The Proposed Iranian Oil Bourse

[Bushwick Bill]

The Proposed Iranian Oil Bourse

by Krassimir Petrov

I. Economics of Empires

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. The imperial ability to tax has always rested on a better and stronger economy, and as a consequence, a better and stronger military. One part of the subject taxes went to improve the living standards of the empire; the other part went to strengthen the military dominance necessary to enforce the collection of those taxes.

<snip>

In 1971, as it became clearer and clearer that the U.S Government would not be able to buy back its dollars in gold, it made in 1972-73 an iron-clad arrangement with Saudi Arabia to support the power of the House of Saud in exchange for accepting only U.S. dollars for its oil. The rest of OPEC was to follow suit and also accept only dollars. Because the world had to buy oil from the Arab oil countries, it had the reason to hold dollars as payment for oil. Because the world needed ever increasing quantities of oil at ever increasing oil prices, the world’s demand for dollars could only increase. Even though dollars could no longer be exchanged for gold, they were now exchangeable for oil.

The economic essence of this arrangement was that the dollar was now backed by oil. As long as that was the case, the world had to accumulate increasing amounts of dollars, because they needed those dollars to buy oil. As long as the dollar was the only acceptable payment for oil, its dominance in the world was assured, and the American Empire could continue to tax the rest of the world. If, for any reason, the dollar lost its oil backing, the American Empire would cease to exist. Thus, Imperial survival dictated that oil be sold only for dollars. It also dictated that oil reserves were spread around various sovereign states that weren’t strong enough, politically or militarily, to demand payment for oil in something else. If someone demanded a different payment, he had to be convinced, either by political pressure or military means, to change his mind.

<snip>

II. Iranian Oil Bourse

The Iranian government has finally developed the ultimate “nuclear” weapon that can swiftly destroy the financial system underpinning the American Empire. That weapon is the Iranian Oil Bourse slated to open in March 2006. It will be based on a euro-oil-trading mechanism that naturally implies payment for oil in Euro. In economic terms, this represents a much greater threat to the hegemony of the dollar than Saddam’s, because it will allow anyone willing either to buy or to sell oil for Euro to transact on the exchange, thus circumventing the U.S. dollar altogether. If so, then it is likely that almost everyone will eagerly adopt this euro oil system:
http://www.energybulletin.net/12125.html

[FloridaPat]

1. We are screwed.

[sasha031]

2. the story behind the story

I've bookmarked this, thanks for posting, excellent explanation of some of our history

we have held the entire world hostage for a very long time, they must be waiting with bated breath for 3/2006.

[Clara T]

3. For Review: Petrodollar Warfare

Therefore a potentially significant news story was reported in June 2004 announcing Iran’s intentions to create of an Iranian oil bourse. 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 noteworthy. Considering that in mid-2003 Iran switched its oil payments from E.U. and ACU customers to the euro, and thus it is logical to assume the proposed Iranian bourse will usher in a fourth crude oil marker – denominated in the euro currency. This event 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. accounted for 45% of exports sold to the Middle East. (Following the May 2004 enlargement, this percentage likely increased).

Despite the complete absence of coverage from the five U.S. corporate media conglomerates, these foreign news stories suggest one of the Federal Reserve’s nightmares may begin to unfold in the spring of 2006, when it appears that international buyers will have a choice of buying a barrel of oil for $60 dollars on the NYMEX and IPE - or purchase a barrel of oil for €45 - €50 euros via the Iranian Bourse. This assumes the euro maintains its current 20-25% appreciated value relative to the dollar – and assumes that some sort of US "intervention" is not launched against Iran.

The upcoming bourse will introduce petrodollar versus petroeuro currency hedging, and fundamentally new dynamics to the biggest market in the world - global oil and gas trades. In essence, the U.S. will no longer be able to effortlessly expand its debt-financing via issuance of U.S. Treasury bills, and the dollar’s international demand/liquidity value will fall.

It is unclear at the time of writing 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. Regardless of the potential U.S. response to an Iranian petroeuro system, the emergence of an oil exchange market in the Middle East is not entirely surprising given the 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.

http://www.energybulletin.net/7707.html

[Bushwick Bill]

5. Yeah, William Clark is sort of the guru

on all of this. Here are a few other links about the petrodollar issue.
http://www.teamliberty.net/id209.html
http://www.globalresearch.ca/articles/CLA410A.html
http://www.globalresearch.ca/articles/ENG401A.html

Some people are linking the Fed's decision not to disclose M-3 information with the introduction of the Iranian oil bourse exchange.
http://www.safehaven.com/showarticle.cfm?id=4331&pv=1
http://www.financialsense.com/Market/daily/monday.htm

[Selatius]

4. Wanna take bets China will switch to the Euros-for-oil scheme?

If they do, they will have less incentive to buy US bonds.

[Barrett808]

6. UPI: Iran's really big weapon

Iran's really big weapon
By MARTIN WALKER
UPI Editor

WASHINGTON, Jan. 18 (UPI) -- The prospect of a mushroom cloud rising from the Dasht-e-Lut, Iran's Desert of Stones, may not be Tehran's greatest threat to international stability. A successful test of an Iranian nuclear weapon at some point in the next few years may prove less destabilizing than a simple free market economic measure that Iran is said to be planning for March of this year.

Tehran is preparing to open a bourse, a mercantile exchange and potentially a futures market, where traders can buy and sell oil and gas, along the lines of the International Petroleum Exchange (IPE) in London and the NYTMEX in New York.

The differences are first, that this one would price its energy in euros, not dollars, and second, that it would not use West Texas Intermediate or Brent Crude (from the North Sea) as its standard oil for pricing. It would use a Persian Gulf-produced oil instead.

So what? This sounds like a minor change, and possibly even a useful one, broadening the choice among traders and consumers in the kind of way that Adam Smith, the 18th century father of modern capitalism, would have recommended.

Not so. This could be a far more profoundly punishing blow to American interests than Iran's ability to manufacture a crude atom bomb that would have little credibility until it became small and stable and reliable enough to be delivered on some putative target.

The relationship between the oil price and dollar is intimate and important, and very useful to the dollar's highly profitable status as the world's reserve currency. The prospect of a rival bourse and futures market opens the intriguing possibility, beyond hedging the future oil price, of profitable arbitrage between the euro and the dollar.

And if oil and gas are to be denominated in more than just one currency, why not open the trade to others? Why not denominate the price of a barrel of oil in Japanese Yen, or in Chinese yuan, the currency of the world's second biggest oil importer?

Why not, in short, end the monopoly rule of the almighty dollar?

(more)

http://www.upi.com/InternationalIntelligence/view.php?StoryID=20060118-052333-1392r

[Barrett808]

7. Iran begins transferring currency reserves out of Europe

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x2054570