Update February 27, 2006: Related Post -”Commentary: DailyKos on the Iranian Bourse, Oil, Euro and Dollars”
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 Exchange (IPE) in London and the NYTMEX in New York.
This has fueled (no pun intended) speculation of the real cause of the Iranian crisis. The Iraq War has been criticized as a “War for Oil”. And now, as a second act, there are folks from Daily Kos to Asia Times saying the same of the Iran Crisis. The most aggressive promoter of this view appears to be from Krassimir Petrov:
The economic essence of this [post Bretton Woods] 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.
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.
Prior to the Iraq War, Saddam Hussein switched the currency of choice for oil transaction from US dollars to Euros. Many saw the Iraq War as a conspiracy to stop and discourage the currency switch as the motivation for the Iraq War and are now predicting the same for Iran nuclear crisis. Indeed, a quick Google search will present a whole list of sites supporting this view.
Both economists Tyler Cowen and James Hamilton, in their respective blogs, counter such claims of a US collapse as simplistic view of economics.
Here below are excerpts from James Hamilton’s view on the Bourse issue:
On Dollar Assets and Oil Transactions
[Even] if the oil were purchased with dollars drawn on a U.S. bank, there is no reason at all that the seller needs to retain the proceeds in that form. Those selling oil could convert those dollars back to euros or Japanese yen or whatever their hearts desired, and likewise could convert euros obtained through sales on an Iranian bourse back into dollars, if they wished. What ultimately determines the demand for dollars is not the unit of account for the transaction, but rather the desired asset holdings of those who are accumulating the wealth.
On “US Dollars ‘Backed by Oil’”
And the notion that the U.S. dollar is currently “backed by oil” is so nonsensical that it is difficult even to fathom what that phrase is intended to convey….[If] you surrender dollars on any given day in January 2006, how much oil are you going to get back? It varies literally by the minute, and the rate at which dollars get exchanged for oil has nothing to do with the promises made by any government and everything to do with market fluctuations in supply and demand.
As the date draws closer to March 2006, we should expect the Iranian Oil Bourse conspiracy to grow even louder and to gain an increasingly foothold in the imagination of the many. However, both Tyler Cowen and James Hamilton seemed to have taken a very clear counter against such claims as simplistic and implausible.
On the true nature of the Iran crisis, it is difficult to tell. StrategyUnit last post attempt to unravel this enigma in the context of Iraq, but StratFor’s analysis seems to be the most accurate (or at least plausible) so far:
If the Iranians are seen as getting too close to a weapon, either the United States or Israel will take them out, and there is an outside chance that the facilities could not be taken out with a high degree of assurance unless nukes are used. In the past, our view was that the Iranians would move carefully in using the nukes to gain leverage against the United States. That is no longer clear. Their focus now seems to be not on their traditional diplomacy, but on a more radical, intra-Islamic diplomacy. That means that they might welcome a (survivable) attack by Israel or the United States. It would burnish Iran’s credentials as the true martyr and fighter of Islam.
Meanwhile, the Iranians appear to be reaching out to the Sunnis on a number of levels. Muqtada al-Sadr, the leader of a radical Shiite group in Iraq with ties to Iran, visited Saudi Arabia recently. There are contacts between radical Shia and Sunnis in Lebanon as well. The Iranians appear to be engaged in an attempt to create the kind of coalition in the Muslim world that al Qaeda failed to create. From Tehran’s point of view, if they get a deliverable nuclear device, that’s great — but if they are attacked by Israel or the United States, that’s not a bad outcome either.
In short, the diplomacy that Iran practiced from the beginning of the Iraq-Iran war until after the U.S. invasion of Iraq appears to be ended. Iran is making a play for ownership of revolutionary Islamism on behalf of itself and the Shia. Thus, Tehran will continue to make provocative moves, while hoping to avoid counterstrikes. On the other hand, if there are counterstrikes, the Iranians will probably be able to live with that as well.
(Source: George Friedman , Iran’s Redefined Strategy”, Strategic Forcasting: Geopolitical Intelligence Report, 17 January 2006.)