars. It also dictated that oil reserves were spread around various sovereign states that weren’t strong enough, politically or militarily, to demand payment for oil in something else. If someone demanded a different payment, he had to be convinced, either by political pressure or military means, to change his mind.

The man that actually did demand Euro for his oil was Saddam Hussein in 2000.
Now Iran is demanding an end to the petro dollar. Everyone in the world has an interest in petro Euros over petro dollars... except us. The current frenzy over Iranian nuclear ambitions has little to do with nuclear power and everything to do with "convincing" Iran to abandon it's quest for the Euro.
Americans cannot allow this to happen, and if necessary, will use a vast array of strategies to halt or hobble the operation’s exchange:

· Sabotaging the Exchange—this could be a computer virus, network, communications, or server attack, various server security breaches, or a 9-11-type attack on main and backup facilities.

· Coup d’état—this is by far the best long-term strategy available to the Americans.

· Negotiating Acceptable Terms & Limitations—this is another excellent solution to the Americans. Of course, a government coup is clearly the preferred strategy, for it will ensure that the exchange does not operate at all and does not threaten American interests. However, if an attempted sabotage or coup d’etat fails, then negotiation is clearly the second-best available option.

· Joint U.N. War Resolution—this will be, no doubt, hard to secure given the interests of all other member-states of the Security Council. Feverish rhetoric about Iranians developing nuclear weapons undoubtedly serves to prepare this course of action.

· Unilateral Nuclear Strike—this is a terrible strategic choice for all the reasons associated with the next strategy, the Unilateral Total War. The Americans will likely use Israel to do their dirty nuclear job.

· Unilateral Total War—this is obviously the worst strategic choice. First, the U.S. military resources have been already depleted with two wars. Secondly, the Americans will further alienate other powerful nations. Third, major dollar-holding countries may decide to quietly retaliate by dumping their own mountains of dollars, thus preventing the U.S. from further financing its militant ambitions. Finally, Iran has strategic alliances with other powerful nations that may trigger their involvement in war; Iran reputedly has such alliance with China, India, and Russia, known as the Shanghai Cooperative Group, a.k.a. Shanghai Coop and a separate pact with Syria.
Blogger GreyHair said...
This is very interesting, and something that I've been trying to understand for some time. The consequence of a successful shift to Euro's from dollars is U.S. stagflation, much like the 1970's.

But ...

There is one fly in the ointment of the predictions of this article. Currency use is also predicated on economic, cultural, societal and political stability. As long as Europe and the Euro continue to grow and prosper, the threat is there. But should it falter (and European members have been known to not play well with each other) then all bets are off. Additionally, so many countries now hold so many dollars that a crash in the dollar would be against their self-interest. This is why I think a "crash" is unlikely.

However, while a crash may not be likely, it sure doesn't mean that a slow-motion wreck can't happen. The only question will be the speed with which any of these changes occur, and the speed of advancement in our ability to be petroleum independent, and the ability/willingness of the American people to balance the budget.

As they say, may we live in interesting times.