Friday, February 15, 2008

Iran’s Oil Bourse Set to Open this Sunday

It looks like the long awaited opening of the Iranian Oil bourse is finally here. This crucial issue has far reaching implications and could become be a grave risk to continued American global hegemony, but as far as I know, our mainstream media has completely ignored the topic.

Petrodollar Hegemony

Today, most oil trading takes place on the New York Mercantile Exchange (NYMEX) and the London-based International Petroleum Exchange (IPE). Since the 1970s, OPEC countries have all agreed to sell oil for US dollars only. This means every country that wants to buy oil must first acquire enough US dollars to buy what it needs--creating a huge worldwide demand for the US dollar and any excess dollars eventually get recycled back to the US.

Year after year, America imports much more than it exports and it must pay out that difference (its current accounts deficit) in printed dollars. In 2006 that deficit was > $850 Billion; 2007 was > $700B; this year, we will see similar figures.

From 1999 though the end of 2006, the United States financed a string of large current account deficits by borrowing $4.4 trillion from other countries—a sum amounting to 85 percent of total net borrowing worldwide (in other words: we sucked up 85% of the worlds excess savings).

Now, if there were no good reasons for other countries to buy all those American dollars, the dollar would decline in value until the US economy could no longer afford to import goods from abroad. Additionally, this excess foreign savings that America has grown used to would also dry up—putting us in quite the predicament.

The deal with OPEC however, means other countries have no choice but to buy all those excess American dollars, which props up the value of the dollar and allows the American "import economy" to go on year after year.

Effectively, America's main export is US dollars, and it is absolutely imperative to preserve a captive market for those dollars among oil-consuming countries--the continued viability of the US economy depends on it. Americans today can still afford to consume because the economy is inundated with cheap imports, but a continued falling dollar (already at its lowest levels in history and bound to drop much further due to Fed & PPT policy of printing money to bail out our banking/financial sectors) will significantly raise the prices of imported goods and our cost of living.

How important is it that oil continues to be denominated in dollars?

The answer to this question could come as early as this week, since the long-awaited Iranian Oil Bourse is scheduled to open Sunday. According to Iran's Finance Minister Davoud Danesh-Jafari, “All preparations have been made to launch the bourse; it will open during the 10-day Dawn (the ceremonies marking the victory of the 1979 Islamic Revolution in Iran) The bourse is considered a direct threat to the continued global dominance of the dollar because it will require that Iranian “oil, petrochemicals and gas” be traded in “non-dollar currencies”. (Press TV, Iran)

The petrodollar system is no different than the gold standard. Today's currency is simply underwritten by the one vital source of energy upon which every industrialized society depends---oil. If the dollar is de-linked from oil; it will no longer serve as the de-facto international currency and the US will be forced to reduce its massive trade deficits, rebuild its manufacturing capacity, and become an export nation again. The only alternative is to create a network of client regimes that repress the collective aspirations of their people so they can faithfully follow directives from Washington.

As to whether the Bush administration would start a war to defend dollar hegemony; that's a question that should be asked of Saddam Hussein. Iraq was invaded just six months after Saddam converted to the euro. The message is clear; the Empire will defend its currency.

Similarly, Iran switched from the dollar in 2007 and has insisted that Japan pay its enormous energy bills in yen. The “conversion” has infuriated the Bush administration and made Iran the target of US belligerence ever since. In fact, even though 16 US Intelligence agencies issued a report (NIE) saying that Iran was not developing nuclear weapons; and even though the UN's nuclear watchdog, the IAEA, found that Iran was in compliance with its obligations under the Nuclear Nonproliferation (NPT) Treaty; a preemptive US-led attack on Iran still appears likely.

And, although the western media now minimizes the prospects of another war in the region; Israel is taking the precautions that suggest that the idea is not so far-fetched. “Israel calls for shelter rooms to be set up in a bid to prepare the public for yet another war, this time, one of raining missiles.” (Press TV, Iran)

Iran's Oil Bourse Will Start Operations Feb. 17, IRNA Reports:

The Iranian Rial will be used for all transactions on the Tehran Oil Bourse, Gholamhossein Nozari said today, according to IRNA.

Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, was originally expected to start its own oil-trading market in 2005.

Iran’s Oil Bourse Set to Open Sunday

Iranian Oil minister Gholamhossein Nozari has confirmed to Iranian news outlets that the long awaited oil bourse will begin trading in oil related products on Sunday February 17th. Just what “oil related products” means is not yet clear because few details have been released to the public.

What we do know is that the bourse (oil exchange) will be dealing in strictly Rial, the Iranian currency. The guess is right now that the bourse, which is to be located on the gulf island of Kish, will open by trading in “oil products” and within a short amount of time begin dealing in crude. This comes at a time when Iran’s oil output is reaching levels not seen in Iran since 1979.

The fear in the United States in some economic circles is that the opening of this bourse could lead to a further decline of the U.S. dollar. The U.S. dollar is currently the international currency in the trading of crude oil, with all oil exchanges being located in the Western world, but the Iranian oil bourse would seek to change this fact. As long as the U.S. dollar is the only international currency that can be used in purchasing oil the dollar will remain relatively stable because it will be in demand to purchase oil, if for no other reason. Therefore, countries such as Saudi Arabia are forced to accept the dollar for the sale of their crude and countries such as China and India are forced to keep the dollar on hand to purchase oil. Since the dollar has now fallen below the value of the Euro the opening of the Iranian Oil Bourse would remove one of the last remaining incentives for nations to hold onto the United States dollar. Some even go as far as to speculate this looming opening of the oil bourse being a reason for the harsh rhetoric Washington has used in the recent past towards Iran.

So, what can we expect as the final end-game?

As I’ve stated before in Dollar: Faltering Foundation of US Economic Strength, troubles for the dollar are bubbling up everywhere. Aside from the fact that our own fed has sacrificed our currency (in an attempt to save the banking/financial system), numerous nations have already de-pegged their currencies from the dollar (w/more planning to follow suit). Additionally, OPEC (as of late) has been talking about pricing oil in Euros.

This new action by IRAN, though lacking enough support to change things overnight, is a huge, long-term threat to the dollar, and is a deliberate slap in the face of US global economic power.

Personally, I don’t think the current administration will allow this problem to be passed on to the next. Rhetoric w/regard to Iran’s nuclear ambition will probably soon ratchet up again; a catalyst to action will likely be found, and bombs may be falling from the sky before November 08. However, don’t ever expect to hear (from the mainstream) that this bourse and its threat to the dollar were the real reason as to why.



Anonymous said...

Wow....right on the money, pardon the pun. My wife and I actually view other live media from around the world and see these developments unfolding there. Sadly out "free press" is mired in elections news, snow storms, and trashy drugged out party chicks.

Anonymous said...

Great article. However, the article fails to address the following important question: what difference does it make whether Iran trades oil for Dollars or any other currency? If oil is sold for Dollars, why can not Iran exchange these Dollars for instance for Yen on the Forex markets? Isn't the result the same as trading oil for Yen? Similarly, what prevents the Saudis from converting on the Forex market all the Dollars they made by selling their oil?

The oil trade is worth hundreds of billions of Dollars per year. What other currency offers such a large liquidity? In order to earn that many Euros, the Europeans would have to run a huge trade deficits with the rest of the world in order to make the Euros avaiable for the oil trade. I think the issue of the petrocurrency is ultimately linked to the issue of trade deficits - there is no other way to finance such a huge flow of money in the petrotrade.

The problem might not be the Dollar but the insanely huge world consumption of oil. The consumption is now so large that it represents a threat to any monetary system.

Anonymous said...

Just like most folks have a "rainy day" fund, aka savings, so do nations. They're called reserves. If the whole industrial world runs on oil, your savings better be in the currency that you have to buy it in.

So this creates a demand for dollars. A cumulative savings bank account of trillions, that is constantly being depleted and replenished.

So NO it is nOT the same thing: pricing in Yen or pricing in dollars and exchanging to Yen.

The dollar peg is crucial. It is the keystone to the whole edifice that we benefit from. Should we lose reserve currency status - we're a 3rd world nation!

Anonymous said...

good article and analyse. may not be the full answer, but the side of view it brings with it, is definitly worse the reading.

thanks for a good reading

Anonymous said...

The world currently consumes ~ 86 Million Barrels of oil a day and can generate/deliver a max capacity of ~ 87 - 88MBD. 40% of this oil flows out of the Gulf through the Strait of Hormuz

If war with IRAN begins and IRAN sinks a supertanker or two in the strait, 40% of the world's delivery capacity will be shut off and we could easily see $200-300 Barrel Oil and $8-10 gas in the US.

The repurcussion could be massive; fuel shortages, rationing, missing food deliveries, empty store shelves, etc--Talk about worldwide economic armageddon...

Anonymous said...

The Russian national currency, ruble, is an option for dealings at the Iran Oil Bourse, set to be launched soon, an Iranian official says.

"We are seeking to launch an oil exchange in Iran selling the crude in currencies other than US dollar. It is possible that in the future, we'll be able to use the ruble, Russia's national currency, in our operations," the Iranian Ambassador to Moscow Gholam-Reza Ansari noted.

"Russia and Iran, two major producers of the world's energy, should encourage oil and gas transactions in various non-dollar currencies, releasing the world from being a slave of dollar," he added.

The world's fourth-largest oil producer is to open its long-awaited oil exchange this weekend.

The Oil Bourse is supposed to trade oil products in non-dollar currencies and many analysts believe that it could be a blow to the already declining greenback.

Russia's first deputy Prime Minister Dmitry Medvedev also said on Friday, that Moscow should take advantage of the rising weakness of the greenback to make the ruble a regional reserve currency.

"Today the global economy is going through uneasy times. The role of the key reserve currencies is under review. And we must take advantage of it," Medvedev said in Siberian city of Krasnoyarsk.

"The ruble will de facto become one of the regional reserve currencies."

Anonymous said...

anon @8:09

It artificially increases the demand for the US dollar, which artificially keeps the price (exchance rate) higher than it should be.

The US dollar should be significantly lower than it is now, in order to balance the current account - a lower dollar makes exports cheaper for foreigners and imports more expensive for Americans - both of which would stop the current account from being so out of whack (a current account deficit isn't necessarily a bad thing - but in the US case it's funding consumption not production and hence is).

By trading oil in dollars it means that if China wants to buy oil they have to first buy US dollars (well in China's case they already have so many they can just use those :). This results in demand for US dollars.

Break the oil/dollar link and the US dollar drops overnight and wealthy Americans are no longer wealthy. And by drops I don't mean a little 20% dip...

And it will happen. At some point the rest of the world wakes up and cuts America loose. I suspect the only reason it hasn't happened yet is because those countries all have huge dollar reserves and will hence also loose a lot. But it has to happen at some point and the longer they wait the more it will hurt.

Of course the US could start making stuff and create a non-fake economy, which would also fix the problem. But that's even less likely.

Randy said...

Looks like the Bourse opening actually took place today:

Bloomberg: Iran Starts Oil, Petrochemicals Exchange in Tehran (Update2)

By Ladane Nasseri and Ayesha Daya

Feb. 17 (Bloomberg) -- Iran, holder of the world's second- largest oil and gas reserves, opened an exchange for crude and petrochemicals as the government encourages private investment in the energy sector.

Trading began today in petroleum products such as light polyethylene, a plastic used for packaging. The Tehran-based Iran Mercantile Exchange is using ``spot'' rather than futures trading, requiring immediate payment and delivery of the physical product.

Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, wants to encourage local investors to participate in the oil market as it tries to reduce the state's role in the country's energy industry. Political pressures and the exchange's use of spot contracts may reduce interest in the exchange, an analyst said.

``I don't expect there will be much liquidity on this market,'' said Dalton Garis, economics professor at the Abu Dhabi Petroleum Institute. ``Traders use such exchanges to hedge against price risk, rather than buy a commodity. Also, traders will be under pressure not to trade with Iran.''

Oil derivatives and petrochemical products will be traded initially on the exchange, Ali Akbar Hashemian, director general of Iran's Mercantile Exchange Co., said.

Behind Dubai

Crude oil contracts will be added after a review, Iran's Oil Minister Gholamhossein Nozari said, without giving a specific date. Iran had been expected to start its own oil-trading market in 2005. Since then, Dubai has launched the Persian Gulf's first bourse to trade sour crude oil futures, which best reflects the type of oil produced in most of the region.

``On the world's major exchanges, only a very small amount is settled through physical delivery,'' Garis said in a phone interview from Abu Dhabi. ``Most petrochemicals supply is locked into long-term contracts that were probably lined up before the plants were built.''

A review of religious rules led to the spot trading rule, Hashemian said.

``We are ready from a technical point of view for futures trading,'' he said. The religious issue was recently resolved, although the authorities haven't yet decided whether to trade petrochemicals futures, he added.

Iran's government expects to raise about $90 billion from selling shares in the country's state-owned energy companies after a 2006 directive from Supreme Leader Ayatollah Ali Khamenei that four-fifths of the country's biggest companies should be sold to develop the economy.

From Seller to Trader

``We have been a good seller of oil,'' the oil minister, Nozari, told reporters at the exchange. ``The aim we have today is higher, to have a share in oil trading.''

The Iranian rial will be used for all transactions in the first phase and ``can be converted in real time into any currency,'' Nozari said. Traders are based in the Kish Island free-zone, offering investors easy transfer of money and tax exemptions.

The exchange may also use the Russian ruble ``to free the world of dollar slavery,'' Iran's ambassador to Moscow, Gholamreza Ansari, said Feb. 15.

To contact the reporters on this story: Ladane Nasseri in Tehran at , and Ayesha Daya in Dubai

Anonymous said...

Great Job Randy!

I've been saying the same thing for years now to anyone who would listen. But you failed to make note of a recent development in this issue, OPEC is beginning to say they will get off the dollar. That dissipates the aggression of the US Fed Protectors towards Iran because they no longer would have little dog nipping at the US Dollar's Hamstring but a whole pack. I believe this has emboldened the Iranians regarding their Oil Bourse.

Nice piece though indeed!


Anonymous said...

Robert here, I just wrote the above message and wanted to add this I wrote last week.

This message below I wrote after informing the Ron Paul meetup group about OPEC maybe getting off the dollar. ...................................................AS Bill has noted the concept is not being taken seriously as of
yet. The Middle Eastern mindset is such that they do very
little without milking the Threat of actually doing something
for a long time first. Master mindgamers.

Regardless of all that for the sake of understanding let's
explore the issue. First off in 1973 Nixon took us off the Gold
Standard. Most people know this but what most don't know is we
basically went onto the Oil Standard by signing an agreement
with OPEC where they would require all nations buy their oil
with US Dollars. This vastly expanded our Manageable Money
Supply. The Fed could continue to print dollars because there
was artificial demand for US Dollars, ever since then the world
has been taking on more and more of our dollars. Basically it
is like the US gets to write checks but nobody cashes them.
Before this time if the gov't spent to much money then it would
lose it's gold reserves. This was happening when we went off
the gold standard because we were fighting the Vietnam War very
much like we are fighting in Iraq and driving up our debt
levels. Charles Degaulle thought we were devaluing our currency
so he wanted to get rid of the paper dollars he was holding and
exchange for the gold with which they were backed. He was right
and Nixon knew we would be cleaned out of our gold if something
wasn't done. Rather than restraining our spending he closed the gold window and we've been excessively expanding our money
supply ever since. With a Gold standard you would have to stop
fighting because you run out of money. You are forced to run
your country in a responsible fashion. However since then we
have had our Rich Uncle to go to whenever we wanted to expand
our money supply. (Rich Uncle = All the countries around the
world who need to buy oil or need to have a market for their
products, they have to have a stock of dollars to buy that oil)

In recent years the Fed has been going to the world ATM
withdrawing cash on an ever increasing basis just like the individual American Household was going to the Home Value ATM. In both cases such behavior has the affect of leading the borrower on onto ever thinner ice over ever deeper water. We all have some idea of the consequences on the individual homeowner but the consequences to our nation may be somewhat murky. If interested I suggest a little research into monetary history John Law & The Mississippi Bubble, The South Sea Bubble, The German Weimar Republic, The Argentinian Currency Devaluation of 1999, or the Zimbabwe Currency Crisis of Today. As Ron Paul has consistently noted we now require that the world buy between 2.5 to 3 Billion Dollars of our Bonds every day EVERY SINGLE DAY.
This didn't happen all the sudden it was a gradual process over
the years BUT George W Bush and his Neocon Cohorts have vastly
accelerated the process. Now the US is a printing press junkie
we have to have it every day or our financial markets will lock
up and crash, our economy will freeze, prices will skyrocket,
your paper money will become what it intrinsically is . . . worthless.
So you see how vulnerable the USA is to the whims of the OPEC or
the Chinese or a variety of other world entities. That is a big
reason why we went into Iraq . . . Saddam said he would sell his
oil for Euros . . a big "No No" as it weakens the dollar to do
so and starts a very negative precedent. Then Iran started
saying the same thing and has opened an Oil Bourse to trade oil
all of which takes control away from the US and weakens the US
Dollar. Lo and Behold then Bush starts in on Iran about it's
Nuclear Program . . . just a smoke screen. Bush had the temerity to
say that he would use Nuclear Weapons on the Iranians because he
suspects they are developing Nuclear weapons to use in a
preemptive strike on neighboring countries. I guess he is to
obtuse to see the Irony of his posturing. It's sad really that people actually buy this crap.
North Korea is further along in It's Nuclear Program and more unstable, Pakistan already
has Nukes, Saudi Arabians were the 9/11 attackers and others who
justify our attention much more than Iran except the Oil and the
Dollar. So back to the issue at hand if OPEC starts trading
their oil for Euros or something other than Dollars then the
pressure is off of Iran because the reason for attacking them is
no longer in jeopardy . . . it is already done and by the over a
dozen countries in OPEC!

I hope this clear enough and provides food for thought. Just
pounded it out, didn't time to polish and expand.
Ironically enough Alan Greenspan wrote a very clear piece on the
danger of dropping the gold standard in 1966. Read this and you will have a strong understanding of what Ron Paul has been arguing about in the Congress ever since.

Exerpt:In the absence of the gold standard, there is no way to
protect savings from confiscation through inflation. There is no
safe store of value. If there were, the government would have to
make its holding illegal, as was done in the case of gold. If
everyone decided, for example, to convert all his bank deposits
to silver or copper or any other good, and thereafter declined
to accept checks as payment for goods, bank deposits would lose
their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the
welfare state (or Warfare State RL's addendum) requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades
against gold. Deficit spending is simply a scheme for the
confiscation of wealth. Gold stands in the way of this insidious
process. It stands as a protector of property rights. If one
grasps this, one has no difficulty in understanding the
statists' antagonism toward the gold standard.

Then Alan turned to the dark side . . .

My Sincere Regards to All the Ron Paul Supporters

Fight the Good Fight

Randy said...


Thanks for your kind words and for posting up.

Just for clarification, I did mention the OPEC issue--in an attached article link. Here it is again:
OPEC May Drop Dollar for Euro

Additionally, this link below discusses the history of the USD and our deal w/OPEC

Dollar: Faltering Foundation of US Economic Strength


Anonymous said...

Russian expert says oil dealings in Iranian Oil Exchange Market soon

Head of Iran Contemporary Studies Center in Russia Rajab Safarov says in the coming months, Iran wants to privatize its oil companies, whose number is no more than 40, and start oil deals in Iran's Oil Exchange Market.

Safarov told Moscow-based daily Vermianovesti that Iran's Oil Exchange is a crucial body that is expected to leave a drastic impact on the world oil market.

He said in the market, oil dealings will be based on euro or Iranian rial.

He added that experts believe some European middlemen in the Exchange Market are mulling formation of conglomerate companies with the Iranian ones to prepare the ground for being presented in the Iranian Oil Exchange market.

Pointing to Iran's significant position among the oil producing states, Safarov said Iran sells dlrs 70 billion worth crude annually and if the volume of dollar is omitted from the world economy, the US currency will receive a tangible blow.

He also ruled out claims that there will be no customer for oil in euro and said demand for Iranian and other countries' oil is higher that its supply and other oil producing countries cannot fill up the gap erupting as a result.

Even in case there is any country to offer extra supply, the increase in the production ceiling will be considered as an offense by the OPEC and on the other hand such countries as Japan and Spain cannot replace Iranian crude with other ones due to technical reasons, he said.

He added that oil purchase in euro will be more to the benefit of Europeans because they will not spend on the currency exchange operations.

Vermianovosti said Iran will inaugurate its Oil Exchange market on February 27.

It quoted Iranian Oil Minister Gholam-Hossein Nozari as saying the exchanges will be in rial and possibly euro and the Exchange will be located in Kish island in Persian Gulf.

Kish is a Free Economic Zone and foreigners can travel their without any visa and without paying any taxes.

Iran is the second major oil producer worldwide after Saudi Arabia and is the third country for having the world oil reserves.

Anonymous said...


It was a discreet, almost hush-hush affair, but after almost three years of stalling and endless delays it finally happened. Now more than ever, it may also signal a geoeconomic earthquake, a potentially shattering blow to US dollar hegemony.

The Iranian oil bourse - the first oil, gas and petrochemical exchange in the Islamic Republic, and the first within the Organization of Petroleum Exporting Countries (OPEC) - was launched on Sunday by Iran’s Oil Minister Gholam-Hossein Nozari, flanked by Minister of Economy and Financial Affairs Davoud Danesh Ja’fari, the man who will head the exchange.

Officially called the Iranian International Petroleum Exchange (IIPE), it is widely known in Iran and the Persian Gulf as the Kish bourse, named after Kish island, a free zone (declared by the shah) in an ideal laissez faire setting : lots of condos and duty-free malls, no Khomeini mega-portraits and hordes of young honeymooners shopping for made-in-Europe home appliances.

Transactions at this early stage will be in Iran’s currency, the rial, according to Nozari, ending worldwide speculation that the bourse would start trading in euros. The Iranian ambassador to Russia, Gholam-Reza Ansari, has said that "in the future, we’ll be able to use the ruble, Russia’s national currency, in our operations". He added that "Russia and Iran, two major producers of the world’s energy, should encourage oil and gas transactions in various non-dollar currencies, releasing the world from being a slave of the dollar."

Russia’s First Deputy Prime Minister Dmitry Medvedev said last week that "the ruble will de facto become one of the regional reserve currencies".

The opening of the exchange is just what the Iranians are calling the first phase. Ultimately, it is intended that it will compete directly against London’s International Petroleum Exchange (IPE) and the New York Mercantile Exchange (NYMEX), both owned by US corporations (since 2001, NYMEX has been owned by a consortium that includes BP, Goldman Sachs and Morgan Stanley). What Iran plans to do in the long run is quite daring : to confront head-on Anglo-American energy/corporate banking domination of the international oil trade.

A lot is already required to assure the success of the bourse in this first phase. Other OPEC members, and especially Iran’s neighbors, the Persian Gulf petro-monarchies, must be supportive, or at least "catch the drift".

It makes sense for OPEC members to support an alternative to both NYMEX and the IPE, which exercise a de facto monopoly of the oil and gas market. Their interests do not always align with those of producer countries. Numerous contracts related to Iranian or Saudi oil, for instance, are still indexed to the price of the UK’s North Sea Brent oil, the production of which is in terminal declining.

The proposed direction of the bourse was indicated by Mohammad Javed Asemipour, then the executive in charge of establishing the Kish bourse, in 2005. The outline that Asemipour stressed remains unchanged : the exchange would start dealing with petrochemical products, and then with what everybody really craves - light-sulfur Caspian Sea crude. This was not going to be an Iranian-style exchange, but "an international exchange, fully integrated in the world economy". The ultimate goal was very ambitious : the creation of a Persian Gulf benchmark oil price.

Today, Minister Nozari concedes that Iran’s share of the global oil trade is still very low. Enter the bourse, which is the solution to eliminate the middlemen. Everyone in the oil business knows that high oil prices are not really due to OPEC - which supplies 40% of the world’s crude - or "al-Qaeda threats". The main profiteers are middlemen - "traders" to put it nicely, "speculators" to put it bluntly.

Kish - Centre commercialThe Petroleum Ministry’s immediate priorities are to attract much-needed foreign investment to Iran’s energy sector and to expand its address book of oil buyers. Iran - like so many developing countries - does not want to depend on Western oil trading firms such as Philip Brothers (owned by Citicorp), Cargill or Taurus. Enron - until its debacle - used to be one of the most profitable. Some oil companies - such as Total and Exxon - trade under their own names.

The empire will strike back

The opening of the Iran oil bourse comes at a time when the future of the US dollar as the world’s dominant currency is in doubt as seldom before.

At the World Economic Forum in Davos last month, mega-speculator George Soros stressed that the world was at the end of the dollar era and a "systemic failure" may be upon us. On February 8 in Dubai, OPEC Secretary-General Abdullah al-Badri told the London-based Middle East Economic Digest that OPEC may switch to the euro within a decade. Iran and Venezuela - supported by Ecuador - are campaigning inside OPEC for oil to be priced at least in a basket of currencies and according to OPEC’s current president, Chakib Khelil, the organization’s finance ministers will soon meet to discuss the possibility in depth. A committee will "submit to OPEC its recommendation on a basket of currencies that OPEC members will deal with", according to Iraqi Oil Minister Hussein al-Shahristani.

To be sure, there’s no evidence yet that ultra-cautious US ally Saudi Arabia would incur Washington’s wrath by supporting such a move. But as for Iran, OPEC’s second-largest exporter, it no longer trades a single barrel of oil in dollars. That is no small amount of non-dollars. The country’s oil revenue will reach US$63 billion by the end of the current Iranian year on March 20, according to Nozari.

Iran converted all its oil export payments to other currencies in December 2007. It now sells oil to Japan in yen - the Far East country, the world’s second biggest economy, is the top importer of Iranian oil and Iran is Japan’s third-largest supplier. Worryingly for the dollar, other oil producers are preparing to follow Iran’s lead. Qatari Prime Minister Sheikh Hamad bin Jassim al-Thani has already announced that the tiny oil-rich emirate would abandon the dollar for the Qatari riyal before summer. There’s a strong possibility the United Arab Emirates may also switch to its own currency.

Kish - Hôtel DariusAs the Kish bourse picks up momentum, increasing amounts of oil and gas trading will happen in a basket of currencies - and increasingly the US dollar will lose its paramount status. Some Middle East analysts expect the Persian Gulf petro-monarchies to end their dollar currency peg sooner rather than later - some say as early as next summer, as their black gold will increasingly not be traded in dollars. Iranian economist Hamid Varzi stresses that the "psychological effect" of Iran’s move away from the US dollar is "encouraging others to follow suit".

Iranian officials have always maintained that Washington has threatened to disrupt the country’s oil exchange - via an online virus, attempted regime change or even through a unilateral pre-emptive nuclear strike. Certainly some analysts argue that the strength of the US dollar, like the strength of the British pound before that, is a reflection of, and is maintained by, those countries’ military strength (see Why Iran’s oil bourse can’t break the buck, Asia Times Online, March 10, 2006).

On the other hand, the possible success of the exchange may be crucial to signal the US’s waning power in a world evolving towards multipolarity. The Saudis and the Persian Gulf petro-monarchies have already decided to reduce their US dollar holdings. Washington, sooner or later, may have to pay for its oil and gas imports in euros.

No wonder Venezuelan President Hugo Chavez is so demonized by Washington as he repeats that the empire of the dollar is falling. Saudi Foreign Minister Prince Saud al-Faisal conceded during the latest OPEC summit in Riyadh that the dollar would collapse if OPEC decided to switch to euros or a basket of currencies. During a closed meeting - with the microphones on, by mistake - Prince Saud said : "My feeling is that the mere mention that OPEC countries are studying the issue of the dollar is itself going to have an impact that endangers the interests of the countries. There will be journalists who will seize on this point and we don’t want the dollar to collapse instead of doing something good for OPEC."

The trillion-dollar question is if, and when, most European and Asian oil importers may stampede towards the Iranian oil bourse. OPEC members as well as oil producers from the Caspian may be inevitably seduced by the advantages of selling at Kish - with no dreaded middlemen. Europeans, Chinese and Japanese will also see benefits if they can buy oil with euros, yen or even yuan - they won’t need US dollars - and the same applies to their central banks.

It would take only a few major oil exporters to switch from the dollar to the euro - or the yen - to fatally bomb the petrodollar mothership. Venezuela, Norway and Russia are all ready to say goodbye to the petrodollar. France officially supports a stronger role for the euro in international oil trade.

It may be a long way away, but ultimately the emergence of a new oil marker in euros in Kish will lead the way to the petroeuro global oil trade. The European Union imports much more oil from OPEC than the US, and 45% of Middle East imports also come from the EU.

The symbolism of the Iranian oil bourse is stark ; it shows that the flight from the US dollar is irreversible - and so, sooner rather than later, is diminution of Washington’s capacity to launch wars on credit. But at this early stage in the game, only one thing is certain : the empire will strike back.

Anonymous said...

For those of you who wish to understand more about other problems facing the U$, I stroungly suggest you take a look at the "Money as debt" film which can be found just by entering those words in to Google.
Every student should see this.

shekspir said...

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