http://www.projectcensored.org/censored_2006/index.htm
#9 Irans New Oil Trade System Challenges U.S. Currency
Title: Iran Next U.S. Target
Author: William Clark
The U.S. media tells us that Iran may be the next target of U.S.
aggression. The anticipated excuse is Irans 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 traditional and began accepting eurodollars
as payment for it 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,
Irans plan to open an international oil exchange marker for trading
oil in the euro currency is a much larger threat to U.S. dollar
supremacy than Iraqs 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 the monopoly position of
petrodollars in oil trades. With the level of national debt, the
value of dollar has been held artificially high compared to other
currencies.
The vast majority of the worlds 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. Irans 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 worlds 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/debtshould 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 because 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 Clarks 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 Russialikely 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 Irans 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 Administrations
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 perspectivethe
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 undertakennot to cripple the U.S. dollar
and economy as punishment towards the American people per sebut
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 Irans 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.
