Petrodollar Warfare: Dollars, Euros and the Upcoming Iranian Oil Bourse

Originally posted by Gools
140 views and no comments?

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Yeah.... a whole bunch of the article is pure crap-ola. The last paragraph of the quote tells me all I need to know, but I'll have to reply after work tomorrow

Last night I watched a documentary on the reasons we, the US and UK, went into Iraq. All the standard reasons were given, and also mentioned was the "Petrodollar cycle" which to me seemed a far greater reason for going into Iraq than any other, not that I actually agree with this.

It claimed that not only are the Iranians looking to change to the Euro but also China and probably Saudi Arabia.

Does this mean that the House of Saud no longer requires the use of the US to keep them in power? What will the US do to stop what appears to be inevitable, especially if China choose this option aswell, where will this leave the US?

I think this is also an Interesting Article - from November 2005

Aljazeera.Net

Iran's decision to set up an oil and associated derivatives market next year has generated a great deal of interest.

From an economic perspective, invoicing oil in euros would be logical for Iran as trade with the euro zone countries accounts for 45% of its total trade. More than a third of Iran's oil exports are destined for Europe, while oil exports to the United States are non existent.

It is primarily the US which stands to lose out from any move away from the petrodollar status quo, it is the world's largest importer of oil and a move away from invoicing oil in dollars to euros will undoubtedly have a negative effect on its economy.

Fewer nations would be willing to hold the dollar in reserve which would cause a significant devaluation and result in the loss seigniorage revenues. In addition, US energy-related companies stand to lose out as they will be unable to participate in the bourse due to the longstanding American trade embargo on Iran.

Well that pretty much Explains it.

Somebody will have to FREE the Iranian Oil Market of this PetroEuro stupidity and install a Free Trade, like it is in Iraq.

And 2006 is the year to do it.

Remember Iraq?

In November 2000, Iraq began selling its oil in euros, its Oil For Food account at the UN was also transferred into euros and later it converted its $10 billion UN held reserve fund into euros.

What Happened?

Euro Gained a 17% gain over Dollar from 2000 until the 2003 Invasion.

After the Invasion - everything back to Normal

Iran opens the Theran Stock Exchange to (selected?) foreign traders.

License for Arab investors to enter Iran bourse

LONDON, December 24 (IranMania) - Preliminary licenses have been issued to facilitate the presence of investors from Arab countries in Iran's Stock Exchange, said, Heydar Mostakhdemin-Hosseini, who heads the board of directors of the Iranian Stock Exchange Council, MNA reported.

In light of the new regulations on attracting foreign investments to Iran's stock exchange, we have received many requests mainly from Arab countries including Lebanon, Kuwait and Saudi Arabia, some of which were given preliminary licenses required for the process, noted Mostakhdemin, adding that some other applicants from other countries have also been furnished with basic information in this regard.

Based on the regulation, foreign investors are authorized to invest in the country and exchange their currencies with the Iranian rial, the chairman explained in conclusion.

Not sure about the source, real news on Iran is hard to come by.

If true, foreigners can now apply for a trading license to do 2 things, trade on the Theran Exchange and participate in the currency market.

Anybody remember what role Iran played in setting up OPEC?
Where they a willing participant?

Another development announced over the holidays when nobody was paying attention is the following:

Russia aims to firm ties with OPEC

Reuters, Bloomberg News
Monday, December 26, 2005

Russia and the Organization of Petroleum Exporting Countries agreed on Monday to hold annual ministerial meetings in an effort to increase openness in the oil market as Russia assumes leadership of the Group of 8 countries.

Annual talks will cover energy policies, information exchange, investment in oil production and refining, and market developments, the ministry said in a statement.

"Russia's presidency in the G-8 will be a chance for producing countries to send the right information to consuming nations and show our willingness to cooperate"... [the] the president of OPEC, Sheik Ahmad Fahad al-Ahmad al-Sabah [said]

President Vladimir Putin of Russia is using his country's position as one of the world's two biggest oil producers, just behind Saudi Arabia, to gain a greater role in international politics.

OPEC, Sabah said, does not see Russia as a rival...

Russia has begun meeting with major oil consumers like the United States, Japan, the European Union, India, China and South Korea before the G-8 summit meeting next year in St. Petersburg, Russia, Khristenko said.

Putin's government has made energy security a priority for the G-8 next year and will encourage members to increase the use of exchanges for trading energy commodities and to diversify supply channels, Deputy Finance Minister Sergei Storchak has said. India, China and Brazil, which are not members, will be invited to G-8 meetings next year, he said.

OPEC's 11 members, including Saudi Arabia, supply about 40 percent of the world's oil. They have said they plan to cut production after March [there's that timeline again] to offset an expected fall in demand and sustain world oil prices, Sabah said last week in Beijing. [because we all know they need to be sustained at $64!

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Russia's intentions are not clear, but they are meeting with consumer nations to encourage use of exchanges and diversification of supplies and to tell them they are "willing to cooperate". Considering their ties with Iran could they be playing the other side of the coin?

I'm thinking the the whole Ukrainian crisis may have been a warning to Europe to "cooperate".

See this post on another facet of the energy wars Russia Cuts Off Natural Gas Pipeline to Ukraine, for some discussion and a link to an article with an interesting analysis of Russia's role: The Kremlin and the world energy war

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Edit: link fixed


[edit on 1/11/2006 by Gools]

Originally posted by Souljah

Remember Iraq?

In November 2000, Iraq began selling its oil in euros, its Oil For Food account at the UN was also transferred into euros and later it converted its $10 billion UN held reserve fund into euros.

What Happened?

Euro Gained a 17% gain over Dollar from 2000 until the 2003 Invasion.

After the Invasion - everything back to Normal

Souljah - do you have links for this info?

It's downright .....unsettling.

Originally posted by soficrow
Souljah - do you have links for this info?

It's downright .....unsettling.

I took this Bits of Information from the Link provided in my Post.

Executive Privilege

It is interesting to watch as the Fateful Moment draws closer, and I find the speculation offered in this thread fascinating.

But I think it would be unwise to forget who must ultimately approve all major changes in the financial markets.

I refer, of course, to none other than the President's Boss himself...


"I am but a humble servant of the Republic."

Kommersant

A Russian government source told Kommersant that they became convinced in Moscow after a Russian Security Council delegation visited Teheran that the Iranians are not bluffing and intend to stand up for their right to develop a nuclear program. Russian negotiators in Teheran said that the Iranian authorities have decided not to avoid direct military confrontation if things come to that. In Moscow, they think that an American armed action could begin this year.

Kommersant has received information that, in connection with that, the Kremlin is already developing an evacuation plan for Russian specialists in case of military action in Iran. Attention is also being paid to the likelihood that the Iranians could try to detain the Russians to use them as “living shields.” There are about 3000 Russian citizens in Iran at the present time.

Also see this ATSNN discussion: NEWS: Russia to Evacuate its Officials from Iran

As I stated earlier Russia's role in this situation is murky. Also remember that breaking the seal on the Uranium enrichment plant does not mean that Iran will be able to have a bomb tomorrow. It takes a couple of months to get the enrichment process going and then takes even longer to enrich enough Uranium to build a bomb especially with limited capacity.

The BBC re-interated the following on January 12, 2006:

Iran 'years from nuclear bomb'

Iran has alarmed the international community by removing the seals at its nuclear fuel research sites - but experts say it is several years away from being capable of producing a nuclear bomb.

Frank Barnaby, consultant for the UK security think tank the Oxford Research Group, agrees that Iran does not yet have a critical number of centrifuges in place.

"They don't currently have enough centrifuges working - so far as we know - to produce significant amounts of highly-enriched uranium or even enriched uranium. They would need a lot more," he told the BBC News website.

Even if the plant is made fully operational, it is currently configured to produce low enriched uranium (LEU) rather than the weapons-grade highly-enriched uranium (HEU).

So given these limitations, the IISS believes it would take Iran at least a decade to produce enough HEU for a single nuclear weapon.

Dr Barnaby agrees.

"The CIA says 10 years to a bomb using highly enriched uranium and that is a reasonable and realistic figure in my opinion," he said.

Which makes the following paragraph from the Kommersant article very interesting:

Last Tuesday, U.S. Secretary of State Condoleezza Rice called Lavrov and warned him that, after that, Washington would not wait for the next IAEA meeting in March, but would have the Iranian dossier transferred to the Security Council within the next few weeks.

So why the rush?

Whatever or whoever is behind the rhetoric (on both sides) which is inflaming support for a war over this issue, the timing is being driven by something else.

It's the Euro oil bourse.
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A Bourse Of A Different Color

Originally posted by Gools
It's the Euro oil bourse.

Definitely! Unless it's something else.

There's a big difference between speculation about where Iran's nuclear program is and what the U.S. and other nations' intelligence agencies know about it.

There are also many other factors that are taken into account in cases like these, just as the invasion of Iraq wasn't carried out simply “to get rid of Saddam's WMDs”. Likewise, I doubt this latest hullabaloo is simply about Iran's nuke program.

It's worth bearing in mind that what nations say in the papers and what they say behind closed doors are typically very different things.

The only thing I'm sure of is that all parties concerned will act in what they consider to be their best interests.

I'm sure the bourse is a factor in all this, but I doubt it's the only one.

Soon some pieces will be moved on the global chessboard.

Then the players will consider their next moves.

As is, was and ever shall be.

Originally posted by Majic
Soon some pieces will be moved on the global chessboard.

Then the players will consider their next moves.

"The stars are veiled. Something stirs in the east. A sleepless malice. The eye of the enemy is moving."

I wonder what China's reaction will be if the US decides to invade Iran, they've been pretty quiet. Seeing as China has invested lots in Iran and desperately needs Iranian oil to produce energy.

www.iht.com...
english.people.com.cn...
www.energybulletin.net...

I came accross a very good article supporting mbkennel's point earlier in this thread:

BLACK GOLD - U.S. Dollar Hegemony

I'd be interested in your take on that.


Also, see this thread about recent jitters on world markets:

Updated: Jittery Markets - Is a Crash Imminent?
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edit: link fixed

[edit on 1/21/2006 by Gools]

Chris Cook is a former Director of the International Petroleum Exchange in London.

He wrote an article reprinted today on Asia Times Online where he talks about his involvment in helping Iran set up their oil bourse.

Some interesting paragraphs:

What the Iran 'nuclear issue' is really about

...I pointed out that the structure of global oil markets massively favors intermediary traders and particularly investment banks, and that both consumers and producers such as Iran are adversely affected by this. I recommended that Iran consider as a matter of urgency the creation of a Middle Eastern energy exchange, and particularly a new Persian Gulf benchmark oil price.

It is therefore with wry amusement that I have seen a myth being widely propagated on the Internet that the genesis of this "Iran bourse" project is a wish to subvert the US dollar by denominating oil pricing in euros.

So his position is that the bourse was not set up specifically to undermine the US dollar but to "correct" a systemic disadvantage (without explaining what it is exactly). He never states that the bourse will not subvert the petrodollar. He goes on to state:

As anyone familiar with the Organization of Petroleum Exporting Countries [OPEC] will know, the denomination of oil sales in currencies other than the dollar is not a new subject, and as anyone familiar with economics will tell you, the denomination of oil sales is merely a transactional issue: what matters is in what assets (or, in the case of the United States, liabilities ) these proceeds are then invested.

Fair enough, but if the transactions and the proceeds are denominated in Euros it will lend support to that currency to the detriment of the petrodollar. Thinking out loud here... what do you think Iran would do with the proceeds? Convert them back to US dollars? Buy US denominated securities? A stronger Euro would make US assets relatively cheaper...

What I found most interesting in the recounting of his experiences are the following points:

We subsequently learned that the delay had been due to initial opposition from the Saudis and this opposition was withdrawn after the attacks of September 11, 2001, and the subsequent US-led invasion of Iraq.
...

As anyone familiar with the City of London and Wall Street will know, transparency is the enemy of private profit, and it is this factor that was behind the delays in developing the bourse project.
...

One of the most interesting aspects of the process was that during our brief spell of contacts with decision-makers, some insight into current Iranian policy was possible - in particular, the nuclear question. In our conversations we were left in no doubt that it suits both the US and Iran for the issue to be seen to be that of the Iranian "threat" from nuclear weapons.

In fact the issue is a proxy for Iraq:...

Now that pro-Iranian Shi'ite elements are taking a primary role in the emerging government in Iraq, we see the nuclear temperature rising further.

So the Saudis have withdrawn their opposition to the bourse in response to American activity and something is going on behind the nuclear sabre rattling that suits both sides. No surprise there (for me at least).

Mr. Cook concludes by stating something that many people already know but that many others refuse to accept:

The realpolitik is of course that those in power in the US and Iran have the reason they give - and the real reason - for what they do: and for the US, the real reason is and has been for many years energy security above any other consideration.

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Gools, been up to my eyeballs in projects is where I've been and just scanned the top headlines when I posted my oil bourse query. Was wondering why there was no responses...

In any event, here's a re-edited recap:

Petrobuck, an endangered species in the making.

Iran's Ayatollah could Unleash the "Oil Weapon" in 2006, Rattling Global Markets
There's much more in depth analysis in this article than just these charts so check it out and see.

Currently Russia is trying to defuse the Iran as the nuclear boogeyman propaganda, which gives a green light to Iranian oil bourse. Some are speculating it may be euro based, but it could be a metal backed currency exchange as in gold, paladium, or platinum. Ahmadinejad's rhetoric about Israel is more a US directed angst and to gain regional allies. It's political smoke and mirrors considering Iran is not an Arab nation, has liberated the jews before and has the US forces at their western border.

Iran backs Russian uranium enrichment plan
MOSCOW (AFP) - Iran said that it backed a plan to enrich its uranium in Russia to defuse an international row over its nuclear power programme, but warned against Western attempts to put the debate before the United Nations.

Shall we soon see the flush of the petrodollar and the scream of a Weimar Republic styled hyperinflation courtesy of Bernanke's green helicopters? Keep in mind M-3 during Greenspan’s reign of monetary insanity went from $3.5 trillion to over $10.2 trillion. No wonder the Federal Reserve will stop reporting the M-3 data about the same time Iran opens its alledged oil bourse. US record debt levels are supported by exporting the dollar to other counties, if the balance of USD holdings starts to shift the US's borrowing days are over.

Iran’s Oil Exchange threatens the Greenback
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.

So what's DC's answer? Why it's bomb the Allah out of them, sieze the resources and force a regime change. Worked before and will work again aka the Rumsfeld way.

Now will China sit idley by as we choke off its main oil exporter and Russia's main gasoline importer is the $64,000 question.

Place your bets? Why Wall Street had a record year and you didn't -Fortune Magazine.

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No stinking fiat money, echecks or credit cards.

We take only commodities, but feel free to line our parrot cages with your printed currency.






















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[edit on 25-1-2006 by Regenmacher]

America monopolizes the oil trade.

No it doesn't, it has a large influence, but no monopoly.

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.

Again, BS debunked over and over.

Oil can, and is, transacted on exchanges, and off exchanges in long-term contracts in whatever currency is mutually accessible.

And most importantly, there is NO NEED to maintain huge stockpiles of whatever, because euros and dollars are freely interchangable in the most liquid market on the planet.

Total world oil consumption is 30 billion bbl/year. At a high $100/barrel, this is
$3 trillion per year.

This is a small fraction of the total foreign exchange markets transacted in a *single day*.

Given that the volumes on the registered exchanges is a small fraction of the total oil use, and that the Iranian oil exchange will have much less volume than the NYMEX and IPE for a long time---and probably remain very distant behind the proposed Dubai oil exchange as well.

And, any funny business by the Iranians interfering with trade settlement and physical delivery of the Iranian oil exchange will ruin it as a legitimate source of liquidity and pricing, as neither producers or buyers will take the risk of using it.

Forex reserves may diversify away from the US$ but the iranian oil exchange is but a pimple on the gnat's butt in this.

Not long on oil and not hedging against a dollar collapse? Like soup kitchens and tents?

One more excuse to defect from the dollar can be the pebble that starts the avalanche.

Debunking comes after it opens.

Originally posted by mbkennel
Forex reserves may diversify away from the US$ but the iranian oil exchange is but a pimple on the gnat's butt in this.

Maybe you can enlighten us why the euro's value jumped 30% when Saddam switched from the dollar. Here's a refresher: www.ratical.org...

A 48 minute interview with William R. Clark, Author of "Petrodollar Warfare: Oil, Iraq and the Future of the Dollar" posted yesterday (January 28).



He explains the situation in his own words and answers questions from a financial analyst.

A must listen if you've been following this issue.

It's available in four different formats including a simple mp3 file here: www.financialsense.com...
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Go back further, and see the large fluctuations between the US$ and Deutsche Mark (closest to Euro pre-eurocurrency) in early-mid 1980's.

And US$ and japanese Yen. No changes in oil currency then.

There could be problems with the dollar. And the Euro and the Yen---all these governments
are inflating, especially the Japanese. Both are running structural deficits.

Capital flows and interest rates matter the most in currency rates.

It's likely that the price of oil will rise against all paper currencies, no matter if Iran has one exchange which prices it in euros or dollars or rubles.

In Year 2000, Alan Greenspan in the Fed brought down US interest rates very sharply to very low levels. The euro was very weak for years, and as the US$ declined with lower interest rates, and a near recession, the US$ weakened.

Lowering interset rates weakens currency. Raising them strengthens currency.

The action and anticipated change in interest rates by central banks are by far, the most important effects on currency markets, and the most important economic statistics in this market are the ones which are percieved to play into central bank decisions. By the time the central banks make their decisions, the direction and size of the current change is usually already well estimated by the markets, with acquiesence and design of the central banks.

The money flowing back and forth on the "carry trade" (leveraged profiting from cross-currency interest rates) is much larger than the value of petroleum contracted on major commodity exchanges.

A good article addressing some of the arguments brought up in this thread:

Trading oil in euros – does it matter?

Those arguing that the denomination of sales is crucial to dollar strength have tended to say that countries are forced to save dollars so that they have dollars to buy oil. Their critics, however, reply that you do not have to save in dollars to buy oil since you can save in whichever currency you want and then buy dollars on the foreign exchange market whenever you want to buy oil. What matters, say the critics, is in which currency people ultimately save rather than in which currency they trade. (6,7) It is people saving in dollars, or in US financial assets, which results in high levels of investment in the US and ultimately permits the US to run a huge trade deficit.

The latter argument is largely correct, but it leaves out the crucial fact that the reason countries choose to save in dollars, to a far greater extent than in any other currency, is nonetheless related to the fact that oil is sold in dollars. Yes, what is important is in which currency countries save, but this is to a significant extent determined by which currency they trade in.

In order to understand why, we need to ask ourselves, why do central banks keep foreign exchange reserves at all? Also, what considerations determine which currency they choose to keep as reserves? The answer ...

Notice how he never makes a firm conclusion one way or the other to answer his title question?
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