Iran is "starting-up" an Oil Exchange ...to trade in Euros -- War Soon.

[cthrumatrix]

The Real Reasons Why Iran is the Next Target:
Emerging Euro-denominated International Oil Marker

September 27, 2004

“Deep in the Pentagon, admirals and generals are updating plans for possible U.S. military action in Syria and Iran. The Defense Department unit responsible for military planning for the two troublesome countries is "busier than ever," an administration official says. Some Bush advisers characterize the work as merely an effort to revise routine plans the Pentagon maintains for all contingencies in light of the Iraq war. More skittish bureaucrats say the updates are accompanied by a revived campaign by administration conservatives and neocons for more hard-line U.S. policies toward the countries”…”Even hard-liners acknowledge that given the U.S. military commitment in Iraq, a U.S. attack on either country would be an unlikely last resort; covert action of some kind is the favored route for Washington hard-liners who want regime change in Damascus and Tehran.”

“…administration hawks are pinning their hopes on regime change in Tehran - by covert means, preferably, but by force of arms if necessary. Papers on the idea have circulated inside the administration, mostly labeled "draft" or "working draft" to evade congressional subpoena powers and the Freedom of Information Act. Informed sources say the memos echo the administration's abortive Iraq strategy: oust the existing regime, swiftly install a pro-U.S. government in its place (extracting the new regime's promise to renounce any nuclear ambitions) and get out. This daredevil scheme horrifies U.S. military leaders, and there's no evidence that it has won any backers at the cabinet level.” <1>

Some readers might recall my earlier essay that was published online in early 2003 regarding 'The Real Reasons for the Upcoming War with Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth.’ <2> Subsequent events unfolded essentially as I predicted in the aftermath of the war. In late 2002 I hypothesized that Saddam Hussein sealed his fate when he announced in September 2000 that Iraq was no longer going to accept dollars for oil being sold under the UN’s oil for food program, and decided to switch to the euro as Iraq’s oil export transaction currency. <3> Iraq’s $10 billion UN reserve fund was also transitioned to euros - and due to dollar devaluation swelled to € 23 million by early 2003.

The original essay outlined the macroeconomics of the `petrodollar recycling’ phenomenon and the unpublicized but real challenge to US dollar supremacy from the euro as an alternative oil transaction currency. The Iraq war had less to do with any threat from Saddam’s old weapons of mass destruction program and certainly less to do to do with fighting terrorism than it has to do with gaining control over Iraq’s hydrocarbon reserves and in doing so maintain the U.S. dollar as the monopoly currency for the critical international oil market. Candidly speaking, 'Operation Iraqi Freedom' was a war designed to keep the euro from becoming an alternative oil transaction currency. The global community just witnessed a combination of petrodollar warfare and oil depletion warfare in Iraq. The majority of the world’s governments – especially the E.U., Russia and China - were not amused - and neither are the US soldiers currrently stationed in Iraq.

Indeed, my original pre-war hypothesis was validated shortly after the war in a Financial Times article dated June 5th, 2003, which confirmed Iraqi oil sales returning to the international markets were once again denominated in US dollars, not euros. Not surprisingly, this detail was never mentioned in the US corporate-controlled, five major media conglomerates, but confirmation of this vital fact provides insight into one of the crucial -- yet overlooked -- rationales for 2003 the Iraq war.

"The tender, for which bids are due by June 10, switches the transaction back to dollars -- the international currency of oil sales -- despite the greenback's recent fall in value. Saddam Hussein in 2000 insisted Iraq's oil be sold for euros, a political move, but one that improved Iraq's recent earnings thanks to the rise in the value of the euro against the dollar." <4>

I recently completed a book that details the history of these subjects, along with an analysis of the other crucial issue, global Peak Oil. Unfortunately, it has become clear that yet another manufactured war, or some type of ill-advised covert operation is inevitable under President George W. Bush, should he win the 2004 Presidential Election. Numerous news reports over the past year, and most especially this month, have revealed that the neoconservatives are quietly - but actively -planning for the second petrodollar war of this decade - Iran. What follows are exerts and information contained in my upcoming book regarding the history of the Iraq conflict, and recent developments. (Additional info on my upcoming book, Petrodollar Warfare: Oil, Iraq, and the Future of the Dollar, is found at the end of this essay)

Current geopolitical tensions between the United States and Iran extend beyond the publicly stated concerns regarding Iran’s nuclear intentions, and likely include a proposed Iranian petroeuro system for oil trade. To date, one of the more difficult “technical obstacles” concerning a petroeuro oil transaction trading system is the lack of a euro-denominated oil pricing standard, or oil “marker” as it is referred to in the industry. The three current oil “markers” are U.S. dollar denominated. However, since the spring of 2003 Iran has required payments in the euro currency for its European and Asian/ACU exports - although the oil pricing for trades are still denominated in the dollar. <5>

Therefore a potentially significant news development was reported in June 2004 announcing Iran’s intentions to create of an Iranian oil Bourse. (The word “Bourse” refers to a stock exchange for securities trading, and is derived from the French stock exchange in Paris, the Federation Internationale des Bourses de Valeurs.) This announcement portended competition would arise between the Iranian oil bourse and London’s International Petroleum Exchange (IPE), as well as the New York Mercantile Exchange (NYMEX).
The macroeconomic implications of a successful Iranian Bourse are quite noteworthy. Considering that Iran has switched to the euro for its oil payments from E.U. and ACU customers, it would be logical to assume the proposed Iranian Bourse will usher in a fourth crude oil marker – denominated in the euro currency. Such a development would remove the main “technical obstacle” for a broad-based petroeuro system for international oil trades. From a purely economic and monetary perspective, a petroeuro system is a logical development given that the European Union imports more oil from OPEC producers than does the U.S., and the E.U. accounts for 45% of imports into the Middle East (2002 data).

Acknowledging that many of the oil contracts for Iran and Saudi Arabia are linked to the United Kingdom’s Brent crude marker, the Iranian bourse could create a significant shift in the flow of international commerce into the Middle East. If Iran’s bourse becomes a successful alternative for oil trades, it would challenge the hegemony currently enjoyed by the financial centers in both London (IPE) and New York (NYMEX), a risk not overlooked in the following article:

“Iran is to launch an oil trading market for Middle East and Opec producers that could threaten the supremacy of London's International Petroleum Exchange.”

“…He played down the dangers that the new exchange could eventually pose for the IPE or Nymex, saying he hoped they might be able to cooperate in some way.

“Some industry experts have warned the Iranians and other OPEC producers that western exchanges are controlled by big financial and oil corporations, which have a vested interest in market volatility.

The IPE, bought in 2001 by a consortium that includes BP, Goldman Sachs and Morgan Stanley, was unwilling to discuss the Iranian move yesterday. "We would not have any comment to make on it at this stage," said an IPE spokeswoman. “<6>

It is unclear at the time of writing (autumn of 2004) if this project will be successful, or could it prompt overt or covert U.S. interventions? - thereby signaling the second phase of petrodollar warfare in the Middle East. (Iraq was the first petrodollar war). News articles in June 2004 revealed that Ahmad Chalabi reportedly revealed his knowledge regarding U.S. military planning for operations against Iran.

“The reason for the US breakup with Ahmed Chalabi, the Shiite Iraqi politician, could be his leak of Pentagon plans to invade Iran before Christmas 2005, but the American government has not changed its objective, and the attack could happen earlier if president George W. Bush is re-elected, or later if John Kerry is sworn in.”

“….Diplomats said Chalabi was alerted to the Pentagon plans and in the process of trying to learn more to tell the Iranians, he invited suspicions of US officials, who subsequently got the Iraqi police to raid the compound of his Iraqi National Congress on 20 May 2004, leading to a final break up of relations.”

“While the US is uncertain how much of the attack plans were leaked to Iran, it could change some of the invasion tactics, but the broad parameters would be kept intact.” <7>

Regardless of the potential U.S. response to a petroeuro, the emergence of an oil exchange market in the Middle East is not entirely surprising given the post-domestic peaking and decline of oil exports in the U.S. and U.K, in comparison to the remaining oil reserves in Iran, Iraq and Saudi Arabia. According to Mohammad Javad Asemipour, an advisor to Iran’s oil ministry and the individual responsible for this project, this new oil exchange is scheduled to begin oil trading in March 2005.

“Asemipour said the platform should be trading crude, natural gas and petrochemicals by the start of the new Iranian year, which falls on March 21, 2005.

He said other members of the Organization of Petroleum Exporting Countries - Iran is the producer group's second-largest producer behind Saudi Arabia - as well as oil producers from the Caspian region would eventually participate in the exchange.” <8>


Furthermore, according to the following report, Saudi investors may be interested in participating in the Iranian oil exchange market, further illustrating why petrodollar recycling is unsustainable.

“...Chris Cook, who previously worked for the IPE and now offers consultancy services to markets through Partnerships Consulting LLP in London, commented: "Post-9/11, there has also been an interest in the project from the Saudis, who weren't interested in participating before."

“Others familiar with Iran's economy said since 9/11, Saudi Arabian investors are opting to invest in Iran rather than traditional western markets as the kingdom's relations with the U.S. have weakened Iran's oil ministry has made no secret of its eagerness to attract much needed foreign investment in its energy sector and broaden its choice of oil buyers.”

“…Along with several other members of OPEC, Iranian oil officials believe crude trading on the New York Mercantile Exchange and the IPE is controlled by the oil majors and big financial companies, who benefit from market volatility.” <9>

One of the Federal Reserve’s greatest nightmares may come to fruition in March 2005, when it appears that international buyers will have a choice of buying a barrel of oil for $50 dollars on the NYMEX and IPE or purchase a barrel of oil for €40 euros via the Iranian bourse. Assuming of course that the euro maintains its current 20% appreciated value relative to the dollar - and assuming that some sort of "intervention" is not undertaken against Iran. The upcoming bourse will introduce dollar versus euro currency hedging and fundamentally new dynamics to the biggest market in the world - global oil and gas trades.

During an important speech in April 2002, an OPEC executive described three pivotal events that would facilitate an OPEC transition to euros. <10> He stated this would be based on (1) if and when Norway's Brent crude is re-dominated in euros, (2) if and when the U.K. adopts the euro, and (3) whether or not the euro gains parity valuation relative to the dollar, and the E.U.’s proposed expansion plans were successful. (Note: Both of the later two criteria have transpired: the euro’s valuation has been above dollar since late 2002, and the 'EU-25’ enlargement occurred in May 2004)

Regarding the U.K., Tony Blair has lobbied heavily for the U.K. to adopt the euro, and its adoption would seem imminent within this decade. If and when the U.K. adopts the euro currency, we are likely to see a concerted effort to quickly establish the euro as an international reserve currency. Given the U.K.’s uncomfortable juxtaposition between the financial interests of the U.S. and the E.U., the realization of this hypothesis would certainly represent a monumental realignment of the transatlantic relationship.

The implementation of the proposed Iranian oil bourse (exchange) in 2005 – if successful and utilizes the euro as its oil transaction currency standard – essentially negates the necessity of the previous two criteria as described by OPEC in 2002 regarding the solidification of a “petroeuro” system for international oil trades. Unlike Iraq, Iran has a robust military capability, and with anti-ship missiles they can control via Abu Musa Island the critical Strait of Hormuz. It is doubtful that "Shock and Awe" will be attempted on Iran...

The immediate question for Americans? Will the neoconservatives attempt to intervene covertly in Iran before March 2005 in an effort to prevent the formation of a euro-denominated crude oil pricing mechanism? Commentators in India are quite correct in their assessment that a U.S. intervention in Iran is likely to prove disastrous for the United States, making matters much worse regarding international terrorism, not the mention retaliatory effects on the U.S. economy.

“The giving up on the terror war while Iran invasion plans are drawn up makes no sense, especially since the previous invasion and current occupation of Iraq has further fuelled Al-Qaeda terrorism after 9/11.”

“…It is obvious that sucked into Iraq, the US has limited military manpower left to combat the Al-Qaeda elsewhere in the Middle East and South Central Asia,”…”and NATO is so seriously cross with America that it hesitates to provides troops in Iraq, and no other country is willing to bail out America outside its immediate allies like Britain, Italy, Australia and Japan.”

“….If it intervenes again, it is absolutely certain it will not be able to improve the situation – Iraq shows America has not the depth or patience to create a new civil society – and will only make matters worse.”

“There is a better way, as the constructive engagement of Libya’s Colonel Muammar Gaddafi has shown….”Iran is obviously a more complex case than Libya, because power resides in the clergy, and Iran has not been entirely transparent about its nuclear programme, but the sensible way is to take it gently, and nudge it to moderation. Regime change will only worsen global Islamist terror, and in any case, Saudi Arabia is a fitter case for democratic intervention, if at all.” <11>

It is abundantly clear that a 2nd Bush term will likely bring a confrontation and possible war with Iran. However it is unclear what policies John Kerry might pursue regarding these issues if he should win in November. Despite the power of the U.S. military and the occasional effectiveness of U.S. intelligence agency interventions, it would be perilous and possibly ruinous for the U.S to intervene in Iran given the deplorable situation in Iraq. A successful Iranian bourse will solidify the "petroeuro" as an alternative oil transaction currency, and thereby end the petrodollar's hegemonic status as the monopoly oil currency.

Therefore, a graduated approach is needed to avoid precipitous U.S. economic dislocations. Multilateral compromise with the EU and OPEC regarding oil currency is certainly preferable to an "Operation Iranian Freedom," or perhaps a CIA-sponsored repeat of the 1953 Iranian coup – operation "Ajax" part two <12> Indeed, there are good reasons for U.S. military leaders to be “horrified” at the thought of a 2nd Bush term.

"The U.S. capability to make a mess of Iran's nuclear infrastructure is formidable," says veteran Mideast analyst Geoffrey Kemp. "The question is, what then?" NEWSWEEK has learned that the CIA and DIA have war-gamed the likely consequences of a U.S. pre-emptive strike on Iran's nuclear facilities. No one liked the outcome. As an Air Force source tells it, "The war games were unsuccessful at preventing the conflict from escalating.” <13>

###

“Of all the enemies to public liberty war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes...known instruments for bringing the many under the domination of the few. . . No nation could preserve its freedom in the midst of continual warfare."
- James Madison, 1795

"Whenever the people are well-informed, they can be trusted with their own government. Whenever things get so far wrong as to attract their notice, they may be relied on to set them to rights."

“Dissent is the highest form of patriotism.”
- Thomas Jefferson, 1789

“We owe respect to the living; to the dead we owe only truth”
- Voltaire, 1785



References:

<1> “War-Gaming the Mullahs: The U.S. weighs the price of a pre-emptive strike,” Newsweek, September 27 issue, 2004. http://www.msnbc.msn.com/id/6039135/site/newsweek /

<2> “Revisited - The Real Reasons for the Upcoming War with Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth,” January 2003 (updated January 2004)
http://www.ratical.org/ratville/CAH/RRiraqWar.html

<3> Recknagel, Charles, "Iraq: Baghdad Moves to Euro," Radio Free Europe (November 1, 2000)http://www.rferl.org/features/2000/11/01112000160846.as...

<4> Hoyos, Carol & Morrison, Kevin, "Iraq returns to the international oil market," Financial Times, June 5, 2003 http://www.thedossier.ukonline.co.uk/Web%20Pages/FINANC...

<5> Shivkumar, C., “Iran offers oil to Asian union on easier terms,” The Hindu Business Line (June 16, 2003). http://www.thehindubusinessline.com/bline/2003/06/17/st...

<6> Macalister, Terry, “Iran takes on west's control of oil trading,” The Guardian, June 16, 2004
http://www.guardian.co.uk/business/story/0,3604,1239644...

<7> “US to invade Iran before 2005 Christmas,” News Insight: Public Affairs Magazine, June 9, 2004
http://www.newsinsight.net/nati2.asp?recno=2789

<8> “Iran Eyes Deal on Oil Bourse; IPE Chairman Visits Tehran,” Rigzone.com (July 8, 2004)
http://www.rigzone.com/news/article.asp?a_id=14588

<9> “Iran Eyes Deal on Oil Bourse, IPE Chairman Visits Tehran,” ibid

<10> “The Choice of Currency for the Denomination of the Oil Bill," Speech given by Javad Yarjani, Head of OPEC's Petroleum Market Analysis Dept, on The International Role of the Euro (Invited by the Spanish Minister of Economic Affairs during Spain's Presidency of the EU) (April 14, 2002, Oviedo, Spain)
http://www.opec.org/NewsInfo/Speeches/sp2002/spAraqueSp...

<11> “Terror & regime change: Any US invasion of Iran will have terrible consequences,” News Insight: Public Affairs Magazine, June 11, 2004 http://www.indiareacts.com/archivedebates/nat2.asp?recn...

<12> J.W. Smith, “Destabilizing a Newly-Free Iran,” The Institute for Economic Democracy, 2003 http://www.ied.info/books/why/control.html

<13> “War-Gaming the Mullahs: The U.S. weighs the price of a pre-emptive strike,” ibid.


####

New Society catalog description – Available Spring 2005

Reveals the background -- and blowback from -- the first oil currency war

Petrodollar Warfare
Oil, Iraq and the Future of the Dollar
William Clark

The invasion of Iraq may well be remembered as the first oil currency war. Far from being a response to 9-11 terrorism or Iraq's alleged weapons of mass destruction, Petrodollar Warfare argues that the invasion was precipitated by two converging phenomena: the imminent peak in global oil production, and the ascendance of the euro currency.

Energy analysts agree that world oil supplies are about to peak, after which there will be a steady decline in supplies of oil. Iraq, possessing the world's second largest oil reserves, was therefore already a target of U.S. geostrategic interests. Together with the fact that Iraq had switched its oil transaction currency to euros -- rather than U.S. dollars -- the Bush administration's unreported aim was to prevent further OPEC momentum in favor of the euro as an alternative oil transaction currency standard.

Meticulously researched, Petrodollar Warfare examines U.S. dollar hegemony and the unsustainable macroeconomics of 'petrodollar recycling,' pointing out that the issues underlying the Iraq war also apply to geostrategic tensions between the U.S. and other countries including the European Union (E.U.), Iran, Venezuela, and Russia. The author warns that without changing course, the American Experiment will end the way all empires end with military over-extension and subsequent economic decline. He recommends the multilateral pursuit of both energy and monetary reforms within a United Nations framework to create a more balanced global energy and monetary system thereby reducing the possibility of future oil-depletion and oil currency-related warfare.

A sober call for an end to aggressive U.S. unilateralism, Petrodollar Warfare is a unique contribution to the debate about the future global political economy.

[cthrumatrix]

1. print it out and read it ...or bookmark this...it's important

[muriel_volestrangler]

2. A slightly updated version here

http://www.globalresearch.ca/articles/CLA410A.html

with working links, and the news that the opening of the new bourse is now scheduled for March 2006. Note that they haven't explicitly said the contracts will be in euros, though that would seem likely, if they prefer eventual payment in euros.

[cthrumatrix]

3. looks like March 2005 to me ...read here (from your link)

Regardless of the potential U.S. response to an Iranian petroeuro system, the emergence of an oil exchange market in the Middle East is not entirely surprising given the domestic peaking and decline of oil exports in the U.S. and U.K, in comparison to the remaining oil reserves in Iran, Iraq and Saudi Arabia. According to Mohammad Javad Asemipour, an advisor to Iran’s oil ministry and the individual responsible for this project, this new oil exchange is scheduled to begin oil trading in March 2005.

"Asemipour said the platform should be trading crude, natural gas and petrochemicals by the start of the new Iranian year, which falls on March 21, 2005.

He said other members of the Organization of Petroleum Exporting Countries - Iran is the producer group's second-largest producer behind Saudi Arabia - as well as oil producers from the Caspian region would eventually participate in the exchange." <7>

[muriel_volestrangler]

4. read down a couple of paragraphs for the update

"(Note: the most recent Iranian news report from October 5, 2004 stated: "Iran's oil bourse will start trading by early 2006" which suggests a delay from the original March 21, 2005 target date). "

That's why I gave the hyperlink to Iran Daily that confirms that March 2006 date.

[xpat]

5. Here's more on the topic

http://www.feasta.org/documents/review2/nunan.htm

Nunan goes into a lot of detail linking French, German and Russian opposition to the Iraq invasion to their desire to replace the dollar with the euro.

[cthrumatrix]

6. where is Condi talking about the "Euro risk with Iran"?

[xpat]

7. I don't follow you.

Could you elaborate? I wouldn't expect her to come out and say, "We have to stomp Iran because they are setting up a petroeuro market."