Saturday, December 8, 2007

Probably the real reason behind all the sabre rattling

Iran drops dollar from oil deals:
TEHRAN (AFP) — Major crude producer Iran has completely stopped carrying out its oil transactions in dollars, Oil Minister Gholam Hossein Nozari said on Saturday, labelling the greenback an "unreliable" currency.
"At the moment, selling oil in dollars has been completely halted, in line with the policy of selling crude in non-dollar currencies," Nozari was quoted as saying by the ISNA news agency.
"The dollar is an unreliable currency, considering its devaluation and the oil exporters' losses," he added.
The world's fourth largest oil exporter, Iran has massively reduced its dependence on the dollar over the past year in the face of US pressures on its financial system and the fall in the dollar.
Nozari did not specify in which currencies Iran was now being paid. In the past, officials have said most oil income was in euros, with a significant percentage in yen.
Maybe a little background is in order:
If this measure is implemented it could have very grave consequences for the American economy. As early as September 2005 Aljazeera published an article on its website that Iran was about to begin pricing its oil in euros. According this article just about everyone would benefit, except the United States. For at least fifty years about 70 % of all currency reserves were in American dollars. This made the dollar the strongest currency on earth. Central banks need to have important reserves in dollars because up until now oil, the most important commodity of the world, is mostly priced in dollars. Since the irresponsible policies of the current American administration have allowed America's national debt to rise to crippling heights, its ailing economy became mostly dependent upon the high demand for its currency. Or, to put it simply, the dollar may no longer be exchangeable for gold but it can be exchanged for oil. Since the demand for oil increases steadily and the price of oil also increases, the dollar is a safe bet. Until now, that is.

[snip]

The adoption of the euro for oil transactions will provide the European currency with a reserve status that will benefit the Europeans at the expense of the Americans. On September 2, 2005 the Global Politician quoted an expert stating "One of the Federal Reserve’s nightmares may begin to unfold when it appears that international buyers will have a choice of buying a barrel of oil for $60 on the NYMEX (New York Mercantile Exchange) and IPE (London’s International Petroleum Exchange) or purchase a barrel of oil for €45 to €50 via an alternative Iranian bourse." In this scenario an already-existent global trend of shifting foreign currency reserves from dollars to euros would accelerate, thus strengthening the euro and weakening the dollar on the international market. Imports would start to cost America so much more that its economy would not be able to cope anymore and the stock market bubble would burst.

[snip]

But is it likely to happen? Well, it has happened before it seems. In 2000 Saddam Houssein demanded euros for Iraq's oil. At first he wasn't taken all to seriously but when it became clear that he meant business, political pressure was exerted to change his mind. Other oil producing countries began to voice their intent to accept payments in euros or yen. So, when Bush and his cabal of neocons invaded Iraq, why exactly were they doing this? Because of Saddam's long defunct pipe-dream of weapons of mass destruction? Was it about spreading democracy? Indignation about an inhuman regime? Or was it about defending the American dollar and sending a clear message to other countries that a superpower would not tolerate its super-currency flouted. Some have argued that Bush started the war to seize Iraq's oilfields. But why would he want to? Strangely enough: as long as the dollar is backed by oil, America can print as many dollars as it wants and... buy oil with them. Defending the dollar as the unique oil-currency is infinitely more important than seizing the oil itself. And look what happened: barely two months after the United States invaded Iraq, the Oil for Food Program was terminated and the Iraqi euro accounts were switched back to dollars. Global dollar supremacy was once again restored. That was the real mission that was accomplished.

That is also the reason neocons aren't too worried about the way the war in Iraq is going. As far as they are concerned it may drag on for another twenty years and cost tens of thousands of American lives as long as the supremacy of the dollar is maintained. For the neocons and their conspiracy for a New American Century this is the basis of all that they are trying to accomplish. This is what Krassimir Petrov in the Energy Bulletin has to say about it: "A nation-state taxes its own citizens, while an empire taxes other nation-states. The history of empires, from Greek and Roman, to Ottoman and British, teaches that the economic foundation of every single empire is the taxation of other nations. (...) Historically, imperial taxation has always been direct: the subject state handed over the economic goods directly to the empire. For the first time in history, in the twentieth century, America was able to tax the world indirectly, through inflation. It did not enforce the direct payment of taxes like all of its predecessor empires did, but distributed instead its own fiat currency, the U.S. Dollar, to other nations in exchange for goods with the intended consequence of inflating and devaluing those dollars and paying back later each dollar with less economic goods—the difference capturing the U.S. imperial tax."

The immediate question is whether the neocons will attempt to intervene in Iran in an effort to prevent the formation of a crude oil pricing mechanism in euros.
Abandoning the US Dollar coupled with much of Iran's oil reserves located on a narrow strip of land bordering Iraq, and we have at least some understanding for the current belligerence expressed by the White House (with plenty of complicity from both parties' political leaders) toward Iran. About two years ago I noted a couple possible outcomes if the Iranian government were to succeed at making a clean break from the Dollar:
...either deflation and economic depression or hyperinflation depending of course on what the Fed decides to do.
That of course would be bad news for an economy such as ours that is able to continue its huge deficit spending based on its currency being THE reserve currency. Wave bye-bye to those golden days of cheap happy motoring and disposable consumer goods at the Big Box stores, as well as a rather abrupt end to the government's ability to maintain its 700 plus military bases around the globe.

Hence the behavior of our government over the last year or two seem quite sensible (at least to them). It can be summed up as a sort of three-point plan as noted last year:
1. Escalation - with Democrats quite willingly enabling. Be wary of that term "surge" which seems merely a euphemism to suggest a temporary state of affairs (a two year "surge" or more properly escalation hardly seems short-term). Junior Caligula's War God requires more blood sacrifices, which the additional 30k troops plus the ensuing additional Iraqi victims will accomplish.

2. Target Sadr. Apparently that is already happening. In their minds Sadr is all that stands in the way of those coveted oil leases.

3. Expand the war into Iran. The sin of the Irani government is that of trading oil in Euros rather than US Dollars (which oddly enough was the Iraqi government's sin during the waning days of Hussein's reign).

The first two elements seem already well in place. As noted, the opening salvos against Sadr have been launched. So too does it appear that any military opposition to an escalation of the Iraq war has already been squelched and that the Dems will do as they usually do: merely roll over and play dead (with a lot riding on the fate of the dollar, I'm hardly surprised). As is typical of a failing state, the vast majority of the public, as gauged by opinion polls, is firmly against an escalation in the number of troops sent to Iraq, and yet the White House and Congress will likely be authorizing precisely the sort of escalation that a mere 11% of the public supports.
I also noted last year that a war with Iran would be fraught with difficulties:
Of course there are some problems with starting yet another war while the one in Iraq continues to fester. Getting a "coalition of the willing" could be a lot trickier this time around, as the author notes, and Iran is no slouch militarily unlike the case with Iraq. A nearly broken US military would find taking on Iran to be a gargantuan undertaking - one that would lead to even more spilled blood than has already been experienced. Iran could also more effectively cut off oil supplies which, given the sheer amount of dependence we have on oil to fuel whatever's left of our industries as well as shipping and agriculture, could easily precipitate a collapse of the US as we currently know it.
No doubt we'll be treated with a continued propaganda effort regarding Iran. The usual rationales will suffice: Iran is developing nukes (never mind the NIE report that just came out that indicates that Iran has not had a nuclear weapons program since at least 2003), its government has repressed its people, its president is a Holocaust denier, it's a new key battle field in the "war on terra," it's time to spread "democracy" to the Iranian people, ad nauseum. We've been down that road before. Just realize that underlying all the glib justifications is the drive to defend the all-mighty dollar at all costs. Also realize that given the Achilles' heel of the US occupation in Iraq, that yet another war amidst the others our government has committed itself to won't end well.

UPDATE: Welcome, Sideshow readers!

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