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Petro-Euro: A reality or distant nightmare for the U.S.?
4/30/2006 1:50:00 PM GMT
Will big international oil trading companies agree to accept deals in Euros?
In the current ‘crisis’ over Iran’s plans to develop nuclear technology, the real reason for open U.S. hostility towards Iran is often over-looked. For the past few years, Iran has been planning to open its own oil exchange — the Iranian Oil Bourse (IOB) — with the alleged goal of becoming the dominant centre of the Middle East oil trade. Currently there are only two oil trading centres in the world; New York and London and both trade only in U.S. Dollars. What will make the proposed IOB different is that it has stated that it will trade in Euros not Dollars.
The dollar has long been the dominant currency for international oil trade and the U.S. economy has benefited hugely from this status as it has led to being the world’s largest reserve currency kept by State Banks the world over. It is an open secret that since the 1970’s, OPEC (i.e. Saudi Arabia) has been instructed by the U.S. to only trade in US Dollars.
The debate over the ultimate financial impact of trading oil in Euros rather than dollars is a complex one, but according to many experts, such a move could lead to a collapse in value for the American currency, potentially putting the U.S. economy in its greatest crisis since the depression era of the 1930s. The IOB has been on Iran's agenda for quite some time and different dates have informally been announced for its opening, all which have been quietly dropped as the deadline neared. The question is whether Iran wishes to have the nuclear issue resolved before taking on the US Dollar in the IOB or whether Iran has been intimidated by U.S. pressure and threats of possible nuclear strikes and decided to postpone the IOB indefinitely.
March 20, the latest rumoured date, would have coincided with the Persian calendar year. The Iranian Oil Ministry's public relations department has denied that the date corresponded to the opening of the bourse, and has mostly remained silent about the existence of such a program.
Of course, the effectiveness of the IOB will depend on whether the big international oil trading companies decide to accept deals in euros or not. China, which is emerging as Iran’s largest customer, would have no objection to paying Iran in Euros and thus begin the move from the dollar to the euro.
"The weapon of oil in the hands of Iran's regime is more dangerous than any other weapon," said a recently published article in Italy's Panorama newsmagazine. Iran's Deputy Oil Minister Mohammad Javad Assemipour, director of the IOB program, told Panorama that the oil trading centre, due to open in a few months, will turn Iran into a major oil exchange point.
"Iran's oil exchange with the region's countries and also some of the East Asia states will take place in Euros instead of U.S. dollars," said Assemipour.
Some of the major oil-producing countries such as Venezuela (which has boosted its economic ties with Iran) and a few of the larger oil consuming countries, most notably China and India, have already announced their support for the IOB. There is speculation that the IOB represents Iran's plan to escape any possible future economic sanctions spearheaded by the U.S. However, some postulate that the plan could also endanger the continued existence of Iran's regime. William Clark, an American security expert, predicted that if Iran threatened the hegemony of the U.S. dollar in the international oil market, the White House would immediately order a military attack against it.
Experts point to the fact that the Iraq invasion in 2003 took place after Saddam Hussein refused to accept dollars as a payment medium for Iraq’s oil exports and Oil for Food programme, choosing Euros instead. After discovering no Weapons of Mass Destruction in Iraq, speculation naturally moved onto the real cause of the invasion; many now are convinced that was the White House's fear of the possible financial repercussions of Saddam Hussein's plan to substitute Dollars for Euros.
Even more worrying than Iran’s statements, however, were those recently made by the Russian Finance Minister, Alexei Kudrin, in a recent meeting of the World Bank and International Monetary Fund in Washington. Kudrin caused his American hosts huge discomfort by openly questioning the dollar's pre-eminence as the world's "absolute" reserve currency.
The greenback's recent volatility and the yawning U.S. trade deficit "are definitely causing concern with regard to its reserve currency status," he said. "The international community can hardly be satisfied with this instability." The U.S. Federal Reserve, in particular, has been forced to take drastic action - raising interest rates 15 times since June 2004 to keep inflation in check.
Given the fact that Iraq’s oil production is now lower than before the U.S. invasion and that the country is now a net importer of oil (incredible for a country sitting on the world’s second largest known reserves) and its oil effectively not available in the international market despite the presence of over 130,000 U.S. troops, it is little wonder if finance ministers and governors of State Banks all over the world are getting nervous about the U.S. military’s ability to ensure oil supplies; a task it has been charged with exclusively since the First Gulf War of 1991.
Russia with its huge oil and gas reserves could present an even bigger challenge to the U.S. and the dollar's supremacy and could not be threatened by any American political or military retaliation same way as Iran. The irony of the situation is that Iran and Russia are both in a much stronger bargaining position given the U.S. failure in Iraq to increase or protect oil supplies, thereby leading to a huge increase in oil prices, making both Iran and Russia much richer in the process.
The dollar’s current position is due to the fact that the U.S. currency accounts for more than two thirds of all central bank reserves worldwide and the fact that all international oil transactions have to be in US Dollars, thereby making the dollar the international oil currency. This reserve status means that the dollar is constantly in demand, whatever the underlying strength of the U.S. economy. And now, with massive trade and budget deficits to finance, America is increasingly reliant on this status. The unprecedented weight of U.S. liabilities means that any threat to the dollar's dominance could result in a currency collapse, plunging the world's largest economy into recession.
Recently Sweden has cut its dollar holdings, from 37 per cent of central bank reserves to 20 per cent, with the Euros share rising to 50 per cent. Central banks in some Gulf States have also lately mooted a shift into the Euro. Such sentiments helped push the dollar to a seven-month low against the single currency last week.
Another important point is that the EU is Russia's main trading partner. More than two thirds of Russia's oil and gas is exported to the EU, which makes Russia a strong candidate to become the first major oil exporter to start trading in Euros. The reality is that as long as most of Opec's oil - read Saudi Arabia - is priced in dollars, the U.S. currency will retain its hegemony. But the opening of an oil bourse in Tehran, which looks likely sooner or later, will signal at least tacit Saudi consent for euro-based oil trading.
The U.S. knows this, which is why it is very sensitive to any debate on the dollar’s position. The next 12 months will decide if Russia or Iran will take the first meaningful steps to challenge the dollar and whether the Petro-Euro will become a reality rather than just a distant nightmare for the U.S. government.
http://www.aljazeera.com/cgi-bin/review/article_full_story.asp?service_ID=11145
4/30/2006 1:50:00 PM GMT
Will big international oil trading companies agree to accept deals in Euros?
In the current ‘crisis’ over Iran’s plans to develop nuclear technology, the real reason for open U.S. hostility towards Iran is often over-looked. For the past few years, Iran has been planning to open its own oil exchange — the Iranian Oil Bourse (IOB) — with the alleged goal of becoming the dominant centre of the Middle East oil trade. Currently there are only two oil trading centres in the world; New York and London and both trade only in U.S. Dollars. What will make the proposed IOB different is that it has stated that it will trade in Euros not Dollars.
The dollar has long been the dominant currency for international oil trade and the U.S. economy has benefited hugely from this status as it has led to being the world’s largest reserve currency kept by State Banks the world over. It is an open secret that since the 1970’s, OPEC (i.e. Saudi Arabia) has been instructed by the U.S. to only trade in US Dollars.
The debate over the ultimate financial impact of trading oil in Euros rather than dollars is a complex one, but according to many experts, such a move could lead to a collapse in value for the American currency, potentially putting the U.S. economy in its greatest crisis since the depression era of the 1930s. The IOB has been on Iran's agenda for quite some time and different dates have informally been announced for its opening, all which have been quietly dropped as the deadline neared. The question is whether Iran wishes to have the nuclear issue resolved before taking on the US Dollar in the IOB or whether Iran has been intimidated by U.S. pressure and threats of possible nuclear strikes and decided to postpone the IOB indefinitely.
March 20, the latest rumoured date, would have coincided with the Persian calendar year. The Iranian Oil Ministry's public relations department has denied that the date corresponded to the opening of the bourse, and has mostly remained silent about the existence of such a program.
Of course, the effectiveness of the IOB will depend on whether the big international oil trading companies decide to accept deals in euros or not. China, which is emerging as Iran’s largest customer, would have no objection to paying Iran in Euros and thus begin the move from the dollar to the euro.
"The weapon of oil in the hands of Iran's regime is more dangerous than any other weapon," said a recently published article in Italy's Panorama newsmagazine. Iran's Deputy Oil Minister Mohammad Javad Assemipour, director of the IOB program, told Panorama that the oil trading centre, due to open in a few months, will turn Iran into a major oil exchange point.
"Iran's oil exchange with the region's countries and also some of the East Asia states will take place in Euros instead of U.S. dollars," said Assemipour.
Some of the major oil-producing countries such as Venezuela (which has boosted its economic ties with Iran) and a few of the larger oil consuming countries, most notably China and India, have already announced their support for the IOB. There is speculation that the IOB represents Iran's plan to escape any possible future economic sanctions spearheaded by the U.S. However, some postulate that the plan could also endanger the continued existence of Iran's regime. William Clark, an American security expert, predicted that if Iran threatened the hegemony of the U.S. dollar in the international oil market, the White House would immediately order a military attack against it.
Experts point to the fact that the Iraq invasion in 2003 took place after Saddam Hussein refused to accept dollars as a payment medium for Iraq’s oil exports and Oil for Food programme, choosing Euros instead. After discovering no Weapons of Mass Destruction in Iraq, speculation naturally moved onto the real cause of the invasion; many now are convinced that was the White House's fear of the possible financial repercussions of Saddam Hussein's plan to substitute Dollars for Euros.
Even more worrying than Iran’s statements, however, were those recently made by the Russian Finance Minister, Alexei Kudrin, in a recent meeting of the World Bank and International Monetary Fund in Washington. Kudrin caused his American hosts huge discomfort by openly questioning the dollar's pre-eminence as the world's "absolute" reserve currency.
The greenback's recent volatility and the yawning U.S. trade deficit "are definitely causing concern with regard to its reserve currency status," he said. "The international community can hardly be satisfied with this instability." The U.S. Federal Reserve, in particular, has been forced to take drastic action - raising interest rates 15 times since June 2004 to keep inflation in check.
Given the fact that Iraq’s oil production is now lower than before the U.S. invasion and that the country is now a net importer of oil (incredible for a country sitting on the world’s second largest known reserves) and its oil effectively not available in the international market despite the presence of over 130,000 U.S. troops, it is little wonder if finance ministers and governors of State Banks all over the world are getting nervous about the U.S. military’s ability to ensure oil supplies; a task it has been charged with exclusively since the First Gulf War of 1991.
Russia with its huge oil and gas reserves could present an even bigger challenge to the U.S. and the dollar's supremacy and could not be threatened by any American political or military retaliation same way as Iran. The irony of the situation is that Iran and Russia are both in a much stronger bargaining position given the U.S. failure in Iraq to increase or protect oil supplies, thereby leading to a huge increase in oil prices, making both Iran and Russia much richer in the process.
The dollar’s current position is due to the fact that the U.S. currency accounts for more than two thirds of all central bank reserves worldwide and the fact that all international oil transactions have to be in US Dollars, thereby making the dollar the international oil currency. This reserve status means that the dollar is constantly in demand, whatever the underlying strength of the U.S. economy. And now, with massive trade and budget deficits to finance, America is increasingly reliant on this status. The unprecedented weight of U.S. liabilities means that any threat to the dollar's dominance could result in a currency collapse, plunging the world's largest economy into recession.
Recently Sweden has cut its dollar holdings, from 37 per cent of central bank reserves to 20 per cent, with the Euros share rising to 50 per cent. Central banks in some Gulf States have also lately mooted a shift into the Euro. Such sentiments helped push the dollar to a seven-month low against the single currency last week.
Another important point is that the EU is Russia's main trading partner. More than two thirds of Russia's oil and gas is exported to the EU, which makes Russia a strong candidate to become the first major oil exporter to start trading in Euros. The reality is that as long as most of Opec's oil - read Saudi Arabia - is priced in dollars, the U.S. currency will retain its hegemony. But the opening of an oil bourse in Tehran, which looks likely sooner or later, will signal at least tacit Saudi consent for euro-based oil trading.
The U.S. knows this, which is why it is very sensitive to any debate on the dollar’s position. The next 12 months will decide if Russia or Iran will take the first meaningful steps to challenge the dollar and whether the Petro-Euro will become a reality rather than just a distant nightmare for the U.S. government.
http://www.aljazeera.com/cgi-bin/review/article_full_story.asp?service_ID=11145
