- No, I don't mean its arrest of fifteen British low-rank
military people who were taking a boat ride in long-disputed waters dividing
Iraq and Iran. That was just a bit of old- fashioned tail-twisting of the
British lion, which has been close to toothless ever since 1945. I mean
this:
-
- Iran is planning to stop using the U.S. dollar to price
oil, with less than half of its oil income now paid in the U.S. currency,
Iran's central bank governor said.
-
- This March 28th Associated Press story belonged in every
American newspaper, if not on the front page, then at least the front page
of the business section. But you probably missed it. The only American
mainstream media outlet that bothered to run this story was The International
Herald Tribune, which is owned by The New York Times.
- The story appeared in the Trib's business section (March
28).
- http://www.iht.com/articles/ap/2007/03/28/business/AS-
FIN-Malaysia-Iran-Oil-Dollars.php
-
- "More than 50 percent of Iran's oil income is paid
in other currencies. We are reducing the dollar share and asking clients
to pay in other currencies," Sheibany said.
-
- Sheibany said that almost all of Iran's European clients
and some of its Asian customers have accepted making payments in non-dollar
currencies.
-
- The fact that Iran is now pricing its oil in currencies
other than the dollar is reminiscent of Saddam Hussein's similar decision
in September, 2000. This was one month after Hugo Chavez met with Hussein
in Iraq. He was the first head of state to visit Hussein since the 1991
Gulf War. Oil was then around $30.
-
- [A good introductory book on this whole question is William
Clark's Petrodollar Warfare. Read especially Lt. Col. (ret.) Karen Kwiatkowski's
Afterword.]
- http://www.amazon.com/Petrodollar-Warfare-Iraq-
Future-Dollar/dp/0865715149/lewrockwell/
-
- On April 10, 2001, the Council on Foreign Relations and
the James A. Baker III Institute issued a joint, bipartisan publication,
"
-
- Strategic Energy Policy: Challenges for the 21st Century."
Baker is a former Secretary of State under Bush, Sr., and was regarded
as the number-one advisor to Bush. He also ran the Reagan White House whenever
Reagan did not lay down the law on a specific issue. When the CFR and Baker
issue a joint report, we had better take it seriously as a statement of
what the Powers That Be are thinking or want the public to think
about government policy. The CFR's press release summarized the report's
findings.
- http://www.cfr.org/publication/3943/strategic_energy_policy.html
-
-
- Ironically, the economic boom of recent years has exacerbated
the potential for an energy crisis. Strong growth in most countries and
new demands for energy have led to the end of previously sustained surplus
in hydrocarbon fuels.
-
- As a result, the world is now precariously close to using
all its available global oil production capacity. If an accident or other
disruption in production occurred whether on the Alaskan oil pipeline,
in the Mideast or elsewhere the world might be on the brink of the
worst international oil crisis in three decades.
-
- The invasion of Iraq by Bush and the resistance to the
occupation have created just the kind of disruption that the CFR warned
about. It is no accident that when the Establishment's independent Iraq
Study Group presented a supposedly practical alternative to the Administration's
Iraq policy, Baker was co-chairman. The problem is, the report was yada,
yada, yada the standard Establishment bloviation, which offered no
meaningful, clear-cut solution to the problem because there is no agreement
within the foreign policy Establishment regarding America's Middle East
policy, and hasn't been since May 1, 1948.
-
- Concern about a looming war with Iran is continuing to
force oil prices upward. An actual war will drive prices much higher, just
as the Iraq war has.
-
- THE EURO WORRY
-
- The euro was introduced in 1999 at an exchange rate of
$1.17. It started falling almost immediately. It bottomed in October, 2000,
a few days after Hussein's announcement, at 83 cents. It stayed low until
October 2001, after the 9-11 attack, when it started rising. So, initially,
Hussein's announcement did not have any visible economic effect on the
dollar/euro exchange rate. A month before the Iraq war began, the euro
was around $1.10. It continued to rise after the war began in March, 2003.
It was at $1.16 in May.
-
- The U.S. dollar is the world's reserve currency. About
65% of all central bank foreign exchange reserves are held in the dollar.
A March 30 report on Bloomberg provides the figures.
-
- The dollar's share of global foreign-exchange reserves
fell to the lowest level in at least eight years as central banks accelerated
their purchases of euros, the International Monetary Fund said.
-
- Dollars accounted for 64.7 percent of reserves last quarter,
down from 65.8 percent in the prior three months, the IMF said today in
Washington. The share of euros climbed to 25.8 percent from 25.1 percent,
reaching its highest proportion since the single currency was introduced
in 1999. . . .
-
- The euro climbed 11.4 percent against the dollar last
year, its fourth annual gain in five. The advances have enhanced the attractiveness
to central banks of the currency now shared by 13 European Union nations.
Reserve holdings in euros climbed 8.3 percent last quarter, the most in
two years, IMF data show.
-
- What the report does not mention is that these figures
are essentially unchanged since the end of 2004. The dollar was then 66%
and the euro 25%. The big change has come since 2002. In early 2002, the
euro figure was 10%.
-
- THE SAUDI CONNECTION
-
- The dollar has been supported by Saudi Arabia ever since
1971. When Nixon unilaterally broke the United States government's agreement
to sell gold at $35/oz, the dollar has floated against other currencies.
Foreign central banks have held T-bills as foreign exchange reserves because
of the dollar's universal acceptability for international trade.
-
- The Saudis could have undermined the dollar's role in
trade if they had accepted yen or pounds sterling in addition to dollars.
But the Nixon Administration negotiated a not-so-secret secret agreement.
The Saudis would accept the dollar, and only the dollar, in oil sales,
no matter who was buying the oil. At any time, the Saudis could have bailed
out, but they didn't not even during the OPEC oil embargo. Look at
the chronology.
-
- August 15, 1971: Nixon closes the gold window, imposed
price and wage controls, and floated the dollar.
-
- September 22, 1971: OPEC directs members to negotiate
higher prices for oil due to the falling dollar.
-
- December 5: Libya nationalizes British Petroleum's holdings.
-
- January 20, 1972: Six OPEC nations raise prices 8.49%
to compensate them for the falling dollar. Saudi Arabia is one of them.
-
- June 1: Iraq nationalizes the foreign-owned Iraq Petroleum
Company's holdings.
-
- October 27: OPEC announces 25% ownership of Western oil
operations in six countries, with 51% by 1983. Saudi Arabia is one of them.
-
- March 16: Shah of Iran nationalizes all foreign-owned
oil companies.
-
- September 1: Libya nationalizes 51% of all other oil
companies.
-
- I don't want to belabor this. You can see what happened.
The nationalizations continued for another year.
-
- On October 6, 1973, the fourth Israeli-Arab war broke
out. On October 17, OPEC's six Middle Eastern nations raised the price
of oil to $3.65 from $3.12. On October 19, they declared an oil embargo
against the United States. On October 19, they embargoed the Netherlands.
The Netherlands is where the world's oil exchange operates. Oil rose. On
December 22, the six Gulf states raised the price from $5.12 to $11.65,
effective January 1, 1974. You can see the chronology here.
- http://en.wikipedia.org/wiki/1970-1979_world_oil_market_chronology
-
- The initial domino in the sequence is clear: the closing
of the gold window on August 15, 1971. But at no time did the Saudis or
OPEC officially abandon the dollar as the sole unit of account.
-
- This was when the flow of petrodollars began to accelerate.
The Saudis sold their oil for dollars, but they deposited the money mainly
in multinational banks headquartered in New York City. The banks then lent
the money around the world.
-
- The Saudis could have pulled the plug at any time. All
they had to do was allow other currencies in exchange for oil. Then they
could have ceased doing business with U.S. banks. They could have switched
to London, Germany, and Switzerland. They didn't.
-
- There had to be a reason. But what reason makes sense?
-
- PROTECTION MONEY
-
- The Saud family runs the country. It is a fiefdom. The
family cannot protect itself militarily without weapons. It also needs
a buffer against enemies. It gets both from the United States.
-
- After the fall of the Shah in 1979 and the capture of
the American embassy by Iran's revolutionary guards, the Shi'ite threat
to Saudi Arabia grew. The Saudis support the Wahhabi Sunni sect, which
has always been officially supportive of the Saud family. This goes back
over two centuries.
-
- Iran under the mullahs became an immediate threat to
the Saud family. The oil fields of Saudi Arabia are in the east, which
is where Shi'ites are dominant.
-
- The military equipment and other support given to Hussein
by the U.S. in the Iraq-Iran war (September 1980 to August 1988) was a
shield for Saudi Arabia. It kept a pro-Sunni leader in power in an otherwise
Shi'ite-dominated country on Saudi Arabia's border. When Hussein moved
into Kuwait in 1991, the Saudis agreed to help fund the Gulf war. When
Bush encouraged the Shi'ites to revolt after the war ended, and they did,
the United States let Hussein's troops slaughter them. This was a benefit
for the Saudis. They did not want Shi'ite forces on their border. They
still don't. The Shi'ites and Kurds will be the big winners if and when
the U.S. departs. The Saudis will then have a Shi'ite state on its border.
Across the water is Iran, which is facing a crisis within a decade, as
its oil exports decline, possibly to zero. Iran will have to make its move
soon. The prospects of a Shi'ite kingdom are fading.
-
- The quid pro quo for the dollar's sole acceptability
in Saudi Arabia and the other Sunni members of OPEC is protection. As long
as the United States keeps the State of Israel on a tight leash beyond
its own borders, the Saudis need fear only the Shi'ites.
-
- This is why there has been no hue and cry from the Saudis
regarding the second American invasion of Iraq. This is why there is silence
regarding the two carrier task forces in the Gulf, with the third leaving
San Diego today to join the other two.
-
- IRAN BREAKS THE STRANGLEHOLD
-
- With Iran now selling oil only for other currencies,
it has offered a challenge to the other OPEC exporters. They can get out
of the petrodollar trap by switching to the euro. Iran is about to set
the precedent. Iraq did, but it was invaded. Then the old arrangement was
reimposed by the Americans: oil for dollars only.
-
- By telling other oil exporters that it's a good idea
to do business in other currencies, Iran threatens to cause a shift in
central bank holdings. If the euro continues to rise, central banks are
better off by buying euros. At the margin, they will make money. But the
dollar will fall: reduced demand for dollars. The downside of this is two-fold:
(1) a falling dollar means fewer exports to America; (2) a falling market
price of their existing holdings of T-bills. This will hurt Japan and China
the most.
-
- This threat to U.S. foreign policy is great. The threat
to the domestic economy is worse. The dollar has been subsidized by OPEC
nations for 35 years.
-
- The dollar's looming fall in value in relation to other
currencies is a minimal threat to the American economy compared to rising
oil prices. We are importers of oil. If gasoline prices rise, voters will
seek vengeance. Republicans know this. So, Iran is now a threat to Bush
and the Republicans in 2008.
-
- The British Broadcasting Corporation reported on the
same interview with Iran's central bank governor.
- http://news.bbc.co.uk/2/hi/business/6498695.stm
-
- The Reuters news agency reported Chinese sources as saying
that state-owned oil producer Zhuhai Zhenrong Corporation had moved out
of the dollar for its Iranian trade late last year.
-
- If correct, this would be significant since Zhuhai imports
240,000 barrels of oil a day from Iran while China is one of Iran's most
important customers.
-
- Japanese oil producers continue to pay for their crude
in US dollars, Reuters reported, pending an official request from Tehran
to change their approach.
-
- Then what about Japan? The Japanese are not looking to
rock the boat at least not until they are officially asked to rock
it.
- http://www.arabtimesonline.com/arabtimes/business/view.asp?msgID=7807
- The Arab Times reported:
-
- Japanese buyers, including top refiner Nippon Oil Corp,
said they had all received inquiries from Iran to pay on non-US dollar
terms, but were awaiting an official request. "We are looking at it
so that we can switch the currencies any time, but we have not gotten any
official requests from them (NIOC). We are doing the transactions in dollars
(now)," Nippon Oil chairman Fukuaki Watari told reporters last week.
-
- All it will take is an official request. Clearly, Iran
can gain Japan's cooperation at any time.
-
- CONCLUSION
-
- The Israelis would like Iran removed as a regional center
of power. On this point, they are in full agreement with the Saudis.
-
- The Administration does not want to see a dramatic fall
of the dollar in relation to the euro.
-
- An attack on Iran will produce a spike in the oil price,
no matter what currency is used to settle accounts. Oil importers don't
want that. Oil exporters will cry crocodile tears, and then hike their
prices. It's called "meeting the market."
-
- The potential for disrupting the flow of oil has never
been greater.
-
- If I were James Baker and his associates at the Council
on Foreign Relations, I would be ordering several cases of Depends. They
are running out of time to reign in Junior.
-
- ____________________________________
-
-
- http://www.garynorth.com.
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