The Real Reasons for the Upcoming Operations Against Iran...

[Petrodollar Warfare]

...Well, some of you might recall my December 2002 essay/hypothesis regarding the Real Reasons for the Upcoming War with Iraq...which unfolded mostly as I predicted a few months later in 2003.

FYI: The Iranians are about to committ an offense far greater than Saddam's conversion to the euro for his oil exports. Iran is going to compete with New York's NYMEX and London's IPE with respect to international oil trades - using a *EURO BASED CRUDE OIL MARKER.*

What does that mean? Well, it means that without some sort of US intervention (likely covert, but possibly overt), the euro is going to establish a firm foothold in the international oil trade - which given our debt levels and the neocon desire for U.S. global domination - prvides a rather problematic situation.

Below is an exert from my upcoming book 'Petrodollar Warfare' - in which I will try to explain the two coalescing forces that are driving the neocons - Peak Oil and the challenge to US petrodollar hegemony from the emergence of a potential petroeuro... Saddam was chapter one is this phase, Chavez was almost chapter two in April 2002, Iran is looking like chapter three. Russia will ultimately go petroeuro - but thankfully the neocons are not *quite insane* enough to make that chapter four in the petrowarfare phase of American history...but perhaps Nigeria will fulfil that role?

BTW, the Iranian knows all about these issues, and any nuclear weapon they develop will be *defensive* in nature (Afterall, North Korea has openly threatened the U.S. - but they have no oil - hence they are allowed to have nukes). Remember, Iran is likely sitting on as much oil as Iraq (due to deterioation/permanent damage of Iraq's two main/giant oil reseviours). Iran is likely worried as - as the other member in the last Axis of Evil with Oil - that without a nuclear deterrent, the US under a Bush II term will call up a draft and prepare for operations against Iran - WMD or not. (it's unclear as to whether covert or overt operations might be employed at this moment - asnd IMO both are likely to fail - and produce some very unintended consequences...but the neocons don't study history)


FWIW, here's the hardnosed truth about Iran...

Hint: One of the Federal Reserves's Greatest Nightmare's may unfold in exactly 6-months (March 2005): A Euro-denominated International Oil Marker (ie. a euro pricing mechanism for oil trades)

Current geopolitical tensions between the United States and Iran extend beyond the publicly stated concerns regarding Iran’s nuclear intentions, and likely include a proposed Iranian petroeuro system for oil trade.

To date, one of the more difficult “technical obstacles” concerning a petroeuro oil transaction trading system is the lack of a euro-denominated oil pricing standard, or oil “marker” as it is referred to in the industry. The three current oil “markers” are all U.S. dollar denominated, and although Iran is requiring payments in the euro for its European oil exports, the oil pricing for trades are still denominated in the dollar.

Therefore a potentially significant news development was reported in June 2004 announcing Iran’s intentions to create of an Iranian oil Bourse. (The word “Bourse” refers to a stock exchange for securities trading, and is derived from the French stock exchange in Paris, the Federation Internationale des Bourses de Valeurs.) This announcement portended competition would arise between the Iranian oil bourse and the U.S.-owned London’s International Petroleum Exchange (IPE), as well as the New York Mercantile Exchange (NYMEX).

Acknowledging that many of the oil contracts for Iran and Saudi Arabia are linked to the United Kingdom’s Brent crude marker, the Iranian bourse could create a significant shift in the flow of international commerce into the Middle East. If Iran’s bourse becomes a successful alternative for oil trades, it would challenge the hegemony currently enjoyed by the financial centers in both London (IPE) and New York (NYMEX), a risk not overlooked in the following article:

“Iran is to launch an oil trading market for Middle East and Opec producers that could threaten the supremacy of London's International Petroleum Exchange.”

“…He played down the dangers that the new exchange could eventually pose for the IPE or Nymex, saying he hoped they might be able to cooperate in some way.

Some industry experts have warned the Iranians and other OPEC producers that western exchanges are controlled by big financial and oil corporations, which have a vested interest in market volatility.
The IPE, bought in 2001 by a consortium that includes BP, Goldman Sachs and Morgan Stanley, was unwilling to discuss the Iranian move yesterday. "We would not have any comment to make on it at this stage," said an IPE spokeswoman.“

It is unclear at the time of writing if this project will be successful, or could it prompt an overt U.S. military intervention - thereby signaling the second phase of petrodollar warfare in the Middle East. Regardless of the potential response, the emergence of an oil exchange market in the Middle East is not entirely surprising given the post-domestic peaking and decline of oil exports in the U.S. and U.K, in comparison to the remaining oil reserves in Iran, Iraq and Saudi Arabia. According to Mohammad Javad Asemipour, an advisor to Iran’s oil ministry and the individual responsible for this project, this new oil exchange is scheduled to begin oil trading in 2005.

“Asemipour said the platform should be trading crude, natural gas and petrochemicals by the start of the new Iranian year, which falls on March 21, 2005.

He said other members of the Organization of Petroleum Exporting Countries - Iran is the producer group's second-largest producer behind Saudi Arabia - as well as oil producers from the Caspian region would eventually participate in the exchange.”

The macroeconomic implications of a successful Iranian Bourse are worthy of note. Considering that Iran has switched to the euro for its oil payments from E.U. and ACU customers, it would be logical to assume the proposed Iranian Bourse would usher in a fourth crude oil marker – denominated in the euro currency. Such a development would remove perhaps the main “technical obstacle” for a broad-based petroeuro system for international oil trades. Furthermore, according to the following report, Saudi investors may be interested in participating in the Iranian oil exchange market, further illustrating why petrodollar recycling is unsustainable.

“Chris Cook, who previously worked for the IPE and now offers consultancy services to markets through Partnerships Consulting LLP in London, commented: "Post-9/11, there has also been an interest in the project from the Saudis, who weren't interested in participating before."

Others familiar with Iran's economy said since 9/11, Saudi Arabian investors are opting to invest in Iran rather than traditional western markets as the kingdom's relations with the U.S. have weakened Iran's oil ministry has made no secret of its eagerness to attract much needed foreign investment in its energy sector and broaden its choice of oil buyers.

Along with several other members of OPEC, Iranian oil officials believe crude trading on the New York Mercantile Exchange and the IPE is controlled by the oil majors and big financial companies, who benefit from market volatility.”

It appears the final three pivotal items that would create the OPEC transition to euros will be based on (1) if and when Norway's Brent crude is re-dominated in euros, (2) if and when the U.K. adopts the euro, and (3) whether or not Iran’s proposed Oil Bourse (exchange) is successful and utilizes the euro as its oil transaction currency standard. Regarding the U.K., Tony Blair has lobbied heavily for the U.K. to adopt the euro, and its adoption would seem imminent within this decade. If and when the U.K. adopts the euro currency, we are likely to see a concerted effort to quickly establish the euro as an international reserve currency. Given the U.K.’s uncomfortable juxtaposition between the financial interests of the U.S. and the E.U., the fulfilment of this hypothesis would represent a monumental realignment of the transatlantic relationship.

References:

Macalister, Terry, ‘Iran takes on west's control of oil trading,’ UK Guardian, June 16, 2004
URL: http://www.guardian.co.uk/business/story/0,3604,1239644...

402. “Iran Eyes Deal on Oil Bourse; IPE Chairman Visits Tehran,” Rigzone.com (July 8, 2004)
URL: http://www.rigzone.com/news/article.asp?a_id=14588

[cthrumatrix]

1. this is clearly not good.... the US dollar will no longer be the reserve

currency of choice....

say goodbye to all advantages we have.... there goes our trade deficit...budget deficit and worse.

[el_gato]

2. Thanks for posting

[democratreformed]

3. Bad news.

Now, I pretty much KNOW I am destined to become an anti-war activist.

[AntiFascist]

4. Excellent post...

the cobwebs are clearing, its all coming back to me now.

[cthrumatrix]

5. IF the US dollar were not in such bad shape...THIS would not be

an issue.

However...since we have such a huge deficit, trade deficit etc...the dollar is not preferred to the Euro.

Pin ...meet....balloon.

[Name removed]

8. Deleted message

Message removed by moderator. Click here to review the message board rules.

[cthrumatrix]

10. No...you would buy it with a strong Euro....that would not lose it's value

Imagine your bank account full of US currency to buy oil. When the dollar weakens ...paying for oil costs more dollars IF you had to convert those to Euros's to purchase oil.

Hence...the reserve currency of choice would be one that "holds it's value"....like the Euro in this case.

[Petrodollar Warfare]

11. FYI: the EU does not want the "currency risk" re their oil purchases..

(Here's a flashback to from 4 years ago - when the $ was strong...)

The `old rules' for valuation of the U.S. dollar currency and economic power were based on our flexible market, free flow of trade goods, high per worker productivity, manufacturing output/ trade surpluses, government oversight of accounting methodologies by the Securities and Exchange Commission (SEC), developed infrastructure, education system, and of course total cash flow and profitability. Our superior military power afforded some additional confidence in the dollar.

While many of these factors remain present, over the last two decades we have diluted many of the `safe harbor' economic fundamentals. Since 1974 the petrodollar created `new rules' for the dollar, and essentially eliminated U.S. currency risk for oil consumption for almost 30 years.

The lack of currency risk is one of the reasons that taxes on oil/gas are much lower in the United States than the rest of the world. The average world price for a gallon of gasoline is about $5.00, which is about 60% higher than typical U.S. gasoline prices.

These higher taxes in the E.U. and elsewhere around the world provide a “cushion” for others countries regarding their currency risk for oil/energy purchases. Without the higher tax “cushion” built into the price of gasoline, a particular country could experience wild swings in daily prices at the gas pump due to fluctuations on the international currency market regarding their domestic currency’s valuation relative to the dollar.

The U.S. has traditionally been immune to oil price risk, and has enjoyed relatively stable gasoline prices for this same reason. However, chapters four and five in this book present evidence that the U.S. dollar’s immunity to ‘currency risk’ regarding international oil pricing is diminishing.

A stable oil bill is one of the likely reasons why the European Union would prefer a euro-based oil transaction option. Perhaps France and Germany approached Saddam with the euro-oil currency proposal in the summer of 2000.

One interesting development in the U.S. Presidential campaign during the autumn of 2000 was a small spike in global oil prices. In order to ease prices, the Clinton/Gore administration released 30 million barrels of oil form the U.S. Strategic Petroleum Reserve, for which candidate Gore was criticized by candidate Bush.

What most Americans fail to realize were the dramatic effects of higher gas prices in Europe (or “petrol” as it is commonly referred). These high fuel prices during the autumn of 2000 occurred when the euro was at its historic low point to the U.S dollar, valued at about 82 cents, or 18% less than the dollar. The French, Germans and related euro zone nations experienced not only an increase in fuel prices due to a dip in oil production, but also felt the brutal effects of currency risk due to the euro’s low valuation relative to the dollar at that time.

The situation in Western Europe during September 2000 in many ways appeared reminiscent of the fuel crisis in the U.S. of 1973-74 and 1979. The entire European economy basically ground to a halt with near violent protests. Considering the euro’s susceptibility to “currency risk” regarding energy prices, its low valuation relative to the dollar during the fall of 2000, this most likely exacerbated the economic crisis that resulted in high “petrol” prices in the E.U. Indeed, in the autumn of 2000 western European commerce activity came to a virtual standstill due to high petrol prices.

The crisis lasted only a few days, but was so acute that French fishermen blockaded the Channel Ports because their fuel costs had doubled, even though their fuel was already tax-free. Schools were closed, Hospitals were put on red alert, and Supermarkets started rationing bread. Transportation came to a near stand still in much of Western Europe.

This unwelcome crisis for the E.U. was exacerbated by a then “strong dollar” and “weak euro,” The effect of this currency risk for energy prices can be seen in the below photos of German truckers and French farmers protesting the sudden spike in petrol prices.

“German Truckers Fume Over Fuel Prices”, CBS News, September 26, 2000 http://www.cbsnews.com/stories/2000/09/15/world/main233748.shtml

pic: German truckers protesting in Berlin (Photos: AP)

“French fuel dispute escalates”, CNN News, September 7, 2000 http://edition.cnn.com/2000/WORLD/europe/09/07/france.fuel/
pic: Riot police protect the Channel Tunnel from protesting farmers

“Thousands of truckers from across Germany clogged the streets around the capital's center Tuesday demanding relief from higher gas prices. And they got some when the government offered low-interest loans to some trucking companies.

”….The protest is the biggest so far in Germany, on the heels of demonstrations that halted traffic in France, Britain and Spain before easing in recent days. Elsewhere Tuesday, minor blockages continued in Spain, where markets ran out of fish, and Greek motorists fearing for shortages due to trucker strikes lined up for gas.

At the time the euro was beginning its widespread use, but its lower valuation relative to the U.S. dollar that autumn appears to have adversely impacted not only oil prices in Western Europe, but facilitated societal discord as well. Protests erupted in France with thousands of French farmers driving their tractors into Paris as a sign of their displeasure of rapid increases in fuel prices. This resulted in the deployment of French riot police as reflected in the above photo. News reports of the economic fall-out also included disruptions in the U.K., Spain, and Greece.

In June 2001, both France and Russia proposed in the U.N. Security Council that the 1991 U.N. Sanctions against Iraq be lifted, thereby allowing foreign investment in to the deteriorating Iraqi oil infrastructure.

However, this proposal was predictably killed by the U.S. and U.K. The total value of Saddam's foreign contract awards was estimated at $1.1 trillion, according to the International Energy Agency's World Energy Outlook 2001. American companies were barred from investing in Iraq, and if the sanctions had been lifted, oil lease contracts awarded to France, Russia, China, and Italy could begin.

Of course, two years later, a U.S. military invasion toppled Saddam, and post-war oil contracts were strictly limited to the war’s “coalition partners,” which in this case included U.S. oil companies, British Petroleum (BP) and the Worley Group, an Australian oil engineering firm.

[Eloriel]

6. Thanks for posting this -- I think it's important

and I'm really glad you made it a separate thread.

[AmerDem]

7. interesting stuff.

This is the first time i've heard anything about it. Thanks.:toast:

[Petrodollar Warfare]

12. You're welcome...

..I'll accept that toast.

[DemBones DemBones]

9. Does this have to be disastrous for the US economy?

What can be done other than covert or overt action against Iran? How can our economic institutions cooperate/ adjust to such global changes?

[Petrodollar Warfare]

13. To answer your question..an exert from my book...

VI. Global monetary reform:

The main problem with the current global economy is that excess levels of credit creation (ie. a credit/derivative bubble) have facilitated the building of supply capacity that is well beyond that necessary to meet the requirements of global aggregate demand. As a general rule, a period of deflationary contraction would in theory permit a decline of supply capacity until such time that growth in demand initiates a new expansionary cycle.

Economists such as Richard Duncan (author of The Dollar Crisis) have argued that excessive growth of global credit and subsequent structural problems of the U.S. dollar may unleash a deflationary contraction of the global economy. In other words, a deflationary Depression could occur with a significant devaluation of the dollar, and the downturn will be very long lasting unless global aggregate demand increases, particularly in the E.U. and East Asian economies.

Therefore, it would seem imperative that our government begins discussions with the G7 nations to reform the global monetary system. Ideally, the G7 nations would immediately begin the process of negotiating global monetary reform that will allow for a controlled expansion of markets in Europe and East Asia.

U.S. policy makers should advocate that the dollar and euro be placed into an ‘exchange band’ with reserve status parity. This would facilitate the vital creation of a dual OPEC oil transaction standard.

A system of parity valuation is necessary as it would become problematic otherwise, with currency hedging between the dollar and euro. Furthermore, the likely internal arbitrage between the two billing currencies could potentially disrupt the oil pricing mechanism. Accordingly, a $1.00 to €1.00 fixed dollar/euro ratio would appear to be the most efficient and viable mechanism for providing a stable price, while mitigating dollar/euro currency hedging.

Obviously this contentious suggestion will be vehemently rejected by the U.S. government and the powerful military-industrial-petroleum interests. The proposals advocated in this text would impose a level of fiscal constraint on the Federal Reserve and government by requiring a decrease in the U.S. money supply and resultant reduction in runaway credit creation.

However, rather than engage in more proxy petrodollar versus petroeuro warfare, Washington must ultimately pursue policies that will allow our economy to accommodate the inevitable emergence of the euro as an alternative international reserve currency – and international oil transactions currency.

Furthermore, it would also seem prudent to investigate an ‘Asia bloc’ consisting of a single Yen/Yuan reserve currency option to give balance to the global monetary system, in essence a hybrid “yenimbi.”498 In 1961, economist Robert Mundell stated, “The optimum currency area is not the world.”

His observation is as valid today as it was over 40 years ago.

A research paper presented by George M. von Furstenberg, Fordham University and Jianjun Wei, Indiana University, proffers that it would be “preferable” to have three or four major reserve currencies in the world economy. (The Chinese Crux of Monetary Union in East Asia, 2002).

These two authors advocate a new continental East Asian currency, following China’s ongoing integration into the world financial markets, thereby ultimately joining the dollar and euro as the three world reserve currencies. If the Chinese and Japanese economies are able to become fully integrated in the coming years, it is plausible that a joint yen/yuan currency could evolve for the Asian region.

Indeed, Mr. Eisuke Sakakibara, the man formerly known as `’Mr. Yen'’ for his influential role in modern currency markets has urged China and Japan to bury their historical differences in order to prepare the ground for the eventual emergence of a single Asian currency.501

In November 2003 stated such a ``rapprochement'' could take its inspiration from the development of a single euro currency in Europe. Mr. Sakakibara made the following recommendation:

``At the centre of the development of the euro was Franco-German rapprochement and in the same vein, Chinese-Japanese rapprochement is absolutely necessary to create a single Asian currency.''

``Let's put our historical legacy behind us. If Germany and France could do it, China and Japan could do it.'

Due to various pressures, Chinese policy makers have been contemplating upward revaluation of the yuan, which could occur as early as 2005. Eventually the Chinese yuan/renimbi will become a floating currency, in large part due to macroeconomic pressures stemming from current imbalances. Therefore at some point later during this decade a third world reserve currency will make sense for the Asian bloc, perhaps with a Yuan/Yen currency so that China and Japan could purchase oil with their own reserve currency.

The difficult challenge with such a “rebalancing” of the global economy is that a more appreciated yuan would soon decrease purchases of U.S. Treasury Bills by the Asian nations. This will place a constraint on the Federal Reserve’s ability to generate cheap credit, and force the U.S. economy to increase the level of export products. In other words, the U.S. would have to play by the same rules of other countries – by practicing fiscal restraint with a self-sufficient economy.

Due to the requirement of coordinated international monetary polices, the author concurs with those enlightened economists who recommend that the U.S. begin the process of convening the next “Bretton Woods Conference” on global monetary reform. Broad monetary reform of the current dollar-centric system is the only mechanism that could eventually "rebalance" the global economy. While perhaps somewhat optimistic, such a development would add much balance to the global economy, and potentially mitigate residual tensions between Japan and mainland China.

Regardless, it is clear the global economy will be more balanced and better off with three engines of global growth: the U.S., the E.U. and Asia. The great challenge will be to implement a gradual, controlled decrease in the U.S. money supply, while attempting to minimize dislocations in the U.S. and global economy.

The first reform should be the euro as the second International Reserve currency, at parity with the dollar, thereby allowing a dual-OPEC oil transaction currency standard. This should join the U.S. with the E.U. as two equal "co-hegemons."

While this rebalancing is necessary to create sustainable long-term growth, any broad transition from a dollar standard to a euro standard or combined euro/dollar standard with subsequent enormous capital market reorientation will be forcefully opposed by U.S. elites. In other words, it is not meant to imply this author expects such a monetary transition to take place without the vigorous opposition of the American political and business establishment.

Regardless, the ascendance of the euro and ultimately the yuan has likely been fortified given the structural debt, trade and fiscal imbalances in the U.S. economy. The consequences of the dollar's fall will simply extend from its decline due to these unsustainable global imbalances. Simply stated, the U.S. consumer cannot go into indefinite debt as the single engine for global growth, nor can the Federal Reserve continue to “re-inflate” bubbles indefinitely.

Both the European Union and Eastern Asia will have to recognize that the party is over and they cannot ride the American consumer unto perpetuity. Whether or not they wish to confront the challenges of this transition, they will find such imposed by brutal economic realities, with a deflationary period as one likely outcome of a dollar crisis.

(for more, you'll have to read 'Petrodollar Warfare' It's simply my humble attmept to solve the world's energy and monetary crisis...)

[cthrumatrix]

14. Question for Goren4? How do you know the market WILL be Euro based?

where is that written...?

Thank you