[socialcredit] Re: Invitation to the congress, (We should become regular contributors to the excellent explanations of AsiaTimes' monetary section :) Regards Ekky.
SPEAKING
FREELY Killing the dollar in
Iran By Toni Straka
Speaking
Freely is an Asia Times Online feature that allows guest
writers to have their say. Please click hereif you are
interested in contributing.
Could the proposed
Iranian oil bourse (IOB) become the catalyst for a significant
blow to the influential position the US dollar enjoys?
Manifold supply fears have driven the price of crude oil to
its recent high of US$67.10 - only a notch below its highest
price in inflation-adjusted dollar terms. With the world
facing a daily bill of roughly $5.5 billion for crude oil at
current price levels, it becomes apparent that sellers and
purchasers of the black gold are looking into all ways that
could lead to a financial improvement on their respective
sides.
Non-US-dollar holders so far have been the
victim of additional transaction costs in the oil trade. The
necessary conversion of local currencies into oil-buying
greenbacks can be considered a hidden tax, charged and enjoyed
by the international banking sector. The IOB, by eliminating
this transaction cost, will become
a factor that
could unsettle the dollar's dominant position. While the
worldwide bottleneck of inadequate refining facilities and
partly dramatic declines in production - for example in the
North Sea - are two factors that cannot be eliminated in the
short term, there is one area left which could result in
smiling faces of oil producers as well as most buyers.
Oil consumers are entangled in a web of supply fears
that span the globe. In Venezuela, President Hugo Chavez
threatens to divert oil supplies from the US to China, which
faces severe gasoline and diesel shortages these days. Attacks
on Iraqi oil installations have slowed exports there.
Ecuador's oil industry is still recovering from a strike,
while Nigerian oil companies are in the middle of efforts to
avoid a strike there.
Until now, oil has been solely
priced, traded and paid for in the greenback on markets in
both London and New York. But monthly worldwide oil revenues
of over $110 billion (on a 20-trading-day basis) - a third of
which ends up with OPEC (Organization of the Petroleum
Exporting Countries) members - raise the question of what
happens to these cash mountains. According to the most recent
data from the US Treasury Department, OPEC members have parked
only a skimpy $120 billion in direct dollar holdings, which
are almost equally split between equities and American debt
paper. This is a clear indication that oil producers are
investing their windfalls elsewhere. The yield spread between
US and EU debt papers in favor of the EU is another hint where
the petrodollars might be heading.
Especially in the
case of Iran, it does not make sense to accept dollars only
for its much-desired commodity. Given that Iran is seen as a
hostile country by the current US administration for its
intention to build its own nuclear reactors, one wonders
whether the new IOB will not try to attract buyers other than
Americans. Iran has recently announced that the new oil
exchange will start up its computers in March 2006.
The proposal to set up a petroleum bourse was first
voiced in Iran's development plan for 2000-2005. Last July,
Heydar Mostakhdemin-Hosseini, who heads the board of directors
of the Iranian Stock Exchange council, said authorities had
agreed in principle to the establishment of the IOB, where
petrochemicals, crude oil and oil and gas products will be
traded. The oil exchange would strive to make Iran the main
hub for oil deals in the region and most deals will be
conducted via the Internet. Experts from London's
International Petroleum Exchange (IPE) and the New York
Mercantile Exchange (NYMEX) have reportedly confirmed the
feasibility of the project.
The IOB can count on two
sharp arrows in its holster. It can - and probably will - lure
European buyers with oil prices quoted in euros, saving them
dollar transaction costs. And it can strike barter deals with
oil-hungry giants like China and India who have a lot of
products and commodities to offer. One doubts whether American
hamburgers and legal services will be considered adequate
collateral for the world's most after-sought resource.
Worse than an Iranian nuclear attack? Weaned
off the almighty commodity, the US dollar can have a deeper
impact on the US economy than a direct nuclear attack by Iran.
The permanent demand for dollar-denominated paper stems
substantially from the fact that until now almost all
resources of the world are quoted in it. While this led to the
eurodollar (US dollar-denominated deposits at foreign banks or
foreign branches of American banks) market in the 1970s, the
new terms of trade could ring in the demise of the dollar as
the premier reserve currency.
With the world economy
depending so much on oil, the black gold itself can be seen as
a reserve currency that will be handed out against only the
best collateral in the future. Last month, the Federal Reserve
Bank of San Francisco published a paper about the progress of
the diversification of central banks' reserves around the
world. It concluded that the dollar's position is on the
decline in many countries. China, the new industrial giant,
has officially declared that it will diversify a part of its
forex holdings into oil by building a strategic petroleum
reserve. Construction of storage tanks has begun this year and
will take several years until completion. China has not yet
said how many barrels of oil it wants to store. The
implications for the oil market can only be guessed as China
wants to use its future reserves to smooth out spikes in oil
price.
Iran holds a strong hand as the No 2 producer
of crude behind Saudi Arabia, pumping 5% of the world's oil
demand. Politicians there will also keep in mind that dollar
deposits might become a burden in the future, if the US steps
up its current war of words to the level of economic sanctions
in the attempt to halt construction of Iran's nuclear power
plants. Money in the bank does not help when you have no
access to it. Substituting Iran's domestic oil demand partly
with nuclear power will place the country in a win-win
situation. Cheaper nuclear energy and increases in oil exports
from the current level of roughly 2.5 million barrels a day
will result in a profitable equation for Iran.
Only
one major actor stands to lose from a change in the current
status quo: the US, which with less than 5% of the global
population, consumes roughly one third of global oil
production. Oil in euros would benefit millions more in the EU
and its trading partners, though. And it would loosen the grip
the US has on OPEC members. Thinking of the rapid growth of
hostilities between the US and Arab nations in recent years, a
renunciation of the dollar appears to be more than just an
Arab daydream.
As this development poses a very real
danger to the superior status of the greenback and the
interests of the US, the "president of war" can be expected to
take a strong line against the winds blowing from the Middle
East. One may be reminded that Saddam Hussein had entered into
discreet talks with the EU, proposing to sell his oil for
euros. That was in the year before the first oil war of this
century.
The IOB could help the euro to become the
interim primary reserve currency before China and India rise
to the first two slots in the global economic ranking in the
next few decades. A decline of the dollar's position in oil
trading might also open the floodgates in other commodity
markets where the dollar is the medium of exchange but where
the US has only a minority market share. A global economy
driven by tough efficiency demands in the light of thin profit
margins almost everywhere is a good primer for accounting
changes in other commodity markets as well. This process could
begin in resources like steel and energy and spread to all
other resources that are marketed globally. The world outside
the US has a lot to gain from it.
Toni
Straka is a Vienna, Austria-based independent financial
analyst and portfolio manager, who worked as a financial
journalist for over 15 years and now evaluates global market
trends. He runs a blog, The Prudent Investor, where this
piece first appeared.
Subject: Invitation to the congress,
please, come. Social credit in Madagascar, Mexico, Switzerland, Poland,,
Canada, ... and in Philippines, local banks and money
creation
Re: Invitation to 
Reply to this message
