9. Iran's New Oil Trade System Challenges U.S. Currency
Source: GlobalResearch.ca, October 27, Title: "Iran
Next U.S. Target," Author: William Clark
Faculty Evaluator: Phil Beard,
Ph. D.
Student Researcher: Brian Miller
The U.S. media tells us that
Iran may be the next target of U.S. aggression. The anticipated excuse is Iran's
alleged nuclear weapons program. William Clark tells us that economic reasons
may have more to do with U.S. concerns over Iran than any weapons of mass destruction.
In
mid-2003 Iran broke from tradition and began accepting eurodollars as payment
for its oil exports from its E.U. and Asian customers. Saddam Hussein attempted
a similar bold step back in 2000 and was met with a devastating reaction from
the U.S. Iraq now has no choice about using U.S. dollars for oil sales (Censored
2004 #19). However, Iraq's plan to open an international oil exchange market for
trading oil in the euro currency is a much larger threat to U.S. dollar supremacy
than Iraq's switch to euros.
While the dollar is still the standard currency
for trading international oil sales, in 2006 Iran intends to set up an oil exchange
(or bourse) that would facilitate global trading of oil between industrialized
and developing countries by pricing sales in the euro, or "petroeuro."
To this end, they are creating a euro-denominated Internet-based oil exchange
system for global oil sales. This is a direct challenge to U.S. dollar supremacy
in the global oil market. It is widely speculated that the U.S. dollar has been
inflated for some time now because of the monopoly position of "petrodollars"
in oil trades. With the level of national debt, the value of the dollar has been
held artificially high compared to other currencies.
The vast majority
of the world's oil is traded on the New York NYMEX (Mercantile Exchange) and the
London IPE (International Petroleum Exchange), and, as mentioned by Clark, both
exchanges are owned by U.S. corporations. Both of these oil exchanges transact
oil trades in U.S. currency. Iran's plan to create a new oil exchange would facilitate
trading oil on the world market in euros. The euro has become a somewhat stronger
and more stable trading medium than the U.S. dollar in recent years. Perhaps this
is why Russia, Venezuela, and some members of OPEC have expressed interest in
moving towards a petroeuro system for oil transactions. Without a doubt, a successful
Iranian oil bourse may create momentum for other industrialized countries to stop
exchanging their own currencies for petrodollars in order to buy oil. A shift
away from U.S. dollars to euros in the oil market would cause the demand for petrodollars
to drop, perhaps causing the value of the dollar to plummet. A precipitous drop
in the value of the U.S. dollar would undermine the U.S. position as a world economic
leader.
China is a major exporter to the United States, and its trade surplus
with the U.S. means that China has become the world's second largest holder of
U.S. currency reserves (Japan is the largest holder with $800 billion, and China
holds over $600 billion in T-bills). China would lose enormously if they were
still holding vast amounts of U.S. currency when the dollar collapsed and assumed
a more realistic value. Maintaining the U.S. as a market for their goods is a
pre-eminent goal of Chinese financial policy, but they are increasingly dependent
on Iran for their vital oil and gas imports. The Chinese government is careful
to maintain the value of the yuan linked with the U.S. dollar (8.28 yuan to 1
dollar). This artificial linking makes them, effectively, one currency. But the
Chinese government has indicated interest in de-linking the dollar-yuan arrangement,
which could result in an immediate fall in the dollar. More worrisome is the potentiality
of China to abandon its ongoing prolific purchase of U.S. Treasuries/debt-should
they become displeased with U.S. policies towards Iran.
Unstable situations
cannot be expected to remain static. It is reasonable to expect that the Chinese
are hedging their bets. It is unreasonable to expect that they plan to be left
holding devalued dollars after a sudden decline in their value. It is possible
that the artificial situation could continue for some time, but this will be due
largely to the fact that the Chinese want it that way. Regardless, China seems
to be in the process of unloading some of its U.S. dollar reserves in the world
market to purchase oil reserves, and most recently attempted to buy Unocal, a
California-based oil company.
The irony is that apparent U.S. plans to invade
Iran put pressure on the Chinese to abandon their support of the dollar. Clark
warns that "a unilateral U.S. military strike on Iran would further isolate
the U.S. government, and it is conceivable that such an overt action could provoke
other industrialized nations to abandon the dollar en masse." Perhaps the
U.S. planners think that they can corner the market in oil militarily. But from
Clark's point of view, "a U.S. intervention in Iran is likely to prove disastrous
for the United States, making matters much worse regarding international terrorism,
not to mention potential adverse effects on the U.S. economy." The more likely
outcome of an Iran invasion would be that, just as in Iraq, Iranian oil exports
would dry up, regardless of what currency they are denominated in, and China would
be compelled to abandon the dollar and buy oil from Russia-likely in euros. The
conclusion is that U.S. leaders seem to have no idea what they are doing. Clark
points out that, "World oil production is now flat out, and a major interruption
would escalate oil prices to a level that would set off a global depression."
Update by William Clark: Following the completion of my essay in October
2004, three important stories appeared that dramatically raised the geopolitical
stakes for the Bush Administration. First, on October 28, 2004, Iran and China
signed a huge oil and gas trade agreement (valued between $70 and $100 billion
dollars.)1 It should also be noted that China currently receives 13 percent of
its oil imports from Iran. The Chinese government effectively drew a "line
in the sand" around Iran when it signed this huge oil and gas deal. Despite
desires by U.S. elites to enforce petrodollar hegemony by force, the geopolitical
risks of a U.S. attack on Iran's nuclear facilities would surely create a serious
crisis between Washington and Beijing.
An article that addressed some of
the strategic risks appeared in the December 2004 edition of the Atlantic Monthly.2
This story by James Fallows outlined the military war games against Iran that
were conducted during the summer and autumn of 2004. These war-gaming sessions
were led by Colonel Sam Gardiner, a retired Air Force colonel who for more than
two decades ran war games at the National War College and other military institutions.
Each scenario led to a dangerous escalation in both Iran and Iraq. Indeed, Col.
Gardiner summarized the war games with the following conclusion, "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."3
The
third and final news item that revealed the Bush Administration's intent to attack
Iran was provided by investigative reporter Seymour Hersh. The January 2005 issue
of The New Yorker ("The Coming Wars") included interviews with high-level
U.S. intelligence sources who repeatedly told Hersh that Iran was indeed the next
strategic target.4 However, as a permanent member of the UN Security Council,
China will likely veto any U.S. resolution calling for military action against
Iran. 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 abandon the dollar in droves. I
refer to this in my book as the "rogue nation hypothesis."
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 perspective-the global community is dependent on the
oil and gas energy supplies found in the Persian Gulf. Numerous oil geologists
are warning that global oil production is now running "flat out." Hence,
any such efforts by the international community 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, 2006.5 Logically,
the most appropriate U.S. strategy is compromise with the E.U. and OPEC towards
a dual-currency system for international oil trades.
For additional information:
Readers interested in learning more about the dollar/euro oil currency conflict
and the upcoming geological phenomenon referred to as Peak Oil can read William
Clark's new book, Petrodollar Warfare: Oil, Iraq and the Future of the Dollar.
Available from New Society Publishers: www.newsociety.com, www.amazon.com or from
your local book store.
NOTES
1. "China, Iran sign biggest oil & gas deal," China Daily,
October 31, 2004. http://www.chinadaily.com.cn/english/doc/2004-10/31/content_387140.htm.
2. James Fallows, "Will Iran be Next?," Atlantic Monthly,
December 2004, pgs. 97-110.
3. James Fallows, ibid.
4. Seymour Hersh, "The Coming Wars," The New Yorker, January
24th-31st issue, 2005, pgs. 40-47. Posted online January 17, 2005. Online:
http://www.newyorker.com/fact/content/?050124fa_fact
5. "Oil bourse closer to reality," IranMania.com, December
28, 2004. Online: http://www.iranmania.com/News/ArticleView/Default.asp?ArchiveNews=Yes&NewsCode=28176&NewsKind=BusinessEconomy.