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Iran's Really Big Weapon
By Martin Walker
UPI Editor
01/23/06 "Washington" (UPI) Jan 18, 2006 -- -- 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?
Such a move would not be welcomed in Washington, which swiftly
moved after the fall of Baghdad in 2003 to reverse Saddam
Hussein's impudent decision to start selling Iraqi oil for
euros, rather than dollars. After all, the great benefit of
running the world's reserve currency means that if all else
fails, the United States Treasury can just print more and more
of the stuff and pay for its oil imports that way.
There are, naturally, limits to the degree to which the United
States can debase its currency, as the world found with the
first great OPEC price rise of 1973, when the price per barrel
tripled. This is usually attributed to the political decision by
Saudi Arabia and other Arab oil producers to punish the United
States for its decisive support of Israel in the Yom Kippur War.
That is partly true, but the crucial OPEC decision was as a
direct result of President Richard Nixon's Aug. 15 decision to
end the dollar's link to the gold standard.
The dollar declined in value, which meant the OPEC producers
received less value for their oil. So at their Beirut meeting on
Sept. 22, OPEC adopted resolution XXV:140, which resolved to
take "any necessary action ... to offset any adverse effects on
the per barrel real income of member countries resulting from
the international monetary developments as of Aug. 15."
That was also the time when Sheikh Zaki Yamani, the Saudi oil
minister, first mentioned the possibility of deploying the
ultimate weapon of an oil embargo.
Most of the financial world is currently awaiting another,
similar devaluation of the dollar, in response to the monstrous
scale of current deficit on the U.S. current account. Writing in
the Financial Times last week, Harvard Professor Marty Feldstein
suggested that on the basis of the 1985-87 Louvre and Plaza
devaluations, the dollar could fall as much as 40 percent or
even more.
The markets simply do not know when. But should it come after an
Iranian bourse is up and running, some very tidy sums could be
made by those playing a dollar-euro trade on Tehran's energy
futures market.
The Tehran bourse is listed as an objective for this year in
Iran's current five-year plan. The Tehran Times reported July 26
that the final authorizations had been received for the bourse
to go ahead. Mohammad Javad Asemipour, the technocrat and former
deputy petroleum minister who has been charged with launching
the bourse, has made a number of discreet scouting trips to
London, Frankfurt, Moscow and Paris.
Just after Christmas, he was quoted by the Iran Labor News
Agency saying "transparency in oil transactions would be one of
the advantages of having such an establishment "(the bourse),
and adding that this would "allow dealers access to related
information and promote equal trade opportunities."
Asemipour is an elusive type, but one who seems convinced that
Iran can play off the European against the Americans, the euro
against the dollar. Just over a year ago, he was quoted in the
quasi-official Iran Daily saying that the Europeans have played
"a beautiful game" with the United States during the years of
sanctions, when they actively participated in economic projects,
particularly in the energy sector, across Iran.
"In this game, the Europeans have pretended to be siding with
America, whereas they got involved in business here and
developed a sort of competition with the Americans," he said.
"But in practice, they (the Europeans) have pursued their own
interests." There is no shortage of officials in the Bush
administration who nurture such suspicions of the French and
Germans, despite what seems at the moment to be a common concern
about Iran's nuclear ambitions.
The question now is whether the world's traders will come to a
Tehran Bourse if and when it opens, bearing in mind that a
similar idea in Dubai failed to gain much traction. But that was
before oil prices reached $65 a barrel, and before the Dubai's
partners in the Gulf Cooperation Council decided it was time to
stop glowering at Iran as a potential enemy, and started to
invite Tehran to their meetings as an observer. Before, that is,
the Arab world began to judge that whatever the American
intentions, Iran had become the real winner of the Iraq War.
The world could be about to change much faster than we think,
whether or not Iran tests an atomic device. There are other,
possibly more devastating weapons available that could hit a
financially vulnerable American where it hurts most.
United Press International
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