The Real Reasons Why Iran is the Next Target

[Petrodollar Warfare]

The Real Reasons Why Iran is the Next Target:
Emerging Euro-denominated International Oil Marker

September 27, 2004

“Deep in the Pentagon, admirals and generals are updating plans for possible U.S. military action in Syria and Iran. The Defense Department unit responsible for military planning for the two troublesome countries is "busier than ever," an administration official says. Some Bush advisers characterize the work as merely an effort to revise routine plans the Pentagon maintains for all contingencies in light of the Iraq war. More skittish bureaucrats say the updates are accompanied by a revived campaign by administration conservatives and neocons for more hard-line U.S. policies toward the countries”…”Even hard-liners acknowledge that given the U.S. military commitment in Iraq, a U.S. attack on either country would be an unlikely last resort; covert action of some kind is the favored route for Washington hard-liners who want regime change in Damascus and Tehran.”

“…administration hawks are pinning their hopes on regime change in Tehran - by covert means, preferably, but by force of arms if necessary. Papers on the idea have circulated inside the administration, mostly labeled "draft" or "working draft" to evade congressional subpoena powers and the Freedom of Information Act. Informed sources say the memos echo the administration's abortive Iraq strategy: oust the existing regime, swiftly install a pro-U.S. government in its place (extracting the new regime's promise to renounce any nuclear ambitions) and get out. This daredevil scheme horrifies U.S. military leaders, and there's no evidence that it has won any backers at the cabinet level.” <1>

Some readers might recall my earlier essay that was published online in early 2003 regarding 'The Real Reasons for the Upcoming War with Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth.’ <2> Subsequent events unfolded essentially as I predicted in the aftermath of the war. In late 2002 I hypothesized that Saddam Hussein sealed his fate when he announced in September 2000 that Iraq was no longer going to accept dollars for oil being sold under the UN’s oil for food program, and decided to switch to the euro as Iraq’s oil export transaction currency. <3> Iraq’s $10 billion UN reserve fund was also transitioned to euros - and due to dollar devaluation swelled to € 23 million by early 2003.

The original essay outlined the macroeconomics of the `petrodollar recycling’ phenomenon and the unpublicized but real challenge to US dollar supremacy from the euro as an alternative oil transaction currency. The Iraq war had less to do with any threat from Saddam’s old weapons of mass destruction program and certainly less to do to do with fighting terrorism than it has to do with gaining control over Iraq’s hydrocarbon reserves and in doing so maintain the U.S. dollar as the monopoly currency for the critical international oil market. Candidly speaking, 'Operation Iraqi Freedom' was a war designed to keep the euro from becoming an alternative oil transaction currency. The global community just witnessed a combination of petrodollar warfare and oil depletion warfare in Iraq. The majority of the world’s governments – especially the E.U., Russia and China - were not amused - and neither are the US soldiers currrently stationed in Iraq.

Indeed, my original pre-war hypothesis was validated shortly after the war in a Financial Times article dated June 5th, 2003, which confirmed Iraqi oil sales returning to the international markets were once again denominated in US dollars, not euros. Not surprisingly, this detail was never mentioned in the US corporate-controlled, five major media conglomerates, but confirmation of this vital fact provides insight into one of the crucial -- yet overlooked -- rationales for 2003 the Iraq war.

"The tender, for which bids are due by June 10, switches the transaction back to dollars -- the international currency of oil sales -- despite the greenback's recent fall in value. Saddam Hussein in 2000 insisted Iraq's oil be sold for euros, a political move, but one that improved Iraq's recent earnings thanks to the rise in the value of the euro against the dollar." <4>

I recently completed a book that details the history of these subjects, along with an analysis of the other crucial issue, global Peak Oil. Unfortunately, it has become clear that yet another manufactured war, or some type of ill-advised covert operation is inevitable under President George W. Bush, should he win the 2004 Presidential Election. Numerous news reports over the past year, and most especially this month, have revealed that the neoconservatives are quietly - but actively -planning for the second petrodollar war of this decade - Iran. What follows are exerts and information contained in my upcoming book regarding the history of the Iraq conflict, and recent developments. (Additional info on my upcoming book, Petrodollar Warfare: Oil, Iraq, and the Future of the Dollar, is found at the end of this essay)

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 U.S. dollar denominated. However, since the spring of 2003 Iran has required payments in the euro currency for its European and Asian/ACU exports - although the oil pricing for trades are still denominated in the dollar. <5>

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 London’s International Petroleum Exchange (IPE), as well as the New York Mercantile Exchange (NYMEX).
The macroeconomic implications of a successful Iranian Bourse are quite noteworthy. 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 will usher in a fourth crude oil marker – denominated in the euro currency. Such a development would remove the main “technical obstacle” for a broad-based petroeuro system for international oil trades. From a purely economic and monetary perspective, a petroeuro system is a logical development given that the European Union imports more oil from OPEC producers than does the U.S., and the E.U. accounts for 45% of imports into the Middle East (2002 data).

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. “<6>

It is unclear at the time of writing (autumn of 2004) if this project will be successful, or could it prompt overt or covert U.S. interventions? - thereby signaling the second phase of petrodollar warfare in the Middle East. (Iraq was the first petrodollar war). News articles in June 2004 revealed that Ahmad Chalabi reportedly revealed his knowledge regarding U.S. military planning for operations against Iran.

“The reason for the US breakup with Ahmed Chalabi, the Shiite Iraqi politician, could be his leak of Pentagon plans to invade Iran before Christmas 2005, but the American government has not changed its objective, and the attack could happen earlier if president George W. Bush is re-elected, or later if John Kerry is sworn in.”

“….Diplomats said Chalabi was alerted to the Pentagon plans and in the process of trying to learn more to tell the Iranians, he invited suspicions of US officials, who subsequently got the Iraqi police to raid the compound of his Iraqi National Congress on 20 May 2004, leading to a final break up of relations.”

“While the US is uncertain how much of the attack plans were leaked to Iran, it could change some of the invasion tactics, but the broad parameters would be kept intact.” <7>

Regardless of the potential U.S. response to a petroeuro, 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 March 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.” <8>


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.” <9>

One of the Federal Reserve’s greatest nightmares may come to fruition in March 2005, when it appears that international buyers will have a choice of buying a barrel of oil for $50 dollars on the NYMEX and IPE or purchase a barrel of oil for €40 euros via the Iranian bourse. Assuming of course that the euro maintains its current 20% appreciated value relative to the dollar - and assuming that some sort of "intervention" is not undertaken against Iran. The upcoming bourse will introduce dollar versus euro currency hedging and fundamentally new dynamics to the biggest market in the world - global oil and gas trades.

During an important speech in April 2002, an OPEC executive described three pivotal events that would facilitate an OPEC transition to euros. <10> He stated this would 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 the euro gains parity valuation relative to the dollar, and the E.U.’s proposed expansion plans were successful. (Note: Both of the later two criteria have transpired: the euro’s valuation has been above dollar since late 2002, and the 'EU-25’ enlargement occurred in May 2004)

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 realization of this hypothesis would certainly represent a monumental realignment of the transatlantic relationship.

The implementation of the proposed Iranian oil bourse (exchange) in 2005 – if successful and utilizes the euro as its oil transaction currency standard – essentially negates the necessity of the previous two criteria as described by OPEC in 2002 regarding the solidification of a “petroeuro” system for international oil trades. Unlike Iraq, Iran has a robust military capability, and with anti-ship missiles they can control via Abu Musa Island the critical Strait of Hormuz. It is doubtful that "Shock and Awe" will be attempted on Iran...

The immediate question for Americans? Will the neoconservatives attempt to intervene covertly in Iran before March 2005 in an effort to prevent the formation of a euro-denominated crude oil pricing mechanism? Commentators in India are quite correct in their assessment that a U.S. intervention in Iran is likely to prove disastrous for the United States, making matters much worse regarding international terrorism, not the mention retaliatory effects on the U.S. economy.

“The giving up on the terror war while Iran invasion plans are drawn up makes no sense, especially since the previous invasion and current occupation of Iraq has further fuelled Al-Qaeda terrorism after 9/11.”

“…It is obvious that sucked into Iraq, the US has limited military manpower left to combat the Al-Qaeda elsewhere in the Middle East and South Central Asia,”…”and NATO is so seriously cross with America that it hesitates to provides troops in Iraq, and no other country is willing to bail out America outside its immediate allies like Britain, Italy, Australia and Japan.”

“….If it intervenes again, it is absolutely certain it will not be able to improve the situation – Iraq shows America has not the depth or patience to create a new civil society – and will only make matters worse.”

“There is a better way, as the constructive engagement of Libya’s Colonel Muammar Gaddafi has shown….”Iran is obviously a more complex case than Libya, because power resides in the clergy, and Iran has not been entirely transparent about its nuclear programme, but the sensible way is to take it gently, and nudge it to moderation. Regime change will only worsen global Islamist terror, and in any case, Saudi Arabia is a fitter case for democratic intervention, if at all.” <11>

It is abundantly clear that a 2nd Bush term will likely bring a confrontation and possible war with Iran. However it is unclear what policies John Kerry might pursue regarding these issues if he should win in November. Despite the power of the U.S. military and the occasional effectiveness of U.S. intelligence agency interventions, it would be perilous and possibly ruinous for the U.S to intervene in Iran given the deplorable situation in Iraq. A successful Iranian bourse will solidify the "petroeuro" as an alternative oil transaction currency, and thereby end the petrodollar's hegemonic status as the monopoly oil currency.

Therefore, a graduated approach is needed to avoid precipitous U.S. economic dislocations. Multilateral compromise with the EU and OPEC regarding oil currency is certainly preferable to an "Operation Iranian Freedom," or perhaps a CIA-sponsored repeat of the 1953 Iranian coup – operation "Ajax" part two <12> Indeed, there are good reasons for U.S. military leaders to be “horrified” at the thought of a 2nd Bush term.

"The U.S. capability to make a mess of Iran's nuclear infrastructure is formidable," says veteran Mideast analyst Geoffrey Kemp. "The question is, what then?" NEWSWEEK has learned that the CIA and DIA have war-gamed the likely consequences of a U.S. pre-emptive strike on Iran's nuclear facilities. No one liked the outcome. As an Air Force source tells it, "The war games were unsuccessful at preventing the conflict from escalating.” <13>

###

“Of all the enemies to public liberty war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes...known instruments for bringing the many under the domination of the few. . . No nation could preserve its freedom in the midst of continual warfare."
- James Madison, 1795

"Whenever the people are well-informed, they can be trusted with their own government. Whenever things get so far wrong as to attract their notice, they may be relied on to set them to rights."

“Dissent is the highest form of patriotism.”
- Thomas Jefferson, 1789

“We owe respect to the living; to the dead we owe only truth”
- Voltaire, 1785



References:

<1> “War-Gaming the Mullahs: The U.S. weighs the price of a pre-emptive strike,” Newsweek, September 27 issue, 2004. http://www.msnbc.msn.com/id/6039135/site/newsweek/

<2> “Revisited - The Real Reasons for the Upcoming War with Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth,” January 2003 (updated January 2004)
http://www.ratical.org/ratville/CAH/RRiraqWar.html

<3> Recknagel, Charles, "Iraq: Baghdad Moves to Euro," Radio Free Europe (November 1, 2000)http://www.rferl.org/features/2000/11/01112000160846.asp

<4> Hoyos, Carol & Morrison, Kevin, "Iraq returns to the international oil market," Financial Times, June 5, 2003 http://www.thedossier.ukonline.co.uk/Web%20Pages/FINANCIAL%20TIMES_Iraq%20returns%20to%20international%20oil%20market.htm

<5> Shivkumar, C., “Iran offers oil to Asian union on easier terms,” The Hindu Business Line (June 16, 2003). http://www.thehindubusinessline.com/bline/2003/06/17/stories/2003061702380500.htm

<6> Macalister, Terry, “Iran takes on west's control of oil trading,” The Guardian, June 16, 2004
http://www.guardian.co.uk/business/story/0,3604,1239644,00.html

<7> “US to invade Iran before 2005 Christmas,” News Insight: Public Affairs Magazine, June 9, 2004
http://www.newsinsight.net/nati2.asp?recno=2789

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

<9> “Iran Eyes Deal on Oil Bourse, IPE Chairman Visits Tehran,” ibid

<10> “The Choice of Currency for the Denomination of the Oil Bill," Speech given by Javad Yarjani, Head of OPEC's Petroleum Market Analysis Dept, on The International Role of the Euro (Invited by the Spanish Minister of Economic Affairs during Spain's Presidency of the EU) (April 14, 2002, Oviedo, Spain)
http://www.opec.org/NewsInfo/Speeches/sp2002/spAraqueSpainApr14.htm

<11> “Terror & regime change: Any US invasion of Iran will have terrible consequences,” News Insight: Public Affairs Magazine, June 11, 2004 http://www.indiareacts.com/archivedebates/nat2.asp?recno=908&ctg=World

<12> J.W. Smith, “Destabilizing a Newly-Free Iran,” The Institute for Economic Democracy, 2003 http://www.ied.info/books/why/control.html

<13> “War-Gaming the Mullahs: The U.S. weighs the price of a pre-emptive strike,” ibid.


####

New Society catalog description – Available Spring 2005

Reveals the background -- and blowback from -- the first oil currency war

Petrodollar Warfare
Oil, Iraq and the Future of the Dollar
William Clark

The invasion of Iraq may well be remembered as the first oil currency war. Far from being a response to 9-11 terrorism or Iraq's alleged weapons of mass destruction, Petrodollar Warfare argues that the invasion was precipitated by two converging phenomena: the imminent peak in global oil production, and the ascendance of the euro currency.

Energy analysts agree that world oil supplies are about to peak, after which there will be a steady decline in supplies of oil. Iraq, possessing the world's second largest oil reserves, was therefore already a target of U.S. geostrategic interests. Together with the fact that Iraq had switched its oil transaction currency to euros -- rather than U.S. dollars -- the Bush administration's unreported aim was to prevent further OPEC momentum in favor of the euro as an alternative oil transaction currency standard.

Meticulously researched, Petrodollar Warfare examines U.S. dollar hegemony and the unsustainable macroeconomics of 'petrodollar recycling,' pointing out that the issues underlying the Iraq war also apply to geostrategic tensions between the U.S. and other countries including the European Union (E.U.), Iran, Venezuela, and Russia. The author warns that without changing course, the American Experiment will end the way all empires end with military over-extension and subsequent economic decline. He recommends the multilateral pursuit of both energy and monetary reforms within a United Nations framework to create a more balanced global energy and monetary system thereby reducing the possibility of future oil-depletion and oil currency-related warfare.

A sober call for an end to aggressive U.S. unilateralism, Petrodollar Warfare is a unique contribution to the debate about the future global political economy.

[BlueEyedSon]

1. Hey GN4... your posts are always excellent.

How's the book coming?

[Petrodollar Warfare]

2. The book is being edited as we speak...

..and will be out this spring. Thanks for asking. It was quite a project...300 pages and 500+ references, but will likely be a little streamlined after the editorial proess is complete. Afterall, it's hard to save the world in 100,000 words...

Anyway, here's the website of the cover art designer...just scroll down a little (4th image on the left - and you will see two business men dueling w/ gas nozzles)...I think the cover is visually quite striking. What do you think?

http://mypage.uniserve.ca/~brightideas/books.html

What about my mini-essay on Iran, was it stimulating and informative?

[BlueEyedSon]

4. I like that cover!

I printed out your piece for later, it was a bit long for the screen... then dinner & the debate "preempted" you, now Bill Maher.

It's on the top of my bedtime reading pile.

Saving the world.... holy crap, someone else as delusional as me!

Regards,
Blue

[Kenneth ken]

3. that one was easier

to read, since some of it was the same as your previous essay that I had already struggled through (again, thanks for helping me with that.)

Nice addition of the background in Iraq in re the shift to Euro pre-invasion, and back to dollar post-invasion for oil sales. I hadn't been aware of that. Helps to underscore why NATO would be upset with the US.

I had read about Chalabi funneling plans to Iran, back in May or June, but at that time didn't see any significance to it, apart from Iran being on the PNAC list of countres to overthrow. And given how well Iraq is going, I sort of shrugged that off as being indefinitely post-poned due to real life interference with their wet dream. So, again, thanks for that linkage also.

Nice work; crack the whip on those editors - I'm looking forward to your book! :D

There is a different thread around here somewhere about the G7 pressuring the US to devalue the dollar by as much as 20%. Clearly that sort of devaluation would further enhance the desirability of the Euro for Iran's purposes. And it seems to me, would also ramp up the presure on The US to want to shut down the Iranian Bourse before it could effectively get up and running.

edit: oh, you posted about that too, I go read your thoughts on that over there.

[German-Lefty]

5. I've still got the same problem as with your previous posts!

1) Why does it matter what currency exchanges use to trade oil? Can't they do petro-euro or petro-dollar recycling regardless of what currency an exchange uses?

I understand how it props up the our economy to have Arabs buying our bonds with their oil dollars. What I don't understand is if it's in their interest to stop buying our bonds and cut their losses and watch the dollar implode, or to keep propping us to get more out of their dollars.

2) If we were to invade Iran,
a) could they destroy most of their oil infrastructure?
b) wouldn't this completely destroy the US economy?
c) would this give developing countries like China a comparative advantage over the US?

[Petrodollar Warfare]

6. German-Lefty - please carefully review original 2003/4 essay...

...and many people tell me that they have to read it twice, or sometimes three times to fully assimilate all this information (yes, it's dense stuff that the media does not mention - ever).

http://www.ratical.org/ratville/CAH/RRiraqWar.html

FWIW: I recommend this based on your question...

<<<1) Why does it matter what currency exchanges use to trade oil? Can't they do petro-euro or petro-dollar recycling regardless of what currency an exchange uses?>>>

...as you are not used to thinking in terms of the petro-dollar recycling phenomenon and the effects of the US dollar's liquidity value (not to mention effortless Federal Reserve credit creation due to exponential demand for energy/oil along with exponential demand for petrodollars to purchase that energy). Perhaps F. William Engdahl does a better job of explaining these issues, here's his essay on the subject

“A New American Century? Iraq and the hidden euro-dollar wars,” currentconcerns.ch, No 4, 2003 http://www.currentconcerns.ch/archive/2003/04/20030409.php

(Also, his book is excellent, first published in 1992 - updated and re-released in 2004)
A Century of War: Anglo-American Oil Politics and the New World Order
http://www.amazon.com/exec/obidos/tg/detail/-/074532309X/qid=1097590358/sr=1-1/ref=sr_1_1/103-0980180-8481416?v=glance&s=books


BTW, it is not just "Arabs buying our bonds with their oil dollars" - but the entire world seeks to obtain US dollars to pay their monthly oil/energy/survival bill to the oil-producers - and these nations need dollars for this in their central banks - not yen or euros (unless you are buying from Iran, who will happily take euros but no dollars). So, they trade us their goods and services and get dollars in return, hundreds of billions of which are promptly given/traded over to OPEC for oil and gas, and then OPEC kindly deposits these federal reserve notes back in the US, and go out and borrow some money for tax cuts, or spend it on defense, etc. (This whole "petrodollar recycling mechanism" was secretly discussed in May 1973, and implemented in 1974 under Kissinger's guidance)

Dr. Spiro's book on this subject (The Hidden Hand of American Hegemony) describes it as a "double-loan." The rest of the world sometimes refers to it as a "free lunch." I call it like many others do - dollar hegemony - or more specfically - petrodollar hegemony.

As for Iran, I recommend that you read the final link in the essay that started this thread re military ops against Iran and possible outcomes (Monterry Institute of International Studies). Nobody wants Iran's oil infastructure damaged or destroyed. The question in my post is this - will Iran be allowed to establish the first ever international crude oil "marker" denominated in the euro along with an international oil exchange/market ("bourse)"? The 2nd question relates to Iran's nuclear ambitions, which many believe is a "defensive" posture - not some suicidal plan to build nucs and then use it against Israel so that they can celebrate in the streets for about 45 minutes before an Isreal counterstrike brings any Iranian celebration to a blinding hault...literally (btw, Israel has about 200 nuclear weapons).

Anyhow, I'll answer any further questions after you've had the chance to carefully consider the info in the two links from this post.

[German-Lefty]

7. GN4 just answer some questions, and sure I'll read

I liked the second link gave a better: :-)
http://www.currentconcerns.ch/archive/2003/04/20030409.php
I've read previous articles from you on the subject.

I still have the same general question: Why do you make such a fuss about transaction currency? I can understand the importance of reserve currencies.

An OPEC member could trade oil for dollars on IPE, and then trade dollars for Euro on forex, and then buy bonds from Germany and France instead of the US. How, is this dramatically different from OPEC directly selling oil for Euro on this new Iranian exchange? Do you understand what I'm asking you?

It's just a little bit of constructive criticism. Maybe you have an answer, but I think I've asked you this before and never gotten it from you. I'm sure you can answer this in less than 1000 words.

[Petrodollar Warfare]

9. Oil currency = de facto World reserve currency (not other way around)

Two issues, one is currency risk re energy, which is something rarely discussed. I mentioned to this to you before, as the Germans, French, Greeks and others 4 years ago felt the acute effects of currency risk re their energy purchases. What happened was a "strong" Dollar vs. a "weak" euro (0.82 to the dollar) back in September 2000, along with a *slight* decrease in oil supplies resulted in a damn near stand still of the western European economy. Below is the German reaction...

German Truckers Fume Over Fuel Prices
BERLIN, Sept. 26, 2000
http://www.cbsnews.com/stories/2000/09/15/world/main233748.shtml

...and riot police came out in France. This gives you some appreciation of how high petrol prices due to the euro's currency risk re their "oil bill." (note: The French fisherman protested even through their gas/petrol is *not taxed* at all - so its not taxes that ran up the price of oil, it was the lowest point in the euro-dollar spread along with a *slight* decrease in oil supply )

French fuel dispute escalates
September 7, 2000
http://edition.cnn.com/2000/WORLD/europe/09/07/france.fuel/

Fortuanately for the EU, the euro is now "strong" relative to the dollar, so their oil bill is stable.

So, the USA is lucky in that the dollar can and does go up and down relative to all other currencies, but because the 3 crude oil markers are dollar denominated and hence OPEC oil trades are in dollars, so the US consumer's gas prices do not fluctuate relative to the international currency markets (at least not until 2004 - but that's another essay...) Theoretically, the dollar could apprceiate to 10.1 to the euro, or depreciate 1.100 to the euro and our "oil bill" (ie. "pump price') would stay the same. In otherwords, gas would still be $2.00/gallon at the pump from this theoretically model b/c the US does not have much "currency" risk due to the dollar's monoploy oil transaction role. The Iranian oil Bourse will change that due to the variance in relative values b/t the dollar and euro (introducing currency hedging for oil trades).

However, in reality, OPEC would dump the US dollar if it becomes too devalued relative to their largest customer - the E.U. and its euros. (I'd guess 1.50 dollars to 1.00 euros would be the "tipping point" for a petroeuro). OPEC nations have debt, and they do not want to loose their shirt if the dollar tanks. This has been stated.

Here's what an OPEC exectutive said in 2002 (as found in my essay)

". . . From the EU's point of view, it is clear that Europe would prefer to see payments for oil shift from the dollar to the euro, which effectively removed the currency risk. It would also increase demand for the euro and thus help raise its value. Moreover, since oil is such an important commodity in global trade, in term of value, if pricing were to shift to the euro, it could provide a boost to the global acceptability of the single currency."

Moreover, this Iranian gov't official explains why Iran switched to demanding euro payments in the spring of 2003:

(Dr Mojarrad stated), "the switch to the euro, which was done during the last few months had helped to negate the effects of a depreciating dollar and falling international oil prices. He said that if the country had continued its receipts in US dollars, it would have meant large losses, which would have translated into domestic inflation.”

“….This was because large volumes of its imports are…sourced from Europe. The Iranian central bank was keen to avert that situation and had consequently adopted the euro-denominated payments to ensure that the losses were minimised. The country had also resorted to managing its reserves to minimise the effects of the depreciating dollar.”

- C. Shivkumar, The Hindu Business Line, June 2003

“OPEC is considering a move away from using the U.S. dollar — and to the euro — to set its price targets for crude oil, the highest-profile manifestation of the debilitating effect of depreciation on the greenback's standing as the currency of international commerce.”

- Patrick Brethour, The Globe and Mail, January 2004

Conclusion: We create massive credit and export our inflation to the rest of the world courtesy of that fact that every nation needs our currency for energy purchases. If a nation like Mexico or Argentina has a currency that becomes devalued relative to the dollar, their imported energy costs go up, while ours stays the same. (In fact, Engdahl correctly points out why we had a 3rd world debt crisis in the 1980s - massive petrodollar loans during the 1974 and 1979 oil shocks. Even Germany had a very hard time during this period...)

Second Issue you should take into consideration: The "status" of "World Reserve currency transitioned form the Sterling Pound 75-80 years ago to the US dollar in 1944-45 due to the Bretton Woods Conference. This was the US dollar "gold standard" period of 1945-1971. If you review what happened to the World Reserve Currency from August 1971 to mid-1974 you'll notice a depreciating dollar and lots of inflation in the USA. (Trivia note: Nixon's 1972 election Slogan was 'Beat Inflation'). To stem the flow, in 1974 the dollar became a "petrodollar" - which I detail in the essays.

The one constant in the global economy is the need for oil and gas re industrial production. The currency that conducts this multi-trillion dollar trade is the petrodollar and petrodollar only (except in Iraq circa Nov 2000 to Feb 2003, and Iran May 2003 to present...) If the petrodollar went completely away and was replaced with a "petroeuro" - the dollar would no longer be the World's Reserve Currency. Period.

Alan Greenspan and George Bush could jump and down throwing a tantrum, threatening military action against others, but the fact is whatever transaction currency is used for the largest and most important busines in the world - energy trades - becomes the DE FACTO World Reserve Currency. While this theorem has not been put to the test, that is the reality. Even the (honest) right-winger's know this. Here's what a right-winger stated about this...


“In the real world… the one factor underpinning American prosperity is keeping the dollar the World Reserve Currency. This can only be done if the oil producing states keep oil priced in dollars, and all their currency reserves in dollar assets. If anything put the final nail in Saddam Hussein’s coffin, it was his move to start selling oil for Euros.”

"...The US is the sole super power and we control and dictate to the Middle East oil producers. America has the power to change rulers if they can't follow the "straight line" the US dictates. America's prosperity depends on this."

"...Governments have secrets. If politicians always told the truth, there wouldn't be any secrets. So, if governments are to keep secrets, how can you fault a politician for not telling the whole truth? We would assert that the President failed to present the real case for Iraq, which is: 1) prosperity for America based on controlling Middle East oil, and on maintaining the Dollar as the World Reserve Currency, and 2) peace and stability, which the guaranteed access to oil brings to the world."

“...We believe that the US Treasury deficit, and the US Trade deficits, are massive stock and credit bubbles, courtesy of the Federal Reserve. These deficits will cause significant disruption to the value of the Dollar and to US prosperity, all on their own. We do not need to give up de facto control over Middle East Oil, which in turn underpins the Dollar as the World Reserve Currency.”

"...If foreign central banks could no longer believe that holding Dollars guarantees access to oil, there would be no real reason to hold Dollars. With the US running deficits of 5% for budget and trade, in the real world the Dollar would collapse, along with our bond market, stock market, real estate market, and economic way of life."

- Richard Benson, Guest commentator for Prudent Bear website, August, 2003
http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=25491

One final notation on the dollar as the World’s Reserve Currency. Concomitant to Mr. Benson’s flawed belief in a scenario that results in a highly devalued dollar- “courtesy of the Federal Reserve” – is that the U.S. would still be able to maintain the dollar as the World Reserve Currency and oil transaction currency. This is not a reasonable assumption if the World’s Reserve Currency is considered – by de facto – of being the most ‘stable storage of wealth’ relative to the world’s other hard currencies.

If the euro continues to be perceived by OPEC and other governments as a highly appreciated and ‘more stable’ currency due to the E.U.’s more balanced external accounts, why would the U.S. dollar retain its World Reserve Status if and when U.S. deficits “cause significant disruption to the value of the Dollar?” Statements by the ECB on the euro’s role and OPEC’s momentum towards the euro are indicative of the possible outcome. If you read my earlier essay, you might remember this passage:

According to a former government analyst, the following scenario would occur if OPEC made an unlikely, but sudden (collective) switch to euros, as opposed to a gradual transition.

"Otherwise, the effect of an OPEC switch to the euro would be that oil-consuming nations would have to flush dollars out of their (central bank) reserve funds and replace these with euros. The dollar would crash anywhere from 20-40% in value and the consequences would be those one could expect from any currency collapse and massive inflation (think Argentina currency crisis, for example). You'd have foreign funds stream out of the U.S. stock markets and dollar denominated assets, there'd surely be a run on the banks much like the 1930s, the current account deficit would become unserviceable, the budget deficit would go into default, and so on. Your basic 3rd world economic crisis scenario.

"The United States economy is intimately tied to the dollar's role as reserve currency. This doesn't mean that the U.S. couldn't function otherwise, but that the transition would have to be gradual to avoid such dislocations (and the ultimate result of this would probably be the U.S. and the E.U. switching roles in the global economy)."

Although the above scenario is unlikely, and most assuredly undesirable, under certain economic conditions it is plausible...such as an invasion of Iran - IMO. Again, here's food for thought.

"One of the dirty little secrets of today's international order is that the rest of the globe could topple the United States from its hegemonic status whenever they so choose with a concerted abandonment of the dollar standard. This is America's preeminent, inescapable Achilles Heel for now and the foreseeable future.

"That such a course hasn't been pursued to date bears more relation to the fact that other Westernized, highly developed nations haven't any interest to undergo the great disruptions which would follow -- but it could assuredly take place in the event that the consensus view coalesces of the United States as any sort of `rogue' nation. In other words, if the dangers of American global hegemony are ever perceived as a greater liability than the dangers of toppling the international order. The Bush administration and the neo-conservative movement has set out on a multiple-front course to ensure that this cannot take place, in brief by a graduated assertion of military hegemony atop the existent economic hegemony."

Hope that info helps explain currency risk, credit creation, and World Reserve Currency status - it hinges on OPEC's (and to some extent Russia's) oil transaction currency. Bottomline, the dollar is as "good as about 1.5 gallons of black gold." Take away the dollar-oil link, and the dollar is as "good as the US economy" - at least from a technical perspective. (Hmmm...$500 billion trade account deficit and $500 billion current account deficit, plus a $7.4 trillion dollar debt, 40% of it foreign-owned. Two words come to mind: Hyper-inflation as all those petrodollars come home...and the Fed/Greenspan has gone somewhat nuts in the last 2 years printing those green bills.)

(Here's another analogy that came to my attention)

MORPHEUS-"I imagine that right now you are feeling a bit like Alice, tumbling down the rabbit hole.. hmm?"

NEO-"You could say that."

MORPHEUS-"... Do you know what I am talking about?"

NEO-"The matrix?"

MORPHEUS- ..."This is your last chance. You take the blue pill, story ends. You wake up in your bed and believe whatever you want to believe."

"Take the red pill, you stay in wonderland, and I show you how deep the rabbit hole goes."

(My book is what someone described is similar to unmitigated red-pill reality...)

[German-Lefty]

10. Dollar exchange rate does effect price of oil in dollar.

I'm going to reply in two parts: first regarding the theory and then asking about the game of propping up the US dollar.

So, the USA is lucky in that the dollar can and does go up and down relative to all other currencies, but because the 3 crude oil markers are dollar denominated and hence OPEC oil trades are in dollars, so the US consumer's gas prices do not fluctuate relative to the international currency markets ....
Wrong. Let's say for arguments sake
* The exchange rate goes from 1€=1$ to 1€=10$, due to lack of confidence in the dollar.
* Supply is not unchanged.
Now if both countries were to continue to buy the same amount of oil as before, you're right. The price for a US oil consumer could stay constant and that for EU consumer would drop 90%.

This won't be the case though. What will happen is that Europeans will scale up consumption. In an extremely theoretical case, they could buy up so much more oil that it trades at the same b/€ rate as before and the Americans would pay 10 times their original b/$ rate.

What will happen is somewhere in the middle. If the dollar falls relative to the Euro, the oil price will rise relative to the Dollar and fall relative to the Euro. The US consumer will have to give way to the EU consumer with his powerful Euros.

So do you agree it's the same scenario, no matter what currency the oil exchange happens to be trading on the floor? By the way it is my belief that something like this is happening now, though it's probably more the developing world that is bidding up the cost of oil. A look at consumption around the world would be interesting.


Here's what I think you're referring to: In some of your previous postings you mention OPEC manipulating supply in order to create a stable b/$ price. That is when the dollar is down they raise production so that 1$ will still buy about the same amount of oil. When the dollar is up the cut production and Americans keep their oil, but the rest of the economies are choked off. Thus the dollar sort of pegged to oil.

Right now OPEC is on full blast, so it doesn't matter. If the dollar falls in value more, OPEC can't raise production to save the US.

There are three things we're talking about that create this Dollar supremacy.
A) Oil(like other commodities) trades on the major world markets in Dollar.
B) OPEC tries to keep supply such that the Dollar vs. oil is stable.
C) OPEC (and others) keep the dollar afloat buying US bonds.

I can totally see how B and C work, but I think A is more of symptom. When the oil market switches of to Euro it will be a sign of the times and have a big impact on the dollar's reputation, but it won't directly cause anything to happen.

I've been thinking A might be an issue when you talk about futures since to get a oil for Euro future(or future option), I'd have to buy a security to lock in the currency and that there's a big risk premium involved there. However, the more I think about it the clearer it is that an oil producer could sell me these derivatives so that in the end it would look about the same as if I had just bought an Oil future off him for Euros.

Sorry, I'm still not with you on A.

[Petrodollar Warfare]

12. OPEC's price band has always been dollars, but something has changed.....

First note: Since 1974 Saudi Arabia, followed in 1975 by all of OPEC was an agreement to sell oil in a "price band" of US dollars and US dollars only. OPEC was considering selling oil in a "basket of currencies" (ie. dollar, yen, d-mark, franc, Sterling Pound, etc.) in 1972-1973 due to the rapid devaluation of the dollar following Nixon's August 1971 decision to break the "dollar-gold" link (ie. $35 for 1 oz. of gold was no longer to be honored). Then, just like today, OPEC producers were concerned about the dollar's depreciation.

However, what Nixon, Kissinger and U.S. Treasury Secretary William Simon did in 1973-1974 - hiding it from Congress, and amazingly from the CIA too - was enter into secret negotiations with Saudi Crown Prince Fahd to sell oil in dollars only - and then invest those surplus oil proceeds back into US Treasury bills that were offered "outside the normal auction process" (ie. 'under the table' to establish this agreement - and once the 'deal wsa done' - what could Congress do?). In a quid pro quo - the US agreed to protect the Saudi Dynastry from enemies both foreign and domestic, and to subsidize the Saudi Military and "Security" forces with lots of US weaponry (BTW: From 1950 to 2000 Saudi Arabia has purchased 25% of all US weapon export sales - its quite an amazing factoid that few people really appreciate).

Anyhow, OPEC latest "price band" was establihsed in 2000, which was to sell oil in the $22-$28 price band. Simple enough. These agreements are adjusted every so often and have mitigated US currency risk for our oil bill, and has been the case for 30 years. (Again, I can not stress enough that Engdahl's book "A Century of War" details this in a very meticulous). Back in the pre-euro period (pre 1999) the Europeans were subjected to price risk as it mattered what happened b/t the US dollar and the dozen currencies of "Old Europe" re their oil bill. The euro is changing this dynamic, and has since 2001.

Obviously, OPEC has not been agreeing to the $22-$28 price band for the past 1.5+ years, partly b/c the dollar has devalued against all of the major hard currencies - and most especially against the euro (Note: the euro has gained 40% against the dollar since 2002) Is the US dollar finally beginning to show some currency risk regarding the OPEC price band? Sure seems like it to me and others...

A particularly distinctive analysis of OPEC oil pricing trends was provided by James Turk, founder of www.goldmoney.com. Utilizing data from the U.S. Department of Commerce’s report, “U.S. International Trade in Goods and Services," Mr. Turk calculated the euro’s average exchange rate to the dollar from 2001 to 2003 in relation to oil prices. While certainly not conclusive, his analysis implies OPEC may be at least tacitly pricing oil in the euro due to its relative stability over the dollar. The following table is directly taken from Mr. Turk’s article, “OPEC Has Already Turned to the Euro.” (table is jumbled, but here's a link)

Turk, James, “OPEC Has Already Turned to the Euro,” GoldMoney (online), February 18, 2004. http://goldmoney.com/en/commentary/2004-02-18.html

US Imports of Crude oil
(1) (2) (3) (4) (5) (6)
Year Quantity (thousands of barrels) Value (thousands of US dollars) Unit price (US dollars) Average daily US$ per € exchange rate Unit price (euros)
2001 3,471,066 74,292,894 $21.40 0.8952 €23.91
2002 3,418,021 77,283,329 $22.61 0.9454 €23.92
2003 3,673,596 99,094,675 $26.97 1.1321 €23.82

Column (4) illustrates that from 2001 to 2003 the price of imported oil rose from $21.40 to $26.97. This 26% increase in dollar pricing is commensurate with the dollar’s decline relative to the euro over that same period. The most fascinating aspect of this analysis is found in column (6), which shows the price of crude oil in terms of the euro has remained essentially unchanged over this 3-year period. Based on this simple chart, it would almost appear that OPEC may have an implicit policy to price crude oil at € 24. Perhaps this is a mere coincidence, or perhaps a conspiracy within OPEC to maintain their purchasing power given the dollar’s decline. Regardless, the author tends to agree with Mr. Turks general observations:

“It does not seem logical that this result is pure coincidence. It is more likely the result of purposeful design, namely, that OPEC is mindful of the dollar's decline and increases the dollar price of its crude oil by an amount that offsets the loss in purchasing power OPEC's members would otherwise incur. In short, OPEC is protecting its purchasing power as the dollar declines.”

Note: OPEC is implicitly implying to the US Federal/US gov't that until we get our economic house in order, along with a "strong dollar," they are being forced to ignore the formal agreement established in 2000 that oil sales will be priced in the $22-$28 price band. Obviously, supply issues now enter into this equation, which is another essay, but the point is that the EU is the largest importer of OPEC oil, and that the 1999 introduction of the euro is fundamentally changing the 25-year history of petrodollar recycling that protected the US consumer from currency risk re our "oil bill." As you will see in a minute, their is a tremendous amount of denail about this issue...but that is the nature of the nuanced macroeconomic events that are slowly unfolding with regard to an impending petroeuro system...

As noted in this article, the table shows that U.S. imports of crude oil have risen by 25 billion from 2001 to 2003. Much of this increase has added to the U.S. trade deficit. In 2003 the reported trade deficit was a record setting $489.4 billion, $71.3 billion more than the 2002 trade deficit of $418.0 billion. Crude oil imports represent 20.2% of the total deficit. If other energy related petroleum products are included, this portion of the trade deficit rises to 26.5%. This has important implications, as it shows that a weakening dollar actually has actually increased the U.S. trade deficit. Neither the government nor the mass media Economic commentators have addressed this issue. It has been proclaimed that a weaker dollar will help U.S. exporters and thereby help reduce the trade deficit. While this traditional theory of economics may have been true in previous decades, it is now more of mythology than economic reality.

Needless to say, but as long as the U.S. continues to consume enormous levels of hydrocarbon-based energy imports, it is not plausible that a weakened dollar will significantly reduce our trade deficit. To the contrary, given OPEC’s desire to maintain its purchasing power and price barrel of oil above their "agreed upon" $22-$28 pricing band, it appears that a weaker dollar will continue to increase the U.S. trade deficit now and into the foreseeable future. This is yet another reason why reducing our oil-related energy consumption is in the long-term economic and national security interest of the United States. In 2004 several surprising stories appeared in the foreign media that addressed the complex issues with regard to OPEC momentum towards a potential petroeuro system. It would appear that OPEC may be tacitly pricing oil in the euro (article below is from Feb 20, 2004).

"...The average price for the Organization of Petroleum Exporting Countries' basket of seven benchmark crudes slipped by 8¢ to $30.44/bbl Thursday.

"The value of the OPEC basket has been above the $22-28 target range for 108 trading days over the past 8 months," Horsnell noted. "Over the same period, the value of the OPEC basket in euros has stayed within a 22-28 euros band on all just 2 trading days, and on those 2 days it was below the band."

He said, "This is of course just a rather bizarre statistical coincidence. It certainly does not imply that the target band has been secretly switched into euros or that the dollar has lot its primacy in the oil market."

Whether or not this observation was a “bizarre statistical coincidence” or purposeful design remains unclear at the time of writing. Regardless, it is clear that OPEC members are trying to maintain their purchasing power in the face of a devalued dollar. The question is can OPEC be “motivated” to continue pricing oil exclusively in dollars if under threat from neoconservative unilateralism, or will they gradually move towards a euro pricing mechanism. The emergence of a “basket of currencies” to include the dollar and euro would appear inevitable. The following exert was provided by a Canadian news outlet, The Globe and Mail, (January 12, 2004):

“OPEC is considering a move away from using the U.S. dollar — and to the euro — to set its price targets for crude oil, the highest-profile manifestation of the debilitating effect of depreciation on the greenback's standing as the currency of international commerce.

"...Several members of the Organization of Petroleum Exporting Countries are seeking formal talks on using the euro, as well as the U.S. dollar, when determining price targets for crude, a senior oil minister within the cartel said Monday. “There are countries that are proposing this,” Venezuela's Oil Minister Rafael Ramirez said in Caracas. “It's out there, under discussion.”

"...Mr. Ramirez did not specify which OPEC members are pushing the proposal, but much of the impetus is believed to come from Persian Gulf producers."

While it is doubtful that all OPEC countries will abandon the dollar completely, it is increasingly likely that they will seek methods to retain their holdings by shifting currencies in their central banks, either with increases in the “pricing band,” or perhaps denominate oil sales in a "basket of currencies” to include the euro. OPEC contemplated this idea in the early 1970s after the US dollar devalued following the collapse of the Bretton Woods Agreement.

“On a symbolic level, I think it's huge, not only for what it says about the U.S. dollar, but also the implied change to the nature of energy trading worldwide in the future,” said Wilf Gobert, vice-chairman of Peters & Co. Ltd.

"...Beyond the blow to the greenback's prestige, a move by OPEC to even partly price in euros would ensure that any further depreciation in the U.S. dollar boosts oil prices, Mr. Gobert said. And any country — not just the United States — using the U.S. dollar for pricing would see the cost of the commodity rise as that currency fell.”

"...Mr. Gobert said he believes it is unlikely that OPEC will opt for a formal split with the dollar, although the cartel may very well accomplish the same effect by raising its price band, he added.”

On February 2, 2004 the following article appeared on a European website that suggested OPEC was considering the formal adoption of a petroeuro in conjunction with the current petrodollar system. (This extended excert is provided below considering the self-described “revolutionary” implications regarding oil transaction currencies).

“Next week OPEC will be meeting in Algiers and the conference intends to discuss the possibility of using the Euro as the reference currency for international oil transactions. The subject has been discussed before but this time the matter has taken on greater significance as the US administration's weak dollar policy is eating into oil producing nations' profits. The idea at this stage is probably not to substitute the dollar with the Euro but to allow for some transactions to be undertaken in Euros, logically those where a Eurozone member is the purchaser.

The Venezuelan oil minister Rafael Ramirez and the new Secretary General of OPEC, Pumomo Yusgiantoro have both said that the possibility exists that a decision will be taken about adopting the Euro as a reference currency. There appears to be a greater political will behind the discussion this time and not only for economic reasons.”

“…Such a switch would not appear on the surface to be so vitally important but considering that American economic and military might depends so heavily on two factors; the role of the dollar as international reserve currency and the use of the dollar for oil purchases on the international market, such a switch might make the US Treasury nabobs begin to twitch. Take away these two pillars and the house crumbles, some even going so far as to say that the United States would be transformed into a North American Argentina, drowning in debt with a currency devalued by about 40%.”

“...The billions of dollars each year that are acquired to purchase oil means that the American way of life, currently military expansion, foreign occupations and high budget deficits, are subsidised by the petro dollars that are printed with gay abandon by the US Treasury in the knowledge that any inflation dangers will be swallowed up by the excessive demand. In return the dollars that are used to pay for the oil either end up safely in central bank vaults as part of the reserve currency stash or are re-invested in the United States, thus once again sustaining the US economy usually via Treasury bills thus kindly financing the US deficit.”


Although OPEC did not make a formal announcement at their February 2004 meeting as suggested in the above news article, it is increasingly apparent that some OPEC members will move towards a petroeuro in the near term. With the enlarged E.U. and commensurate increase in trade volumes, more countries will seek to hold euros as reserves, thereby increasing the liquidity value of the euro. The positive trade balance of the E.U. should over the long-term attract OPEC producers as well as non-OPEC oil producers. In the winter of 2002 Indian economists published an interesting book, Behind the Invasion of Iraq’, which analyzed the macroeconomic challenges facing the U.S. economy. The following excerpt illustrates the economic and geopolitical dynamics surrounding the euro.

"In the 1970s, there was no alternative to the dollar. On January 1, 1999, an alternative arose in the form of the Euro, the new currency of the European Union (EU). Of course, investors did not immediately flock to the Euro. The Euro stuttered at birth, falling 30 per cent against the dollar by the end of 2000. In the last year, however, it has picked up sharply, and in recent months has remained at parity with the dollar (i.e. about one Euro per dollar).”

“The Euro has become attractive for three reasons.”

“…First, since the EU is a large imperialist economy, about the same size as the US, it is an attractive and stable investment for foreign investors.”

“…Secondly, since foreign investors' holdings are overwhelmingly in dollars, they wish to diversify and thus reduce the risk of losses in case of a dollar decline: they are increasingly nervous at the size of the US debt mountain and the failure of the US government to tackle this problem.”

“…Thirdly, certain countries smarting under American military domination sense that the rule of the dollar is now vulnerable, and see the switch to the Euro as a way to hit back.”

Some U.S. economic commentators have argued the foreign policies of George W. Bush and the monetary policies of Alan Greenspan have essentially guaranteed the accidence of the euro. In 2003, Marshall Auerback, a frequent writer for the website prudentbear.com, wrote an essay considering who might be regarded by economic historians as the “father of the euro” and the “architects of the euro’s early success.” He stated that normally one might suggest Jean Monnet, who first envisioned the European Union, or perhaps William Duisenberg, the first President of the European Central Bank. Mr. Auerback offered two surprising individuals:

“…to add two more surprising nominees: George W. Bush and Alan Greenspan, the former whose new national security doctrine of “pre-emptive defence” has largely validated Franco/German fears of an American hegemon (thereby creating the political impetus to establish a formidable new monetary and political union to establish a counterweight to the United States), the latter, whose extraordinary monetary laxity in recent years has created the economic imperative to construct a serious alternative to the dollar reserve system and thereby mitigate the impact of its impending demise. The fusion of these political and economic imperatives has converted a hopeful aspiration into a driving institutional need in the eyes of Euroland’s leading policymaking elites.”

“…The profound financial fragilities of the US today, and the increasing doubts about the global drift of policy under the Bush administration, have moved these issues from the realm of academic discourse to active public discussion. The timing of the debate over the European constitution is thus fortuitous in this regard because it is giving the EU a chance to correct past institutional errors, whilst providing an increased forum to address the EU’s obvious deficiencies in its relation to the reality of a world characterised by unfettered US dominance. Mounting concerns over the direction of American monetary policy under Alan Greenspan has created an additional sense of urgency.

“…It is hard to see what would be the underlying rationale for an alternative reserve currency system/economic model were the Federal Reserve and the US economy the “gold standards” to which the world should aspire. In spite of their profound disagreements over the course of American financial and foreign policy, the European idealists who strive for a more durable and lasting “United States of Europe” should therefore pour themselves a glass of champagne today and drink a toast to Messrs. Bush and Greenspan, two of the most unlikely architects of the euro that world has yet imagined.”

One final note, I have an article somewhere that calculated the effects of Russia moving to a petroeuro for oil & gas trades which would result in decreased demand/liquidity of the dollar (and our ability to sell T-bills). I can not recall the number off the top of my head, but I think the impact was billions of dollars per month ($70 million per day? for Russia's oil sales). Indeed, any reduction the dollar's hegemonic role in international oil trades is very signficant given our debt level of $1.5 billion per day borrowed from foreigners, and this article made the candid point that a steep dollar devaluation will likely follow if Russia started pricing oil sales in the euro (IMO this is inevitable. Putin stated in Oct 03' that such a move "would be interesting for our European partners.")

[German-Lefty]

17. So um did you agree with me or not?

Big huge post, sort of relevant, but still can't we just have a simple discussion about what effect the transaction currency should have. I'm interested in economic theory more than current events.

"This is of course just a rather bizarre statistical coincidence. It certainly does not imply that the target band has been secretly switched into euros or that the dollar has lot its primacy in the oil market."
I think we both disagree. OPEC can set their price targets relative to the EURO, while the exchanges trade in dollars.

So I still think:
* Whose economy OPEC wants to invest in makes a big difference.
* For whose economy they set their production targets for also makes a difference.
* What currency an exchange uses isn't by itself a big deal.


Here's a fun question: how much is the exchange rate controlled by OPEC? Would it be possible OPEC decides what the exchange rates are via oil pricing and buying bonds.

I tend to think OPEC just sets production quantities and then let's the highest bidder with USD have the oil. The could however set a target price in each currency and prop up currencies so that they matched.

[Petrodollar Warfare]

18. I agree and disagree.

<<What currency an exchange uses isn't by itself a big deal.>>>

I disagree. The oil currency matters b/c it creates tremendous liquidity on the international currency markets and allows the country's currency in which oil is priced - if oil is priced in a set pricing band - to avoid currency risk for their oil purchases.

Here's a simple question, why is the dollar tremendously over-represented in the global economy (totaling 2/3 of the world's reserves), far eclisping our actual trade contribution percentage wise? Answer = Petrodollars and their de facto auto liquidity value.

Here another question: Why the US avg. price of gas historically been about 1/3 to 1/4 the average world price? Answer, (taxes are only part of it), it is mainly due to the fact that currency risk is mitigated, and no pricing "cushion" is needed due to volatility of the dollar on the currency markets.

I will ask a question that may be our prime disagreement: Do you agree or disagree with the concept of 'currency risk' - and that the US's "oil bill" has been stable given the dollar's pricing role and OPEC pricing band - if they were following it (as they did from the past 20 years up until most recently)? If your answer is yes, then currency indeed matters.

If you are a decision-maker for the European Central Bank (ECB), are you going to hold dollars/T-Bills in your bank *if* you need to conduct your monthly oil trades in *euros,* and your country does not have a huge trade relationship with the US? Of course not.

That is partly the reason why US soldiers are dying in Iraq - to reconvert Iraq's oil currency back to the euro and send a message to other OPEC oil producers - "You are either with us or against us." Iran has apparantly decided they are against us and is going petroeuro.

<<<Whose economy OPEC wants to invest in makes a big difference.>>

Absolutely, and that is why the US wanted Saudi/OPEC to sell oil in dollars only. Remember, the dollar is a US asset that can only be invested in the USA. This issue is *percisely* why in 1973-1974 the US created the petrodollar recylcing phenomenon. In a petroeuro scenario, the EU could greatly expand their monetary supply assuming that it had the proper debt vehicles to absorb and recycle these hypothetical surplus petroeuros.

<<<For whose economy they set their production targets for also makes a difference.>>>

Not sure what you mean, but the currency in which they(OPEC) set their pricing band is crucial as it mitigates currency risk for that nations's oil bill The currency could be the Dollar, euro, yen, peso, whatever - every nation would like to have OPEC price their oil exports in their native currency for the above stated reasons. OPEC has stated this is what the EU wants, and the EU has expressed their desire of getting the "Exorbitent Privledge" too (DeGaulle's famous words about the dollar's World Reserve status)

Anyway, you don't have to take my word for this, but lots of people "get this." Including the Saudi's who have subtly threatened to follow Saddam’s unforgivable sin if we interfere in their affairs. This method of non-violent economic “punishment” towards the U.S. was hinted at during 2002 by Saudi Arabia's Prince Muhammad Bin-Turki Bin-Abdallah Bin-Abd-al-Rahman, who stated;

“Some in Saudi Arabia have called for switching to the euro as a more effective punishment (than an oil embargo) for the United States, Israel’s principal source of financial and political support."

...and this issue is especially disconcerting to the CIA, who has a very good economics department (a fact unknown to most folks). A CIA document marked "Secret” and reviewed for declassification in May 1985 warned of the following;

“Temporary dislocation of international financial markets would ensue, if the Saudi Arabian government ever chose to use its accumulated wealth as a political weapon.”

...and I should mention this CIA document was referring specifically to the petrodollar recycling phenomenon... BTW, did you ever wonder why the US has not thoroughly investigated Saudi's principle role in funding Al Qaeda sponsored terrorism? Actually, the FBI has done this, but the Executve Branch (both Clinton's and GW Bush's) thwarted the FBI's investigations into this funding source. Why? Because Saudi holds the Sword of Damocles over the head of the US Federal Reserve since Saudi Arabia is the principle enabler of the petrodollar recycling system. Regrettably, 30 years of poor US policies have put us in a rather intolerable situation re SA.

(Dr. David E. Spiro; “The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets, Cornell University Press (1999), page 121)

... Also, the Russian's "get it" too as to the importance of the global oil currency...here's one sample...

"...Almost two-thirds of the world's currency reserves are kept in dollars, since oil importers pay in dollars and oil exporters keep their reserves in the currency they are paid in. This effectively provides the U.S. economy with an interest-free loan, as these dollars can be invested back into the U.S. economy with zero currency risk. If a Russian move to the euro were to prompt other oil producers to do the same, it could be a "catastrophe" for the United States, Ibrahim said. "There are already a number of countries within OPEC that would prefer to trade in euros." Iran, the world's No. 5 oil exporter, has also openly mulled a move into euros."

"...And after the war in Iraq, there is growing debate in the United States' traditional ally Saudi Arabia on a switch too, though its government has not come down firmly on one side, Ibrahim said. "There is a revision going on of its strategic relationship with the United States. Already, they're buying more Airbuses," he said. "The Saudi Crown Prince 's visit to Russia was of great significance and the regime is talking about closer cooperation with LUKoil and other Russian companies."

"..Under Saddam Hussein, Iraqi oil was traded in euros. "This was another reason (why the U.S. attacked)," said analyst Ibrahim in his Moscow Times interview. "There is a great political dimension to this. Slowly more power and muscle is moving from the United States to the EU, and that's mainly because of what happened in Iraq."

http://www.globalresearch.ca/articles/BLA310A.html

...and even the Canadian think-tanks on Strategic Studies seem to "get it"...

Protect the Dollar – At All Costs

Why would US dollar hegemony be important enough to justify regime change through the use of military force? Mr. Clark posits that ever since Richard Nixon took the dollar off the gold standard in 1971, it has been the currency of choice for global oil transactions. Hence the term ‘petrodollars’. The US Federal Reserve Bank prints hundreds of billions of fiat dollars, which US consumers then provide to other nations in return for import purchases. Invariably, foreign nations purchase commodities with these dollars - most notably oil from OPEC producers. Finally, these ‘petrodollars’ are re-cycled when OPEC producers – Saudi Arabia, in particular - purchase US Treasury Bills with their surplus oil sale proceeds. The end result is to increase the US dollar’s international liquidity value.

According to Clark, “This unique geo-political agreement with Saudi Arabia in 1974 has worked to our favour for the past 30 years, as has eliminated our currency risk for oil, raised the entire asset value of all dollar-denominated assets/properties, and allowed the Federal Reserve to create a truly massive debt and credit expansion (or ‘credit bubble’ in the view of some economists).” Incidentally, this policy has also had the convenient effect of exporting US-created inflation abroad.

In addition, international trade is no longer a game where countries compete for comparative advantage. Countries now compete in exports to acquire the US dollars needed to repay their dollar-denominated external debt. The central banks of these countries must acquire enough dollar reserves to fight speculative attacks by currency traders, and to maintain corresponding dollar balances in the event of a depreciation in their local currency. In other words, the more their local currency depreciates, the more dollars their central banks must buy and hold.

On Guns and Butter: An Alternative Perspective on the Reasons for Invading Iraq (February, 2004)
http://www.ciss.ca/Comment_GunsButter.htm

Final note:

<<OPEC could however set a target price in each currency and prop up currencies so that they matched.>>>

And where might the massive surplus currencies go? They go back to the issuer of origin, and if that is not the US Federal Reserve, then governments get invaded or overthrown. Just an fyi to keep you thinking until my book comes out next year... Till then, keep your eye on Iran, the US and the EU...

[cprise]

19. So the energy market is creating artificial demand for US dollars

...and this allows us to just print up money and get valuable stuff in return (and run huge trade deficits).

However, we are mired in Iraq and Iran is much more powerful. I rather think the next target would be VZ or Cuba; probably VZ because they have oil resources and have threatened to switch to Euro pricing. Chavez is not bluffing about this: Already the country is bartering their oil with all takers simply to avoid the US dollar.

What if many struggling countries cut out the dollar from their energy transactions? Then they wouldn't have to keep shipping valuable stuff to a country that ultimately gives next to nothing in return. India, Brazil, China, Russia are all realizing industrial ambitions and now have much more to offer in return for oil (as do other developed countries that run trade surpluses).

What if the Kyoto set surreptitiously pushed for the change in oil pricing to make it harder for the US (the big greenhouse gas emitter) to import oil? The US would need to control a country like Iraq and possibly VZ too, to ensure cheap energy continues to flow to us.

[German-Lefty]

20. Current exchanges support petro-euro trading, just indirectly

<<What currency an exchange uses isn't by itself a big deal.>>>

I disagree. The oil currency matters b/c it creates tremendous liquidity on the international currency markets and allows the country's currency in which oil is priced - if oil is priced in a set pricing band - to avoid currency risk for their oil purchases.

I am of the belief that the exchange rate between two currencies should be a function of fiscal and monetary policies, the cost of goods traded in both currencies, and maybe the investment opportunities in both zones. I don't think that there should be some kind of race to buy up the other guy's currency. The only reason for doing this is to fight a little price fluctuation. Maybe I'm just naive. If Europe dumped all their dollars, wouldn't the Euro go up?

Now, look at what you just said "if oil is priced in a set pricing band". My point is that OPEC doing this is completely different issue from whether an exchange trades oil pounds, dollars, euro, or Swiss frank. They set the price indirectly by controlling supply. A weak dollar means more oil buying power for others, and less for the US.

If we switched oil trading over to Turkish lira. The same situations could exist as long as nobody stockpiled Turkish Lira, which they wouldn't have to or want to. OPEC could still set production to keep America rolling. They could still buy tons of US bonds to keep the dollar afloat. Or, they could stop doing these things.

Do you agree or disagree with the concept of 'currency risk' - and that the US's "oil bill" has been stable given the dollar's pricing role and OPEC pricing band - if they were following it (as they did from the past 20 years up until most recently)? If your answer is yes, then currency indeed matters.

Again you're mixing "OPEC pricing band" with what the exchange trades, they are two separate phenomena.

If I wanted to trade Euro for Oil with an Iranian, we could do it without any "currency risk" from the dollar.

short term:
If I want to buy a barrel of oil, that will come at in a month. I don't have to worry about price fluctuation. I would buy dollars for my Euros at the going rate(1.2363), and immediately buy an oil future with those dollars(50.40 2004-11-15).

An Iranian trader could be sitting on the other end selling me the dollars and then selling me the oil future in dollars.

The end effect is that to me and the Iranian we're trading oil for euro. We don't give damn what happens to the dollar, as long as it stays stable for the few seconds of trading. He can then buy a BMW from us in Germany and I can drive a BMW(if I hand one). :-)

long term:
So lets say I want to lock in prices with the Iranian. I order a barrel of oil now and know the price now, but do the transaction in a year.

This is bit more complicated, but should be possible. First we must assume that I have credit. Someone believes I can come up with the ~40€ next year. The same would be true if I were trying to do this with dollars.

So my broker knows lets me do a dollar 1YR forward trade on Forex. Now I will have dollars in a year(and I better have euros). I can now use these dollars from next year to lock in a barrel of oil just as if I were an American.

Alternatively I could sell a Euro future short in the USA, and then use the dollars to buy an oil future. A brokerage can trust me to do this, if I have liquidity in Euro.

On the flip side my Iranian counterpart. Writes/Sells an oil future in dollars, and buys a Euro future.

Neither of us care what the dollar does once we've locked ourselves in. We did not depend on any outside credit accept that:
A) Someone backs me up that I can deliver Euro in 1 Year.
B) Someone backs him up that he can deliver oil in 1 Year.

The dollar could go into triple digit inflation and the two of us can trade oil for euro, without a care in the world, even though no exchange directly trades between the two.


So you can get from Houston to Austin through El Paso. If most transactions look like this, someone will say "why don't we bypass the dollar and make a direct route?". It's just a question of saving some transaction costs.


I hope this debate isn't wearing you down. :-)

[Petrodollar Warfare]

21. 2 issues the Pricing Band & demand inelasticity

I think I know why you and I disagree on the currency issue. My argument is based on the history/reality, why you're thinking theoretically. Here the issue:

<<<My point is that OPEC doing this is completely different issue from whether an exchange trades oil pounds, dollars, euro, or Swiss frank. They set the price indirectly by controlling supply. A weak dollar means more oil buying power for others, and less for the US.>>

Hmmm, that is not the way it has worked for the past 100 years. For the first 6 decades of the 20th century, an American "cartel" referred to as the Texas Railroad Comission established the price band for oil sales. The US was the largest oil exporter in the world, and After the US peaked in 1971, the pricing power swtiched over to OPEC. The world community, but most especially the US became painfully aware of this in Oct 1974 when the first oil shock occured. (400% increase in oil was not a supply issue, but an artifact of geopolitcal arrangements).

OPEC does not set price by controlling supply per sea. They arbitrarily set the price based on what they think is the proper cost for exploration, extraction, refinement and transportation to market, plus whatever pofit level the cartel feels is adequate to maintain their's country's infastructure while meeting their debt obligations. This price band is agreed to by the members of the OPEC cartel every decade, and it has nothing to do with demand, which is fairly inelastic for oil anyway. Fact is that oil/hydrocarbons run 95% of the world's trranspotation system, and provides 40% of the world's energy/electrical supply, in this countyr via methane (ie. natural gas). Their are no substitutes that provide the powe routput per weight/per volume for oil. So, oil is really the glue that holds the current "global economy" together.

Pricing is arbitrary. For example, from 1949 to 1970, Middle East crude oil averaged approxiamtely $1.90 per barrel. By 1973 the avg. price was $3.01 per barrel. Why? Because the elites at the May 11-13th, 1973 Bilderberg meeting in Saltsjobaden agreed to do this in an effort to artifically increase US dollar's demand/liquidity value. That was just the start, as documented in the minutes, they agreed to increase world oil prices by 400% (due to dollar's sorry state of affairs following the collapse of the Bretton Woods Agreement in 1971). This price increase occured 8 months later (Jan 1974) - but you have to readEngdahl's book to learn the details. Of course petrodollar recycling the other component to this design, which I have discussed at length...

William Engdahl, 'A Century of War: Anglo-American Oil Politics and New World Order', (2004) pgs. 138-139
(That book is the best $20 you spend in order to learn how this works, and unlike Yergins' book, its only 250 pages...;-)

If you have the time, the reality of the past 100 years of oil and how was and is priced by political (non-economic) factors can also be read in Daniel Yergin's famous, 1991 Pulitizer-prize winning book: "The Prize." It will educate you on how the "pricing system" has worked since the dawn of the oil age and how it will work until the end of the oil age, but it's long read at 850 pages...)

The fact is OPEC could set a price band next month of $10-$15 per barrel, $22-$28 per barrel (which they did in 2000), or $40-$50 per barrel, or even $90-$100 per barrel. It's a cartel (just like the previous Texas Railroad Commission was a cartel that set the price for the first 6 decades of the 20th century). So, it's thier choice, and "manipulating supply" to fit a certain price range is not the reality. Demand is basically inelastic as we learned in 1973-1974 and again in 1979.... Hope all that makes sense, and it is indeed a fascinating history. Just remember, the oil economy has never been ruled by pure economic theorem, it's more a matter of politics, physics, currency, and to a smaller degree, economics.

Of course, now with oil production flat out, economics begins to go by the wayside, as Peak Oil represents at its theoretical conclusion a clash b/t the theorems of economics and the laws of physics....

[German-Lefty]

22. Quota System - and alternative Price Band

My argument is based on the history/reality, why you're thinking theoretically.
Sure, I can't read 500 pages of history of the oil market in a minute, but I can grasp an economic concept or proof that fast.

OPEC does not set price by controlling supply per sea. They arbitrarily set the price based on what they think is the proper cost for exploration, extraction, refinement and transportation to market, plus whatever profit level the cartel feels is adequate to maintain their's country's infrastructure while meeting their debt obligations. This price band is agreed to by the members of the OPEC cartel every decade, and it has nothing to do with demand, which is fairly inelastic for oil anyway.

Here's how I understand it:
1) They agree on a target price band.
2) They agree on what share of production everyone should get.
3) They negotiate quotas amongst themselves, so that they all get rich, but stay within their band.
4) They announce these quotas and the world oil markets react.
Here are some neat graphs of OPEC production shares:
http://www.wtrg.com/opecshare.html

The price fluctuates do to factors out of their control like:
1) Speculation/fear of global uncertainty.
2) Production of non-OPEC countries.
3) Changes in demand.
4) A devaluation of dollar.

Of coarse the markets will react to OPEC's announced price target, if they think OPEC can credibly deliver. Which they couldn't a in 99 when oil was below 15$ and can't now because they are out of spare production capacity. Here's a graph:
http://www.tfc-charts.w2d.com/chart/CO/M

May 11-13th, 1973 Bilderberg meeting in Saltsjobaden agreed to do this in an effort to artificially increase US dollar's demand/liquidity value. That was just the start, as documented in the minutes, they agreed to increase world oil prices by 400% (due to dollar's sorry state of affairs following the collapse of the Bretton Woods Agreement in 1971).
Let's see them try to do this now! My guess is that increasing the price back then was good for the the dollar, because the US produced 20% of the oil. Raising the price now might just kill the dollar as the US economy grinds to a halt. I'd like to think Germany would just turn its nuclear reactors back on, and use its electric rail lines.

The fact is OPEC could set a price band next month of $10-$15 per barrel, $22-$28 per barrel (which they did in 2000), or $40-$50 per barrel, or even $90-$100 per barrel.
They can set it to $1-$2 and nobody will believe them.
They can say it's at $22-$28, and I still won't believe them.
They can put it at $400-$500, and people will get scared.
But if the US prints and gives everyone $1,000,000,000, OPEC couldn't keep the oil price at $500, even if it wanted to!

Back to the Original Debate Topic
Nothing in here makes think that the actual currency traded on the floor of the exchange, matters very much.

I think some of your articles already suggested that OPEC may secretly have already set a Euro price target. Isn't it feasible for them to set a €/b target and then calculate a $/b target from that based on €/$ exchange rates?

Do you feel that OPEC has/exercises control over the exchange rates? If so how much?

[German-Lefty]

11. What's the nature of the game - propping up the US Dollar?

I see how the value of the dollar is dependent on other countries like OPEC members holding our bonds. I've got questions about the nature of this game being played.

It reminds me several large banks owning stock in some company they all know to be failing. On paper they look like they have a bunch of expensive stock, but if they start selling the stuff few will be there to buy it and the price will drop. So they all stare at each other and make a pact not to dump their share. If one bank starts selling, it can cash out and screw the others.

1) So why don't they stop buying our bonds?

2) Could they slowly diversify without a collapse of the dollar?

3) Are they caught in a similar situation with us? Does the US owe Germany a bunch of Dollars and they owe us a bunch of Euros?

[Robert Oak]

8. I saw a report Bin Laden was in Iran on Fox News

it was just a teaser and then disappeared.

Same day as CNN feed getting cut on David Brock.

[German-Lefty]

13. Iran's oil bourse -- Where is it?

I had to really dig for this:

http://www.iranoilgas.com/news/current/
Iran's oil bourse expects to start by early 2006.
TEHRAN, Oct 5 (Reuters)
Iran's oil bourse will start trading by early 2006, the head of the project said on Tuesday.
Mohammad Javad Asemipour, Advisor to Iran's Oil Minister, said he was in talks with the bourse consortium, which includes foreign firms, on the easiest products with which to launch the Islamic Republic's futures' exchange.
"I think petrochemical and gasoline products will be easiest," he told Reuters.

You would think they'd be calling more attention to this project. I can't even find a website. If they were really going to do this, they'd want to setup a trading platform, get financial data vendors lined up, and advertise to potential traders.

[Petrodollar Warfare]

14. My advice...don't look for it the US media...

Well, it was supposed to start March 21, 2005...but then again....the IPE had "no comment" on it, and the US is none too happy with this development.

Question: My articles are from June 16, 2004 and mid-July 2004, what is the date on the article you cited? That would be helpful to determine if the bourse project is delayed, or did it move forward?

Personally, if Bush wins I'd say there's a 90% chance that the US will be in Iran a year from now. If Kerry wins, I'd say it's a 50% chance that the US will be in Iran a year from now. However, just like Bush's immediate decision to revert Iraq back to a petrodollar system just after his "Mission Accomplished" speech - that has never been mentioned in the US media, I do not expect the US media to discuss or even dare mention the Iranian Bourse. Afterall, they never discussed Saddam's swtich to the euro except for a brief CNN 24-hour period on Oct 30, 2000.

In fact, I fully expect 2005 to be a near repeat of late 2002/early 2003 with visions of "mushroom clouds" from terrorists armed with Iranian nucs - and all kinds of fear-mongering tactics...but don't hold your breath on any US reporting of Iran's attempt at a petroeuro system...

“There's really five companies that control 90 percent of what we read, see and hear. It's not healthy.”
- Ted Turner, vice chairman, AOL Time Warner, Founder of CNN, April 24, 2003

“…If media moguls control media content and media distribution, then they have a lock on the extent and range of diverse views and information. That kind of grip on commercial and political power is potentially dangerous for any democracy.”
- Chuck Lewis, executive director of the Centre for Public Integrity, March 20, 2004

“Most of the media was on the bandwagon or intimidated. Cheney himself called the president of the corporation that owned one of the networks to complain about an errant commentator. Political aides directed by Karl Rove ceaselessly called the editors and producers with veiled threats about the access that was not granted in any case. The press would not bite the hand that would not feed it.”
- Sidney Blumenthal, UK Guardian, June 24, 2004

“This Government lies…..I think we have a government that absolutely is ignoring the truth and a press that is ignoring the truth.”
- Helen Thomas, 57-year veteran correspondent for United Press International, quoted during a speech on the George W. Bush administration, July 8, 2004.


“The CIA owns everyone of any significance in the major media."
- Former CIA Director William Colby

[German-Lefty]

16. I'm not

My articles are from June 16, 2004 and mid-July 2004, what is the date on the article you cited? That would be helpful to determine if the bourse project is delayed, or did it move forward?
This one seems to be from this Oct5 of this year. It's in their current directory of articles so I don't think it is a year old.
http://www.iranoilgas.com/news/current/
(just search for "bourse")
I guess that means it was pushed back.

Yeah, I know about media concentration and the how government applies pressure on the media.

Still I'm googling for it. I'm not waiting to be told by CNN. I found that site. Which seems to be connected to the "National Iranian Oil Company" and Iranian "Ministry of Petroleum".
http://www.iranoilgas.com/companies/whoiswho/

You'd think if they wanted to sell us Germans some oil on their neat new market, they'd go through a little more trouble to put up a nice website like all other exchanges have. Doing something like this isn't a small project you can keep under wraps even if you wanted too.

[Petrodollar Warfare]

15. Misc. articles on Iranian exchanges.

Different but related articles from July and Sept that state March 2005. I think the article you mentioned was dated Oct 5, 2004, so their might be a delay in the Iranian oil bourse, but again, it will be interesting to see were US foreign policy will be a year from now...

Iran Eyes Deal on Oil Bourse; IPE Chairman Visits Tehran
July 8, 2004

"Iran plans to sign a deal by late August with foreign companies to create the country's first oil bourse, an Iranian oil official said Thursday.

Mohammad Javad Asemipour, an advisor to Iran's oil ministry and responsible for the project's launch, told Dow Jones Newswires that London-based legal firm Denton Wilde Sapte, Australian software consultancy Computershare and the U.K.'s PA Consulting Group (PCG.YY) are among those likely to join a number of Iranian companies in the project.

Officials at all of the companies were unavailable to comment.

With U.S.-imposed sanctions on Iran intended to discourage foreign companies from entering its energy business, Washington may frown on any involvement by the U.S.-owned IPE in the platform.

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.

"...Europe-based traders of oils from the Middle East are skeptical the Tehran exchange will achieve the necessary liquidity to succeed.

"...They argue a similar initiative in neighboring Dubai has failed to get off the ground and without a well-established local oil trading community similar to that in New York and London, Tehran's chances of success are remote."


Mohammad Javad Asemipour, an advisor to Iran's oil ministry and responsible for the project's launch, told Dow Jones Newswires that London-based legal firm Denton Wilde Sapte, Australian software consultancy Computershare and the U.K.'s PA Consulting Group (PCG.YY) are among those likely to join a number of Iranian companies in the project.

Officials at all of the companies were unavailable to comment.

http://www.rigzone.com/news/article.asp?a_id=14588


Iran launches farm exchange
Posted: Monday, September 20, 2004

Tehran

Iran has launched an agricultural commodities exchange, the second in a chain of commodity bourses intended to revitalise the Islamic Republic's traditional trading methods.

'Traditional means of trade can no longer address the ever growing production of agricultural commodities,' Agriculture Minister Mahmoud Hojati said at the opening ceremony.

The launching of an agricultural bourse follows the founding of a metals' exchange last year. OPEC's second biggest producer has also pencilled in the opening of an ambitious oil and gas bourse before March 2005.

http://www.tradearabia.com/tanews/newsdetails.asp?Article=73992&Sn=AGRI&Cnt=

TEHRAN -- Iran should not hinge on an oil exchange because it is not a big economic power, a senior deputy in the parliament has said.
"The oil market stability may benefit us under the present circumstances. But if the oil producers lose their power of decision-making we will lose everything," Hossein Nejabat told ISNA.

"...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.

A contract to design and establish a new platform for crude, natural gas and petrochemical trades is expected to be signed with an international consortium within days.

"...The Middle East producers would like to establish a rival Persian Gulf blend contract alongside hedging mechanisms that could operate around the new bourse.

http://mellat.majlis.ir/archive/1383/ENGLISHVERSION/04/30/news.htm

TEHRAN -- A member of the Majlis Energy Committee has complained that the price bands set by the Organization of Petroleum Exporting Countries stands much lower than the real prices.

"Taking into account the costs for oil recovery, the prices are very low. OPEC is tasked with oil pricing while the Western and European countries exert pressure on the cartel," Mohammad Qomi told ISNA.
He dismissed the US allegations about the OPEC's involvement in price hikes.

"They raise such allegations to serve their own interests and put their odious goals into practice. The OPEC should not bow to the US pressures."

"International tribunals can handle any offense but OPEC cannot sell its oil to the Western countries free of charge," he said.

[Petrodollar Warfare]

23. China Dumps Dollars For Oil & Gold

Well, I found the below article rather interesting. The suggestion of a "petroyuan" is definitely thinking outside the box...but I think this is probably a good analysis of one possability of the petrocurrency wars. I doubt 2005 will be a good year for the dollar...:-(


CHINA DUMPS DOLLARS FOR OIL & GOLD
Todd Stein & Steven McIntyre (Oct 18, 2004)

http://www.kitco.com/ind/Texashedge/oct182004.html

"Safeguarding one's access to vital natural resources such as oil and gas is crucial to nation's long-term prosperity. But telling soldiers and their families that they are fighting in part to protect against the threat of $10.00/gallon gasoline is not exactly good for morale or public relations. Protestors chanting "No blood for oil" would have a field day if the White House press secretary made an announcement such as, "Good news, the Baghdad Museum has been looted, 1,000 American troops have been killed, but we have secured 90% of Basra's oil fields."

"Skeptics would tell you that part of the reason why American and NATO troops remain in Afghanistan after overthrowing the terrorist-harboring Taliban is to get a foothold in the game for Caspian Sea oil. Whether or not you believe these skeptics, it is a fact that multinational energy companies have developed a renewed interest in building gas and oil pipelines linking the Caspian region with the lucrative international market of the Arabian Sea. This activity has worried the three large powers in the Central Asian region: Iran, Russia and China. All three of these countries have indirectly (or sometimes directly) supported America's enemies over the last three years with either military or financial assistance. While Iran and Russia have long supplied America's adversaries with arms, the fact that China has stepped up its efforts in this arena marks a disturbing trend."

"...China has already invested billions of dollars into pipeline projects in Central Asia and the Middle East and has strengthened its relationships with governments from energy-rich states. For example, China is Sudan's largest trading partner and the most important foreign investor in Sudan's oil industry. China National Petroleum Corporation has a 40% stake in the international consortium extracting oil in Sudan, and it is constructing refineries and pipelines, enabling Sudan to benefit from oil export revenue over the last five years. Recently, China deployed thousands of troops to Southern Sudan to protect its pipeline interests while Western oil companies have been withdrawing from the war-torn African nation...."


"....Like Britain a century ago, the United States has greatly over-borrowed in an effort to control access to the world's energy supply and at the same keep its domestic economy firing on all cylinders. As competition for diminishing oil resources threatens U.S. dollar hegemony over world oil transactions, expect to see increased Chinese political and military presence in the Middle East. The presence of Chinese PLA troops in Sudan, in our opinion, marks the middle kingdom's entrance into the great game. China's next move could come in the form of massive dollar devaluation when they decide to unload their supply of accumulated greenbacks. China just recently released six billion of those greenbacks for its purchase of Noranda Mining - Canada's biggest mining company. Keep your eyes open for stepped-up greenback dumping by China in exchange for natural resources such as oil-bearing properties or perhaps more mines. We predict that in the near future, Saudi princes will decide to denominate some of their oil transactions in Yuan (or at least something other than dollars) and invest their profits into shares of China Mobile or PetroChina instead of Citigroup."

[gjb]

24. Nice catch. That is very important news....

Look for another dip in the dollar and a rise in Oil and Gold. Ouch! And there is nothing Greenspan can do about it.

[Kenneth ken]

25. ooh - nice story - thanks

That's a different aspect I hadn't given sufficient thought to - how the world would/could go about dumping their dollars with minimal adverse impact to themselves. Buy stuff with dollars, and let the dollar become someone else's problem. That's tidy. It has some limitations, but not as many as simply doing a dollar selloff/currency swap.

The less propping up of the dollar the world has to support, the more pressure it puts on the US; I agree that 2005 (and for several years out, probably) don't look all that rosy for the dollar, and those of us who use it. :(

[cthrumatrix]

26. time to look at this again.

[Petrodollar Warfare]

29. Seymour Hersh on the Iran war plans...plus some exerts

Here's some updates to my original essay...

"In my interviews , I was repeatedly told that the next strategic target was Iran. Everyone is saying, ‘You can’t be serious about targeting Iran. Look at Iraq,’” the former intelligence official told me. “But the say, ‘We’ve got some lessons learned - not militarily, but how we did it politically. We’re not going to rely on agency pissants.’ No loose ends, and that’s why the C.I.A. is out of there.”

- Seymour Hersh, ‘The Coming Wars,’ The New Yorker, January 2005

The December 2004 edition of The Atlantic Monthly included detailed PowerPoint slides used during high-level U.S. military war games against Iran during the summer and fall of 2004. These war-gaming sessions were led by 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. Of the three scenarios simulated, “Option No. 3” involved a ground invasion of Iran and a forced “regime change.” This operation was projected to last 30 days, but it had been “modeled carefully on the real assault on Iraq, and all five advisers were appalled by it.”

The hard lessons unfolding in Iraq were viewed by the war-game participants as a forewarning should the Bush administration pursue its goal of “regime change” in Iran. Col. Gardiner summarized the war games with the following, "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."

The geopolitical stakes for the Bush administration was raised dramatically on October 31, 2004 when Iran and China signed a huge oil and gas trade agreement (valued at $70 billion dollars, £38bn). The nullification of previous oil contracts by the U.S. administered Coalition Provisional Authority (CPA) in the aftermath of the Iraq invasion likely created geopolitical tensions between the U.S and China over oil supply. The Chinese government may fear the same fate awaits their oil investments in Iran if the U.S. were able to topple the Tehran government. However, the neoconservative strategy of “regime change” in Iran now appears uncertain. Despite their desires to enforce petrodollar hegemony, the geopolitical risks of a U.S. attack on Iran’s nuclear facilities would undoubtedly create a serious crisis between Washington and Beijing.

Undoubtedly, a unilateral American military attack on Iran would isolate the U.S. government to an even greater degree, and it is conceivable such an overt military operation could provoke some developed nations to abandon the dollar en masse. Michael Ruppert warned of the dollar’s fragility with respect to potential monetary decisions that could be untaken by China, “The moment China starts selling dollars the rest of the world will crash down the doors of the bank to get rid of theirs as quickly as possible. The run on the dollar will be short, bloody and catastrophic.” The other risk factor from an unprovoked attack on Iran could create additional pressure within OPEC or Russia towards a petroeuro system. Any such coordinated monetary efforts would likely be taken in an effort not to cripple the economy per se - but rather to thwart the global U.S. military presence, which ultimately would require a collapsed dollar.

The reasons for any such drastic reaction are rather straightforward – the global community is dependent on the oil and gas energy supplies found in the Persian Gulf. Industrialized nations would likely move in tandem on the currency exchange markets to thwart further warfare in the region in an effort to preserve the current oil production and shipping infrastructure. Logically, the most appropriate U.S. strategy is compromise with the E.U. and OPEC towards a dual-currency system for international oil trades.

References:

Seymour Hersh, ‘The Coming Wars,’ The New Yorker, January 24th – 31st issue, 2005, pgs. 40-47
Posted online January 17, 2005: http://www.newyorker.com/fact/content/?050124fa_fact

James Fallows, ‘Will Iran be Next?,’ Atlantic Monthly, December 2004, pgs. 97 – 110

‘China, Iran sign biggest oil & gas deal,’ China Daily, October 31, 2004 http://www.chinadaily.com.cn/english/doc/2004-10/31/content_387140.htm

[kineneb]

27. Thanks for the info

I have seen some of the info on the Iranian oil exchange in the foreign presses. I figured the hue and cry was about the dollar and euro in the oil biz. Saddam was going to move to the euro from the dollar - so we invade. Next Iran plans its own oil exchange, in euros, so more invasion planned.
Only this time we are out of troups...so now what?? I feel a draft...

Personal background - part of family is Persian, and I have lived in Tehran.

[Petrodollar Warfare]

28. kineneb - updates and a question re Farsi translation

kineneb,
I have researched this issue extensively, and below is the latest article on the Iranian bourse. Since part of your family is Persian, I have two questions that I hope you can assist with...

Oil bourse closer to reality
Dec 28, 2004
http://www.iranmania.com/News/ArticleView/Default.asp?ArchiveNews=Yes&NewsCode=28176&NewsKind=BusinessEconomy


LONDON, Dec 28 (IranMania) - Iran will move a step closer to establishing its much-publicized oil exchange next week, when the Oil Ministry and the Ministry of Economic Affairs and Finance are set to sign a memorandum of understanding (MoU), which will set the ground for the high-profile initiative.

..."The oil exchange would strive to make Iran the main hub for oil deals in the region," he said, adding that most deals will be conducted through the Internet. Talebi said the bourse could also help develop petrochemical industry.

Iran announced in September its petroleum exchange will become operational by March 2006.

*****

Question #1:
I believe the Iranian New Year starts on March 21, so that is likely their "go-live" date. Can you comfirm what day in March 2006 will be the start of the Iranian New Year?

Question #2:
I do not speak farsi, but if you or someone in your family could translate the basic header information from the following website I would be grateful. My understanding is the Iranian bourse will be similar to NASDAQ in that most of the oil trades will occur via the Internet (ie. electronically), and I wanted to know if this Iranian website refers specifically to the upcoming oil/petroleum bourse, or is it the website for other commodities and basic stock exchange activity (but not oil/petroleum related):

http://www.irbourse.com/FForms/FStart.aspx

Any assistance in answering those two questions would be much appreciated! (you can send me a private email via DU if you prefer)

(Anecdotally, I find it both infuriating - yet not surprising - that news articles in the foreign media describe Iran's upcoming oil bourse as a "much-publicized oil exchange" and that it is a "high-profile initiative" - yet in the US media it basically does not exist - as it has never been reported on(!) This again reflects how heavily censored the US media and information flow has become in the USA...but you can bet that the EU gov'ts and some informed citizens will not be in the dark about the Iranian bourse should the neocons continue their saber rattling re Iran)