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Slouching Towards Petroeurostan
By Pepe Escobar
19/02/08 "ICH"
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It was a discreet, almost hush hush affair, but after almost
three years of stalling and endless delays, it finally happened.
Now more than ever, it may also signal a true geoeconomic
earthquake – way beyond a potentially shattering blow to US
dollar hegemony.
This Sunday, the Iranian Oil Bourse – the first-ever oil, gas
and petrochemical exchange in the Islamic Republic, and the
first within OPEC – was launched by Iran’s Oil Minister
Gholam-Hossein Nozari, flanked by Minister of Economy and
Financial Affairs Davoud Danesh Ja’fari, the man who will head
the bourse.
The bourse’s official name is Iranian International Petroleum
Exchange (IIPE), widely known in Iran and the Persian Gulf as
the Kish bourse. Kish island is a free zone (declared by the
Shah) in an ideal laissez faire setting: lots of condos and
duty-free malls, no Khomeini mega-portraits and hordes of young
honeymooners shopping for made-in-Europe home appliances.
There was frantic speculation all over the world that the bourse
would start trading in euros. But according to Nozari
transactions at this early stage will be in Iran’s currency, the
rial. Anyway the Iranian ambassador to Moscow Gholam-Reza Ansari
has already advanced that “in the future, we'll be able to use
the ruble, Russia’s national currency, in our operations”. He
added that “Russia and Iran, two major producers of the world’s
energy, should encourage oil and gas transactions in various
non-dollar currencies, releasing the world from being a slave of
dollar”. Russia’s first deputy Prime Minister Dmitry Medvedev
said last week that “the ruble will de facto become one of the
regional reserve currencies.”
Slowly but surely
This is just what the Iranians are calling the first phase.
Ultimately, the bourse is to directly compete against London’s
International Petroleum Exchange (IPE) as well as the New York
Mercantile Exchange (NYMEX), both owned by US corporations
(since 2001 NYMEX is owned by a consortium which includes BP,
Goldman Sachs and Morgan Stanley). What Iran plans to do in the
long run is quite daring: to directly challenge Anglo-American
energy/corporate banking domination of the international oil
trade.
There’s a lot hanging on the balance to assure the success of
the bourse already in this first phase. Other OPEC members, and
especially Iran’s neighbors, the Persian Gulf petro-monarchies,
must be supportive, or at least “catch the drift”.
It makes total sense for OPEC member countries to support an
alternative to both NYMEX and the IPE, which exercise a de
facto, unhealthy monopoly of the oil and gas market, are always
very comfortable to exploit volatility for profit, and are
always able to wreak havoc against the interests of producer
countries. An avalanche of contracts related to Iranian or Saudi
oil, for instance, are still indexed to the price of the UK’s
North Sea Brent oil, whose production is terminally declining.
In the summer of 2005, at the Petroleum Ministry in central
Tehran, this correspondent interviewed Mohammad Javed Asemipour,
then the executive in charge of establishing the Kish bourse.
Asemipour stressed the road map, which remains unchanged: the
bourse would start dealing with petrochemical products, and then
with what everybody really craves – light-sulfur Caspian Sea
crude. This was not going to be an Iranian-style exchange, but
“an international exchange, fully integrated in the world
economy”. The ultimate goal is very ambitious: the creation of a
new Persian Gulf benchmark oil price.
Today, Minister Nozari admits Iran’s share of global oil trade
is still very low. Enter the bourse, which is the solution to
eliminate the middlemen. Everyone in the oil business knows that
high oil prices are not really due to OPEC – which supplies 40%
of the world’s crude - or “al Qaeda threats”. The main
profiteers are middlemen – “traders” to put it nicely,
“speculators” to put it bluntly.
The Petroleum Ministry’s immediate priorities remain the same:
to attract much needed foreign investment in the energy sector
in Iran, and to expand its address book of oil buyers. Iran –
like so many developing countries – does not want to depend on
Western oil trading firms such as Philip Brothers (owned by
Citicorp), Cargill or Taurus. Enron – until its debacle – used
to be one of the most profitable. Some powerful oil companies –
such as Total and Exxon – trade under their own names.
The empire will strike back
At the World Economic Forum in Davos last month, mega-speculator
George Soros was adamant, stressing we are at the end of the
dollar era and a “systemic failure” may be upon us.
On February 8 in Dubai OPEC Secretary-General Abdullah al-Badri
told the London-based Middle East Economic Digest that OPEC may
inevitably switch to the euro within a decade.
Iran and
Venezuela – supported by Ecuador - are actively campaigning
inside OPEC for oil to be priced at least in a basket of
currencies.
According to OPEC’s current president, Chakib
Khelil, OPEC Finance ministers will soon meet to discuss the
possibility in depth. According to Iraqi Oil Minister Hussein
al-Shahristani, a committee will “submit to OPEC its
recommendation on a basket of currencies that OPEC members will
deal with.”
There’s no evidence – yet – that ultra-cautious iron clad US
ally Saudi Arabia would incur Washington’s wrath by supporting
such a move. As for Iran, it is OPEC's second largest exporter.
According to minister Nozari Iran’s oil revenue will reach $63
billion by the end of the current Iranian year, which ends on
March 20. Crude oil production is at 4,1million barrels a day,
the highest level since the 1979 Islamic Revolution.
Iran does not trade a single barrel of oil in dollars anymore.
Since December 2007 it converted all its oil export payments to
other currencies. Iran now sells oil to Japan in yen. That makes
sense: Japan is the top importer of Iranian oil, and Iran is
Japan’s third-largest supplier. Worryingly for the dollar,
Qatari Prime Minister Sheikh Hamad bin Jassim al-Thani has
already announced that the tiny oil-rich emirate would abandon
the dollar for the Qatari riyal before summer. There’s a strong
possibility the United Arab Emirates (UAE) may also switch to
their own currency.
As the Kish bourse picks up momentum, more and more oil and gas
trading will happen in a basket of currencies – and more and
more the US dollar will lose its paramount status. Quite a few
Middle East analysts expect the Persian Gulf petro-monarchies to
end their dollar peg sooner rather than later – some say as
early as next summer, as their black gold will increasingly not
be traded in dollars. Iranian economist Hamid Varzi stresses
that the “psychological effect” of Iran’s move away from the US
dollar is “encouraging others to follow suit.
Iranian officials have always maintained Washington has
threatened to disrupt the oil bourse – via an online virus,
attempting regime change or even the dreaded, unilateral
pre-emptive nuclear strike. On the other hand, the possible
success of the bourse may be crucial to signal the US’s waning
power in a world evolving towards multi-polarity. The Saudis and
the Persian Gulf petro-monarchies have already decided to reduce
their US dollar holdings. It’s not far-fetched to imagine
Washington, sooner or later, having to pay for its oil and gas
imports in euros.
No wonder Venezuelan President Hugo Chavez is so demonized by
Washington as he keeps repeating that the empire of the dollar
is falling. But even ultra-cautious Prince Saudi al-Faisal,
Saudi Arabia’s Foreign Minister, has admitted during the latest
OPEC summit in Riyadh that the dollar would collapse if OPEC
decided to switch to euros or a basket of currencies. During a
crucial closed meeting – with the microphones on, by mistake –
Prince Saudi said “My feeling is that the mere mention that OPEC
countries are studying the issue of the dollar is itself going
to have an impact that endangers the interests of the countries.
There will be journalists who will seize on this point and we
don't want the dollar to collapse instead of doing something
good for OPEC."
The trillion-dollar question is if, and when, most European and
Asian oil importers may stampede towards the Iranian oil bourse.
OPEC members as well as oil producers from the Caspian may be
inevitably seduced by the advantages of selling at Kish – with
no dreaded middlemen. If they can buy oil with euros, yen or
even yuan, Europeans, Chinese and Japanese won’t need US dollars
– and the same applies for their central banks.
It would take only a few major oil exporters to switch from the
dollar to the euro - or the yen - to fatally bomb the
petrodollar mothership. Venezuela, Norway and Russia are all
ready to say goodbye to the petrodollar. France officially
supports a stronger role for the euro in international oil
trade.
It may be a long way away, but ultimately the emergence of a new
oil marker in euros in Kish will lead the way to the petroeuro
global oil trade. It makes total sense. The European Union
imports much more oil from OPEC than the US, and 45% of Middle
East imports also come from the E.U.
The symbolism of the Iranian oil bourse is stark; it shows that
the flight from the US dollar is irreversible – and so would,
sooner rather than later, the capacity of Washington to launch
wars on credit. But at this early stage in the game, only one
thing is certain: the Empire will strike back.
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