IRAN PUSHED TO DRASTIC ACTION
MARCH 02, 2012 DAVE

• Iranians will no longer accept U.S. dollars for their crude
• Big problems predicted for dollar as global reserve currency

By Pete Papaherakles

The Tehran Times announced that as of March 20 the Iranian oil bourse will start trading oil in currencies other than the U.S. dollar. The decision passed by Iran’s parliament and carried out by Prime Minister Mahmoud Ahmadinejad comes as retaliation for U.S. sanctions placed on Iran’s Central Bank, which will punish any country that buys Iranian oil after July 1.

“The dispute over Iran’s nuclear program is nothing more than a convenient excuse for the U.S. to use threats to protect the ‘reserve currency’ status of the dollar,” reported the Times.
This is a major provocation against the U.S., whose economy depends on ensuring that the dollar is the only currency used to purchase oil around the world. In 1973 the orchestrated “energy crisis” swept the United States. The dollar, which was taken off the gold standard in 1971, now became based on oil production. It became the world’s reserve currency, meaning that, the world over, oil could only be purchased in dollars. This has fostered U.S. spending sprees, allowing the federal government to rack up an enormous mountain of debt. The illusion of solvency is kept intact only as long as all countries are forced to use dollars for the purchase of oil.

In the past, nations that decided to sell their oil in currencies other than the dollar have suffered dire consequences. Libya’s Muammar Qadaffi and Iraq’s Saddam Hussein were the last two world leaders to do it. Like Iran, they too had vast oil reserves and central banks that under Islamic law banned interest charges.

Iran has the third-largest oil reserves in the world. Eighty percent of its export revenue comes from oil, which it produces at a rate of 4 million barrels per day. As the EU, which buys 18 percent of Iran’s oil, caved to U.S. pressure and announced it would comply with the sanctions by July, Iran decided it would preemptively stop selling oil to European countries. It stopped all sales to Britain and France immediately. A week later a Greek tanker, which arrived in Iran to pick up 500,000 barrels of crude, was forced to return to Greece empty.

Analysts contend that the EU is going to have a harder time finding new suppliers than Iran will have finding new markets in Asia. Iran’s biggest customer, China, gobbles up 20 percent of Iran’s total oil sales. The Chinese government has said it will keep buying Iranian oil as will India, which accounts for another significant portion of total sales. India has already said it will buy Iranian oil using rupees or gold.

As a result of escalating tensions over Iran’s nuclear program, oil prices have risen 14 percent since the beginning of 2012. Some estimates say that if Iran moves to close the Strait of Hormuz, oil prices could rise by 50 percent. That will be a bonanza for Big Oil and Wall Street, both of whom have a huge influence in politics. Key announcements about hostilities can be timed to maximize huge profits for insiders.

Why the Dollar's Reign Is Near an End


For decades the dollar has served as the world's main reserve currency, but, argues Barry Eichengreen, it will soon have to share that role. Here's why—and what it will mean for international markets and companies.

In this new monetary world, moreover, the U.S. government will not be able to finance its budget deficits so cheaply, since there will no longer be as big an appetite for U.S. Treasury securities on the part of foreign central banks.

Nor will the U.S. be able to run such large trade and current-account deficits, since financing them will become more expensive. Narrowing the current-account deficit will require exporting more, which will mean making U.S. goods more competitive on foreign markets. That in turn means that the dollar will have to fall on foreign-exchange markets—helping U.S. exporters and hurting those companies that export to the U.S.

My calculations suggest that the dollar will have to fall by roughly 20%. Because the prices of imported goods will rise in the U.S., living standards will be reduced by about 1.5% of GDP—$225 billion in today's dollars. That is the equivalent to a half-year of normal economic growth. While this is not an economic disaster, Americans will definitely feel it in the wallet.

On the other hand, the next time the U.S. has a real-estate bubble, we won't have the Chinese helping us blow it.

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