Iran: The Oil Bourse, The Fall of the Dollar, and the Third Great War

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rht1786
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Iran: The Oil Bourse, The Fall of the Dollar, and the Third Great War

This is an interesting article I found tonight... randomly searching for information on the euro-denominated oil market. It provides an interesting perspective into geopolitics in the Middle East and the strategic possibilities for the coming five years. A good read:

http://www.energybulletin.net/node/12125

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.

Historically, taxing the subject state has been in various
forms—usually gold and silver, where those were considered money, but
also slaves, soldiers, crops, cattle, or other agricultural and natural
resources, whatever economic goods the empire demanded and the
subject-state could deliver. 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. Here is how this happened.

Early in the 20th century, the U.S. economy began to dominate the
world economy. The U.S. dollar was tied to gold, so that the value of
the dollar neither increased, nor decreased, but remained the same
amount of gold. The Great Depression, with its preceding inflation from
1921 to 1929 and its subsequent ballooning government deficits, had
substantially increased the amount of currency in circulation, and thus
rendered the backing of U.S. dollars by gold impossible. This led
Roosevelt to decouple the dollar from gold in 1932. Up to this point,
the U.S. may have well dominated the world economy, but from an
economic point of view, it was not an empire. The fixed value of the
dollar did not allow the Americans to extract economic benefits from
other countries by supplying them with dollars convertible to gold.

Economically, the American Empire was born with Bretton Woods in
1945. The U.S. dollar was not fully convertible to gold, but was made
convertible to gold only to foreign governments. This established the
dollar as the reserve currency of the world. It was possible, because
during WWII, the United States had supplied its allies with provisions,
demanding gold as payment, thus accumulating significant portion of the
world’s gold. An Empire would not have been possible if, following the
Bretton Woods arrangement, the dollar supply was kept limited and
within the availability of gold, so as to fully exchange back dollars
for gold. However, the guns-and-butter policy of the 1960’s was an
imperial one: the dollar supply was relentlessly increased to finance
Vietnam and LBJ’s Great Society. Most of those dollars were handed over
to foreigners in exchange for economic goods, without the prospect of
buying them back at the same value. The increase in dollar holdings of
foreigners via persistent U.S. trade deficits was tantamount to a
tax—the classical inflation tax that a country imposes on its own
citizens, this time around an inflation tax that U.S. imposed on rest
of the world.

When in 1970-1971 foreigners demanded payment for their dollars in
gold, The U.S. Government defaulted on its payment on August 15, 1971.
While the popular spin told the story of “severing the link between the
dollar and gold”, in reality the denial to pay back in gold was an act
of bankruptcy by the U.S. Government. Essentially, the U.S. declared
itself an Empire. It had extracted an enormous amount of economic goods
from the rest of the world, with no intention or ability to return
those goods, and the world was powerless to respond— the world was
taxed and it could not do anything about it.

From that point on, to sustain the American Empire and to continue
to tax the rest of the world, 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.

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.

The man that actually did demand Euro for his oil was Saddam Hussein
in 2000. At first, his demand was met with ridicule, later with
neglect, but as it became clearer that he meant business, political
pressure was exerted to change his mind. When other countries, like
Iran, wanted payment in other currencies, most notably Euro and Yen,
the danger to the dollar was clear and present, and a punitive action
was in order. Bush’s Shock-and-Awe 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, ergo the American Empire. It was about setting an example that
anyone who demanded payment in currencies other than U.S. Dollars would
be likewise punished.

Many have criticized Bush for staging the war in Iraq in order to
seize Iraqi oil fields. However, those critics can’t explain why Bush
would want to seize those fields—he could simply print dollars for
nothing and use them to get all the oil in the world that he needs. He
must have had some other reason to invade Iraq.

History teaches that an empire should go to war for one of two
reasons: (1) to defend itself or (2) benefit from war; if not, as Paul
Kennedy illustrates in his magisterial The Rise and Fall of the Great
Powers, a military overstretch will drain its economic resources and
precipitate its collapse. Economically speaking, in order for an empire
to initiate and conduct a war, its benefits must outweigh its military
and social costs. Benefits from Iraqi oil fields are hardly worth the
long-term, multi-year military cost. Instead, Bush must have went into
Iraq to defend his Empire. Indeed, this is the case: two months after
the United States invaded Iraq, the Oil for Food Program was
terminated, the Iraqi Euro accounts were switched back to dollars, and
oil was sold once again only for U.S. dollars. No longer could the
world buy oil from Iraq with Euro. Global dollar supremacy was once
again restored. Bush descended victoriously from a fighter jet and
declared the mission accomplished—he had successfully defended the U.S.
dollar, and thus the American Empire.

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:

· The Europeans will not have to buy and hold dollars in order to
secure their payment for oil, but would instead pay with their own
currencies. The adoption of the euro for oil transactions will provide
the European currency with a reserve status that will benefit the
European at the expense of the Americans.

· The Chinese and the Japanese will be especially eager to adopt the
new exchange, because it will allow them to drastically lower their
enormous dollar reserves and diversify with Euros, thus protecting
themselves against the depreciation of the dollar. One portion of their
dollars they will still want to hold onto; a second portion of their
dollar holdings they may decide to dump outright; a third portion of
their dollars they will decide to use up for future payments without
replenishing those dollar holdings, but building up instead their euro
reserves.

· The Russians have inherent economic interest in adopting the Euro
– the bulk of their trade is with European countries, with
oil-exporting countries, with China, and with Japan. Adoption of the
Euro will immediately take care of the first two blocs, and will over
time facilitate trade with China and Japan. Also, the Russians
seemingly detest holding depreciating dollars, for they have recently
found a new religion with gold. Russians have also revived their
nationalism, and if embracing the Euro will stab the Americans, they
will gladly do it and smugly watch the Americans bleed.

· The Arab oil-exporting countries will eagerly adopt the Euro as a
means of diversifying against rising mountains of depreciating dollars.
Just like the Russians, their trade is mostly with European countries,
and therefore will prefer the European currency both for its stability
and for avoiding currency risk, not to mention their jihad against the
Infidel Enemy.

Only the British will find themselves between a rock and a hard
place. They have had a strategic partnership with the U.S. forever, but
have also had their natural pull from Europe. So far, they have had
many reasons to stick with the winner. However, when they see their
century-old partner falling, will they firmly stand behind him or will
they deliver the coup de grace? Still, we should not forget that
currently the two leading oil exchanges are the New York’s NYMEX and
the London’s International Petroleum Exchange (IPE), even though both
of them are effectively owned by the Americans. It seems more likely
that the British will have to go down with the sinking ship, for
otherwise they will be shooting themselves in the foot by hurting their
own London IPE interests. It is here noteworthy that for all the
rhetoric about the reasons for the surviving British Pound, the British
most likely did not adopt the Euro namely because the Americans must
have pressured them not to: otherwise the London IPE would have had to
switch to Euros, thus mortally wounding the dollar and their strategic
partner.

At any rate, no matter what the British decide, should the Iranian
Oil Bourse accelerate, the interests that matter—those of Europeans,
Chinese, Japanese, Russians, and Arabs—will eagerly adopt the Euro,
thus sealing the fate of the dollar. Americans cannot allow this to
happen, and if necessary, will use a vast array of strategies to halt
or hobble the operation’s exchange:

· Sabotaging the Exchange—this could be a computer virus, network,
communications, or server attack, various server security breaches, or
a 9-11-type attack on main and backup facilities.

· Coup d’état—this is by far the best long-term strategy available to the Americans.

· Negotiating Acceptable Terms & Limitations—this is another
excellent solution to the Americans. Of course, a government coup is
clearly the preferred strategy, for it will ensure that the exchange
does not operate at all and does not threaten American interests.
However, if an attempted sabotage or coup d’etat fails, then
negotiation is clearly the second-best available option.

· Joint U.N. War Resolution—this will be, no doubt, hard to secure
given the interests of all other member-states of the Security Council.
Feverish rhetoric about Iranians developing nuclear weapons undoubtedly
serves to prepare this course of action.

· Unilateral Nuclear Strike—this is a terrible strategic choice for
all the reasons associated with the next strategy, the Unilateral Total
War. The Americans will likely use Israel to do their dirty nuclear job.

· Unilateral Total War—this is obviously the worst strategic choice.
First, the U.S. military resources have been already depleted with two
wars. Secondly, the Americans will further alienate other powerful
nations. Third, major dollar-holding countries may decide to quietly
retaliate by dumping their own mountains of dollars, thus preventing
the U.S. from further financing its militant ambitions. Finally, Iran
has strategic alliances with other powerful nations that may trigger
their involvement in war; Iran reputedly has such alliance with China,
India, and Russia, known as the Shanghai Cooperative Group, a.k.a.
Shanghai Coop and a separate pact with Syria.

Whatever the strategic choice, from a purely economic point of view,
should the Iranian Oil Bourse gain momentum, it will be eagerly
embraced by major economic powers and will precipitate the demise of
the dollar. The collapsing dollar will dramatically accelerate U.S.
inflation and will pressure upward U.S. long-term interest rates. At
this point, the Fed will find itself between Scylla and
Charybdis—between deflation and hyperinflation—it will be forced fast
either to take its “classical medicine” by deflating, whereby it raises
interest rates, thus inducing a major economic depression, a collapse
in real estate, and an implosion in bond, stock, and derivative
markets, with a total financial collapse, or alternatively, to take the
Weimar way out by inflating, whereby it pegs the long-bond yield,
raises the Helicopters and drowns the financial system in liquidity,
bailing out numerous LTCMs and hyperinflating the economy.

The Austrian theory of money, credit, and business cycles teaches us
that there is no in-between Scylla and Charybdis. Sooner or later, the
monetary system must swing one way or the other, forcing the Fed to
make its choice. No doubt, Commander-in-Chief Ben Bernanke, a renowned
scholar of the Great Depression and an adept Black Hawk pilot, will
choose inflation. Helicopter Ben, oblivious to Rothbard’s America’s
Great Depression, has nonetheless mastered the lessons of the Great
Depression and the annihilating power of deflations. The Maestro has
taught him the panacea of every single financial problem—to inflate,
come hell or high water. He has even taught the Japanese his own
ingenious unconventional ways to battle the deflationary liquidity
trap. Like his mentor, he has dreamed of battling a Kondratieff Winter.
To avoid deflation, he will resort to the printing presses; he will
recall all helicopters from the 800 overseas U.S. military bases; and,
if necessary, he will monetize everything in sight. His ultimate
accomplishment will be the hyperinflationary destruction of the
American currency and from its ashes will rise the next reserve
currency of the world—that barbarous relic called gold.

pinecarr's picture
pinecarr
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Re: Iran: The Oil Bourse, Fall of the Dollar, & Third Great War

That is an interesting article, rht1786, thanks for sharing.

In the article it mentions the Iranian Oil Bourse is slated to open in March 2006, so this article was probably written a couple of years ago.  I'd be very interested in seeing if we could find more recent articles by this author to see what his current/updated perspective is! 

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GR8TFUL
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Re: Iran: The Oil Bourse, The Fall of the Dollar, and . . .

pinecarr--per your request:

http://en.wikipedia.org/wiki/Iranian_Oil_Bourse

Iranian oil bourse

From Wikipedia, the free encyclopedia

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The Iranian Oil Bourse[1] (Persian: بورس نفت ایران ) International Oil Bourse,[2] Iran Petroleum Exchange or Oil Bourse in Kish[3] (IOB; the official English language name is unclear) is a commodity exchange which opened on February 17, 2008,[4][5][6][3]. It was created by cooperation between Iranian ministries and other state and private institutions. The IOB is intended as an oil bourse for petroleum, petrochemicals and gas in various currencies, primarily the euro and Iranian rial and a basket of other major currencies. The geographical location is at the Persian Gulf island of Kish which is designated by Iran as a free trade zone.[7]

During 2007, Iran asked its petroleum customers to pay in non-dollar currencies. By December 8, 2007, Iran reported to have converted all of its oil export payments to non-dollar currencies. [8] The Kish Bourse was officially opened in a videoconference ceremony on February 17, 2008, despite last minute disruptions to the internet services to the gulf regions. Currently the Kish Bourse is only trading in oil-derived products, generally those used as feedstock for the plastics and pharmaceutical industries. However, officially published statements by Iranian oil minister Gholamhossein Nozari indicate that the second phase, to establish trading in crude oil directly, which has been suggested might one day perhaps create a "Caspian Crude" benchmark price analogous to Brent Crude or WTI will only be started after the Bourse has demonstrated a reasonable period of trouble-free running. [9]

Contents

[hide]

[edit] Background

The three current oil markets are all US dollar denominated: North America's West Texas Intermediate crude (WTI), North Sea Brent Crude, and the UAE Dubai Crude. The two major oil bourses are the New York Mercantile Exchange (NYMEX) in New York City and the IntercontinentalExchange (ICE) in London & Atlanta. As the Oil Bourse in Kish is developed through successive stages, the plan is to establish a Petrobourse as a fourth oil market, denominated by the Iranian rial, the euro and other major currencies.

[edit] Operations

See also: Foreign Direct Investment in Iran, Tehran Stock Exchange, and Privatization in Iran

At the time of the Oil Bourse's opening on Kish, the Director of the Kish Stock Exchange, Hossein Allahdadi, said that there "are no limitations imposed on transactions by foreign shareholders at the Oil Bourse in Kish".[3]

[edit] Timeline

The Iranian oil bourse, first reported in 2005, initially had a widely publicised opening date of March 20, 2006 [10], which is the Iranian New Year, Nauroz. According to an April 2005 report, the Tehran Stock Exchange (TSE), the Wimpole Consortium and a private staff fund for retired petroleum workers were to form a consortium developing the exchange [11].

January 2006 Chris Cook of the Wimpole Consortium referred to delays in the process due to the election to the presidency of Mahmoud Ahmadinejad and subsequent difficulty in appointing a new oil minister acceptable both to the president and parliament [12].

March 2006 the Petroleum Minister of Iran, Kazem Vaziri Hamaneh, announced that due to "technical glitches", the Bourse launch was postponed, with no new date set. [13]. However, as of April 26 Iran had restarted its move to open the oil market, and Kazem announced the bourse was set to open the first week of May [14].

May 2006 Minister of Economic Affairs and Finance Davoud Danesh-Jafari said the Oil Ministry has a two-month deadline for presenting the Articles of Association of the Iranian Oil Bourse. Danesh-Jafari said that the euro had not yet been finalized as the legal tender of transactions in the oil bourse, and the final decision about that depends upon the Oil Ministry’s proposed IOB Articles of Association [15]

During the first phase of its implementation, the Iranian Oil Bourse plans to offer financial derivatives relating to crude oil.

July 2006 a building has been purchased and the projected opening date was originally slated for September 2006. [16] On September 15, Oil Minister Kazem Vaziri-Hamaneh stated that all preparatory requirements had been arranged for launching the oil stock market in the country.[17] However, the launch has still not occurred.

December 2006 Bloomberg cited two Iranian newspapers reporting Iran's Minister of Economy Davoud Danesh-Ja'fari Iran as wanting to cut US dollar based transactions to a minimum.[18]

March 2007 Tehran based Press TV reported that the Iranian Embassy in Baghdad announced a shift of its major currency from dollars to euros. Iraqis traveling to Iran will pay for a visa in euros in line with other Iran Embassy locations. [19]

March 2007 The Scotsman reported that China's state-run Zhuhai Zhenrong Corp, the biggest buyer of Iranian crude worldwide, began paying for its oil in euros late last year. Iranian officials have said for months that more than half the OPEC member's customers switched their payment currency away from the dollar as Tehran seeks to diversify its reserves, but news of the Zhenrong change is the first outside confirmation. Japan has also announced that it would be willing to switch to Yen from US Dollars.[20] Iran's central banker announced in March 2007 that Iran had cut its holding of U.S.-dollar assets to around 20% of its foreign reserves in response to U.S. hostility.[21]

July 2007 Iran asked Japan to pay for its oil purchases in Japanese Yen.[22]

September 2007 Japan's Nippon Oil has agreed to buy Iranian oil using yen. [23]

December 2007 Iran stops accepting U.S. dollars for oil. [24]

January 2008 Iran's Finance Minister Davoud Danesh-Jafari told reporters that the bourse will be opened during the anniversary of the Islamic Revolution (February 1-11). [1].

February 2008 On February 4, the Iranian Cabinet approved the creation of the oil bourse in two stages - first a raw oil exchange and secondly an oil byproducts exchange. The Ministry of Finance and Economics, the Oil Ministry, the Ministry of Foreign Affairs, and the Central Bank of Iran are required to create a workgroup to coordinate the project, and the Iran Commodities Bourse Company is given the task of carrying out the project. The communique from the Cabinet states that the "Ministry of Finance and Economics is required to take measures in making the petrochemical byproducts bourse operational by the end of February 2008." [25]

[edit] Opening ceremony

On February 17, 2008, the Iranian Oil Bourse was inaugurated in a video conference ceremony from the capital Tehran attended by ministers of oil, finance and economic affairs as well as chairman of Iran's Stock Exchange and a number of other officials and financial experts.[4] The transactions will be made in Iranian rial, yen, euro and other major currencies.[5] The Iranian Oil Bourse will probably accept Russian ruble as well.[6] The first transaction of the IOB took place at 9:30 the following morning, when 2200 tonnes of low density polyethylene (LD-PE), held in 100 tonne cases, were traded.[3]

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ladamski99
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2/17/08 Iranian Oil Bourse open for business

hmmmmm....

 http://en.wikipedia.org/wiki/Iranian_Oil_Bourse

Coincidence the U.S. Economy started a tumble just after this? Cutting off our nose to spite our face?

pinecarr's picture
pinecarr
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Re: Iran: The Oil Bourse, The Fall of the Dollar, and . . .
Gr8tful, you're good!!  Thanks!
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rlee
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Re: Iran: The Oil Bourse, The Fall of the Dollar, and the Third
Why do you think we invaded Iraq?  Sadam threatened to trade in Euros two weeks before we went in and kicked his a$$.  And the only building not bombed?  Correct, the Oil Ministry - that now trades in USD.  The war was not ever about terrorism or oil.  It was about Bretton Woods and trading oil in other than the USD.  The banks control the world, and they have for a very long time.
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Re: Iran: The Oil Bourse, The Fall of the Dollar, and the Third

I'm hearing that as china went to a basket of currency's; that the US may be forced into this senerio  also. This will surely cause the dollar to fall and gold to rise. Can the US stop this?

 This guy is warning about the amero; I wonder if this guy is right, as he is a known racist. His show might have been taken off for the reason of racism and not amero knowledge. 

http://www.youtube.com/watch?v=ge2J2lNusJs 

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gd
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Re: Iran: The Oil Bourse, The Fall of the Dollar, and the ...

The Amero coin shown in the youtube video is not currency.  They are made by a guy who make coins and tokens.

Here is the coin shown on youtube
http://www.dc-coin.com/index.asp?PageAction=VIEWPROD&ProdID=133

Here are a bunch of others:
http://www.dc-coin.com/index.asp?PageAction=VIEWCATS&Category=8

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joe2baba
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Re: Iran: The Oil Bourse, The Fall of the Dollar, and the ...

i believe bob that saddam actually started taking euros 2 years before we went in.

the very first thing we did after the statue came down was change it back i also believe 

due to the appreciation of the euro versus the dollar saddam made several hundred million extra.

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