End of the Petro-dollar?...more deadly than a nuclear bomb?

[fastpat]

End of the Petro-dollar? (Excerpt)
by William Norman Grigg
March 6, 2006

Is Tehran about to deploy an economic weapon potentially more deadly than a nuclear bomb?

If Iran is years away from developing a nuclear weapon, why is Washington girding for war within a matter of months, or weeks? Some economic analysts believe that the real weapon of mass destruction Tehran is preparing to deploy is not a nuclear bomb, but rather the proposed Iranian Oil Bourse (IOB), which is scheduled to open in March.

The IOB, writes Dr. Krassimir Petrov of the American University in Bulgaria, will be a petroleum commodity market "based on a euro-oil-trading mechanism that naturally implies payment for oil in euro," rather than in dollars. This would constitute a direct challenge to the "petro-dollar" economy that has existed since the mid-1970s.

In 1971, notes Dr. Petrov, the Nixon administration severed the last remaining link between the dollar and gold. From that point, "the United States had to force the world to continue to accept ever-depreciating dollars in exchange for economic goods and to have the world hold more and more of those depreciating dollars. It had to give the world an economic reason to hold them, and that reason was oil." The link between the dollar and oil, Petrov asserts, resulted from "an iron-clad arrangement with Saudi Arabia to support the House of Saud in exchange for accepting only US Dollars for its oil."

F. William Engdahl, author of A Century of War: Anglo-American Politics and the New World Order, describes the U.S.-Saudi pact in detail:

By their firm agreement with Saudi Arabia, as the largest OPEC oil producer,... Washington guaranteed that the world's largest commodity, oil, essential for every nation's economy, the basis of all transport and much of the industrial economy,... could only be purchased in world markets in dollars. The deal [was] fixed in June 1974 by Secretary of State Henry Kissinger, establishing the US-Saudi Arabian Joint Commission on Economic Cooperation. The US Treasury and the New York Federal Reserve would "allow" the Saudi central bank, SAMA, to buy US Treasury bonds with Saudi petrodollars. In 1975, OPEC officially agreed to sell its oil only for dollars. A secret US military agreement to arm Saudi Arabia was the quid pro quo.

"The economic essence of this arrangement," points out Dr. Petrov, "was that the dollar was now backed by oil." The emergence of an alternative petroleum market setting the price in a different currency, such as the euro, would cause a rapid flight from the greenback. Should the IOB go into operation, Petrov predicts, "it will eagerly be embraced by major economic powers and will precipitate the demise of the dollar."

Petrov, Engdahl, and other analysts point out that in 2000, Saddam Hussein began to demand euros, rather than dollars, for his oil exports; once Saddam was deposed, Iraq's oil exports were once again sold in dollars. This illustrates that the war in Iraq "was not about Saddam's nuclear capabilities, about defending human rights, about spreading democracy or even about seizing oil fields; it was about defending the dollar," Petrov concludes.

Other analysts aren't entirely convinced.

"While the international prices of record for crude oil may be denominated in dollars, there is nothing stopping buyers and sellers from making any kind of contract arrangements they want in whatever currencies they want � euros, zlotys, rubles, yuan, bolivars, gold dinars, whatever," comments Charles Featherstone, assistant editor of Oil Daily. "Even barter is possible. There are no laws or international regulations that require oil be bought and paid for in dollars." Furthermore, he continues, although "Iraq demanded payment in Euros, Saddam's demand was small fry � few nations were going to follow his lead into Euroland. I doubt it was a serious motivation for the 2003 invasion."...To continue reading the complete article, place an online order for a PDF version of the March 6th issue of The New American, and get instant access to the full-text of this article along with the full-text of all the other articles in the same issue.

[gaijindabe]

Look up what percentage of world trade is for oil. Or all energy for that matter. What rubbish.

Look at some of the top oil producers. Nigeria, Venezuela, Mexico, Russia and Iran. Poor, poor, poor, getting poor and poor. Oil aint all its cracked up to be.. (no pun there, btw.)

[fastpat]

Originally posted by gaijindabe
Look up what percentage of world trade is for oil. Or all energy for that matter. What rubbish.

Look at some of the top oil producers. Nigeria, Venezuela, Mexico, Russia and Iran. Poor, poor, poor, getting poor and poor. Oil aint all its cracked up to be.. (no pun there, btw.)

Your statement would carry a lot of weight were oil being purchased, and then nothing done with it. That's not the case. Oil affects most of the other items that are traded today.

More importantly, if a large amount of oil is traded in euros, and the US government continues to alienate more oil producing countries, Venezuela for example, and they switch to euro's for their oil it will have an effect in America.

[turbo6bar]

Well, I don't think this is an explicit act to strengthen Iranian wealth. It may instead weaken the US dollar, because fewer petrodollars will be reinvested in US Treasuries.

[turbo6bar]

Yes, the US dollar has been the world currency, and attempts to diversify out of the USD will have negative effects in America. We need as many dollars as we can get to finance our growing deficits. Otherwise, bond markets will have to jack up yields to fuel demand.

[widebody911]

Originally posted by fastpat
More importantly, if a large amount of oil is traded in euros,

For one, the US governement can't just up and print more Euros...

[gaijindabe]

If this Iranian Oil Bourse (IOB) turns into any kind of free trade arena - it would lessen the grip of OPEC and lead to lower prices if anything..

Geenbacks and Pounds and Euros and Yen and the rest are not backed by anything but owners faith that they will keep their value. Not by gold, not by any objective standard or negotiated rate. Totally free flowing across the world. (Cuba and North Korea dont count.)

If the Iranians sold their oil on the cheap in Euros their would be a million traders jumping in to make the spread.

Not that the price of energy does not have an effect on economic output - but the currency that country X uses to buy oil from country Y has little to do with anything.

[turbo6bar]

OK, I think the issue resolves to what the Middle East does with the profits from oil sales. Will they convert the EUR to USD and buy US Treasuries? If they plan to maintain status quo (continue to buy US Treasuries), then why change to petro-euro in the first place? I was under the impression (perhaps incorrectly) oil sheiks would begin to hold investments in currencies other than the USD. In that case, our economy would certainly be affected. Rising bond yields affect the lending market and stock market.

EDIT: In addition, buying in Euro means we are subject to exchange rate fluctuations. If we must pay in another currency, will we not be subject to exchange rate volatility? I'm just thinking out loud.

[gaijindabe]

Sure. By a basket of 30 year bonds of France, Spain, Germany and Italy.

Who exactly (given their birthrate and public welfare costs) is going to be paying you back 20+ years from now.

Once shiara law is enacted in northern Europe - interest will be illegal and all bonds will be cancelled anyway..

Folks by US Bonds for a reason. They expect to get paid back. Currency shenanigans and all the rest do not alter this fact.

[turbo6bar]

Yeah, I suppose Iranian and Venezuelan hatred for the US is still trumped by profit motive.

[svandamme]

that's old news, iraq accepted euro's for a short while
and got invaded ... lol

here we go again !

[fastpat]

Originally posted by svandamme
that's old news, iraq accepted euro's for a short while
and got invaded ... lol

here we go again !

Yes, Iraq did that very thing, didn't they?

[gaijindabe]

You guys just dont get it....

The reality contains no conspiracy, so you can't be bothered.

5% of the world's economic trade can be conducted in any viable currency and somehow that is "more deadly than a nuclear bomb"?

[fastpat]

Originally posted by gaijindabe
You guys just dont get it....

The reality contains no conspiracy, so you can't be bothered.

5% of the world's economic trade can be conducted in any viable currency and somehow that is "more deadly than a nuclear bomb"?

It refers to the 100,000 plus Iraqi dead, which is coincidentally about the same number that died with each of the atomic attacks against Japan in 1945.

[gaijindabe]

I'll stick with this:

Other analysts aren't entirely convinced....comments Charles Featherstone, assistant editor of Oil Daily...There are no laws or international regulations that require oil be bought and paid for in dollars." Furthermore, he continues, although "Iraq demanded payment in Euros, Saddam's demand was small fry � few nations were going to follow his lead into Euroland. I doubt it was a serious motivation for the 2003 invasion."...

[fastpat]

Originally posted by gaijindabe
I'll stick with this:

Other analysts aren't entirely convinced....comments Charles Featherstone, assistant editor of Oil Daily...There are no laws or international regulations that require oil be bought and paid for in dollars." Furthermore, he continues, although "Iraq demanded payment in Euros, Saddam's demand was small fry � few nations were going to follow his lead into Euroland. I doubt it was a serious motivation for the 2003 invasion."...

Looks like we'll have to agree to disagree about that.

I don't think there was any one motivating factor for the invasion. I think the motivating factors were, in no particular order of importance:

1. Selling oil for euros.
2. he (Saddam) tried to kill my daddy, which is a direct quote from Bush.
3. At the behest of the Trotskyites at the American Enterprise Institute and their spin-off organ Project for The New American Century.
4. For the Likudists in Israel.
5. To establish a beachhead in the mid-east to replace bases that are in jeopardy in Arabia, more important if there needs to be military action against the Arabians (in the minds of the neo-cons).
6. To establish control over what may be the largest oil field in the mid-east, which will provide hegemony over oil demanded by both China and India and other 2nd World nations.

There could be others that need to be on that rather short list, but that's enough.

One that's not on it, and was never a motivator was terrorism. The Bush'ists did not invaded Iraq to stop terrorism against America.

[kach22i]

Originally posted by fastpat
Looks like we'll have to agree to disagree about that.

I don't think there was any one motivating factor for the invasion. I think the motivating factors were, in no particular order of importance:

1. Selling oil for euros.
2. he (Saddam) tried to kill my daddy, which is a direct quote from Bush.
3. At the behest of the Trotskyites at the American Enterprise Institute and their spin-off organ Project for The New American Century.
4. For the Likudists in Israel.
5. To establish a beachhead in the mid-east to replace bases that are in jeopardy in Arabia, more important if there needs to be military action against the Arabians (in the minds of the neo-cons).
6. To establish control over what may be the largest oil field in the mid-east, which will provide hegemony over oil demanded by both China and India and other 2nd World nations.

There could be others that need to be on that rather short list, but that's enough.

One that's not on it, and was never a motivator was terrorism. The Bush'ists did not invaded Iraq to stop terrorism against America.

That is my list as well - perfect, can only be added to.