IRANIAN OIL BOURSE

Commissioned by: J. Douglas Bowey and Associates Analysis
by: Krassimir Petrov, Ph.D. Austrian Macro Economist/Investment

Strategist Date: 16 January 2006
The Iranian government has recently proposed to open in March 2006 an Iranian Oil Bourse that will be based on an euro-based 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 much of the world will eagerly adopt this euro-denominated oil system:

The Europeans will not have to buy and hold dollars in order to secure their payment for oil, but would instead use with their own currency. · The Chinese and the Japanese will be especially eager to adopt the new exchange. It will allow them to drastically lower their enormous dollar reserves and diversify them with Euros. One portion of their dollars they will still want to hold onto; another portion of their dollar holdings they may decide to dump outright; a third portion of their hoards they will decide to use up for future payments without replenishing their dollar holdings, but building up instead their euro reserves.

The Russians have 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, Russians seemingly detest holding depreciating dollars, for they have recently found a new religion with gold: their central bank is diversifying out of dollars and accumulating gold. Russians have also revived their nationalism; 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 diversification 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. 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 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 gain momentum and 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 exchange s operations:
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 fail, 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 members of the Security Council. Recent 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 American 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 alienate other powerful nations. Third, major reserve 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.
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.

IRAN 'S OIL-EXCHANGE THREATENS THE GREENBACK

By Mike Whitney

http://www.informationclearinghouse.info/article11654.htm

01/23/06 "ICH" -- -- The Bush administration will never allow the Iranian government to open an oil exchange (bourse) that trades petroleum in euros. If that were to happen, hundreds of billions of dollars would come flooding back to the United States crushing the greenback and destroying the economy. This is why Bush and Co. are planning to lead the nation to war against Iran . It is straightforward defense of the current global system and the continuing dominance of the reserve currency, the dollar. The claim that Iran is developing nuclear weapons is a mere pretext for war. The NIE (National Intelligence Estimate) predicts that Iran will not be able to produce nukes for perhaps a decade. So too, IAEA chief Mohammed ElBaradei has said repeatedly that his watchdog agency has found "no evidence" of a nuclear weapons program. There are no nuclear weapons or nuclear weapons programs, but Iran 's economic plans do pose an existential threat to America , and not one that can be simply brushed aside as the unavoidable workings of the free market. America monopolizes the oil trade. Oil is denominated in dollars and sold on either the NYMEX or London 's International Petroleum Exchange (IPE), both owned by Americans. This forces the central banks around the world to maintain huge stockpiles of dollars even though the greenback is currently underwritten by $8 trillion of debt and even though the Bush administration has said that it will perpetuate the deficit- producing tax cuts. America 's currency monopoly is the perfect pyramid-scheme. As long as nations are forced to buy oil in dollars, the United States can continue its profligate spending with impunity. (The dollar now accounts for 68% of global currency reserves up from 51% just a decade ago) The only threat to this strategy is the prospect of competition from an independent oil exchange; forcing the faltering dollar to go nose-to- nose with a more stable (debt-free) currency such as the euro. That would compel central banks to diversify their holdings, sending billions of dollars back to America and ensuring a devastating cycle of hyperinflation. The effort to keep information about Iran 's oil exchange out of the headlines has been extremely successful. A simple Google search shows that NONE of the major newspapers or networks has referred to the upcoming bourse. The media's aversion to controversial stories which serve the public interest has been evident in many other cases, too, like the fraudulent 2004 presidential elections, the Downing Street Memo, and the flattening of Falluja. Rather than inform, the media serves as a bullhorn for government policy; manipulating public opinion by reiterating the specious demagoguery of the Bush administration. As a result, few people have any idea of the gravity of the present threat facing the American economy. This is not a "liberal vs. conservative" issue. Those who've analyzed the problem draw the very same conclusions; if the Iran exchange flourishes the dollar will plummet and the American economy will shatter.
This is what author Krassimir Petrov, Ph.D in economics, says in a recent article The Proposed Iranian Oil Bourse (complete article below):
"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 ?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. No doubt, Commander-in-Chief Ben Bernanke, a renowned scholar of the Great Depression?, will choose inflation. ?The Maestro has taught him the panacea of every single financial problem-to inflate, come hell or high water. ?To avoid deflation, he will resort to the printing presses?and, if necessary, he will monetize everything in sight. His ultimate accomplishment will be the hyperinflationary destruction of the American currency ?"
So, raise interest rates and bring on "total financial collapse" or take the " Weimar way out" and cause the "hyperinflationary destruction of the American economy." These are not good choices, and yet, we're hearing the same pronouncements from right-wing analysts. Alan Peter's article, "Mullah's Threat not Sinking In", which appeared in FrontPage Magazine.com, offers these equally sobering thoughts about the dangers of an Iran oilexchange:
"A glut of dollar holdings by Central Banks and among Asian lenders, plus the current low interest rate offered to investor/lenders by the USA has been putting the dollar in jeopardy for some time? A twitching finger on currency's hair-trigger can shoot down the dollar without any purposeful ill intent. Most estimates place the likely drop to "floor levels" at a rapid 50% loss in value for a presently 40% overvalued Dollar." The erosion of the greenback's value was predicted by former Fed-chief Paul Volcker who said that there is a "75% chance of a dollar crash in the next 5 years". Such a crash would result in soaring interest rates, hyperinflation, skyrocketing energy costs, massive unemployment and, perhaps, depression. This is the troubling scenario if an Iran bourse gets established and knocks the dollar from its lofty perch. And this is what makes the prospect of war, even nuclear war, so very likely. Peter's continues:
"With economies so interdependent and interwoven, a global, not just American Depression would occur with a domino effect throwing the rest of world economies into poverty. Markets for acutely less expensive US exports would never materialize. The result, some SME's estimate, might be as many as 200 million Americans out of work and starving on the streets with nobody and nothing able to rescue or aid them, contrary to the 1920/30 Great Depression through soup kitchens and charitable support efforts."

Liberal or conservative, the analysis is the same. If America does not address the catastrophic potential of the Iran bourse, Americans can expect to face dire circumstances. Now we can understand why the corporate-friendly media has omitted any mention of new oil exchange in their coverage. This is one secret that the boardroom kingpins would rather keep to themselves. It's easier to convince the public of nuclear hobgoblins and Islamic fanatics than to justify fighting a war for the anemic greenback. Never the less, it is the dollar we are defending in Iraq and, presumably, in Iran as well in the very near future. (Saddam converted to the euro in 2000. The bombing began in 2001) There are peaceful solutions to this dilemma, but not if the Bush administration insists on hiding behind the moronic deception of terrorism or imaginary nuclear weapons programs. Bush needs to come clean with the American people about the real nature of the global energy crisis and stop invoking Bin Laden and WMD to defend American aggression. We need a comprehensive energy strategy, (including government funding for conservation projects, alternative energy- sources, and the development of a new line of "American-made" hybrid vehicles) candid negotiations with Iran to regulate the amount of oil they will sell in euros per year (easing away from the dollar in an orderly way) and a collective "international" approach to energy consumption and distribution (under the auspices of the UN General Assembly)
Greater parity among currencies should be encouraged as a way of strengthening democracies and invigorating markets. It promises to breathe new life into free trade by allowing other political models to flourish without fear of being subsumed into the capitalist prototype. The current dominance of the greenback has created a global empire that is largely dependent on debt, torture, and war to maintain its supremacy. Iran's oil bourse poses the greatest challenge yet to the dollar- monopoly and its proponents at the Federal Reserve. If the Bush administration goes ahead with a preemptive "nuclear" strike on alleged weapons sites, allies will be further alienated and others will be forced to respond. As Dr. Petrov says, "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." There is increasing likelihood that the foremost champions of the present system will be the very one's to bring about its downfall.