Feb 15, 2006
Bahman Aghai Diba PhD International Law - Persian Journal
It is several years that a plan for establishment of an oil exchange center under the title of "Iran Oil Bourse" (IBO) is under discussion. (1) The most important point about the plan is that it wants to replace dollar with euro for the currency that is used for oil transactions. According to the existing schedule, the IBO will start functioning from March 2006. Some sources have claimed that the US is so sensitive to this move against dollar that it is going to attack Iran before the IOB starts working. These sources claim that the same issue instigated the US attack against Iraq.
I do not think that IOB will be a real source of threat for anyone and source of interest for Iran at the present conditions and under the control of the Islamic Republic of Iran. The government of the Islamic regime of Iran, as an inefficient, unpopular, undemocratic, anti-human rights, corrupt, non-transparent, illogical (ignoring the national interests and defending the hardliner religious zealots all over the world), un-elected, tyrannical, mismanaged, isolated, sanctioned government, which is hostage to the religious ideology of the Arabs of 1400 years ago, is not able to start such a plan. At the same time, the engineers of the conspiracy theories of "petrodollar wars" are neglecting (probably intentionally) many important issues in this case. Most of these theories are based on false assumptions.
The Iranian oil Bourse will not start at the time claimed. It will not be able to make any changes in the oil market and it is not able to do any thing important against dollar. The countries like Russia, China, Europe and many others are not so naive to wait until a corrupt and inefficient system like the Islamic Republic of Iran makes a change that they like. If they were interested in doing something like this (changing the dollar base with euro for oil transactions), they would have done it much before. There are several attempts, including by Putin in Russia and the UAE for doing this and they were stopped due to the existing difficulties. The I R of Iran has not solved those difficulties and at the same time it has thousand of important problems over them. Which country or reputed company is ready to establish a brokerage unit for oil (as matter of fact for anything else) in the Kish Island of Iran and put its personnel and establishment subject to the jurisdiction of the revolutionary courts of Iran? Or the illegal acts of the disciplinary forces of the Iranian regime or the irresponsible actions of the "organized thugs" called Bassijis (note the attacks of the organized thugs against the foreign embassies in Iran due to several unimportant cartoons).
That is the petrodollar wars?
Hadi Zamani (2) in his informative and detailed series of articles about the Iranian oil bourse (written in Persian and posted consecutively in http://news.gooya.com) has mentioned: "according to the theory of petrodollar wars, the monopolistic situation of dollar for the foreign exchange reserves of the world imposes a great burden over all countries... It allows the USA to continue to have its structural economic imbalance and lets it keep its hegemony over the international economy... therefore keeping the status of dollar is at the top of the foreign policy priorities of the United States. At the moment, due to the risks and dangers that threaten the status of dollar, the US is following a militaristic policy in the Middle East region in order to stop the collapse of its economic, political and military hegemony... on the basis of the arguments related to the petrodollar wars, the reason for US attack against Iraq� was not combat against international terrorism or stopping Iraq from getting the nuclear weapons. The US aim was keeping the hegemony over the international economy. For the same reason, immediately after the occupation of Iraq, the US officials ordered the oil transactions of Iraq back to the dollar system...".
Professor Krassimir Petrov (3), from the American University in Bulgaria (his article on this subject has been used by countless sources and websites as an academic argument for the validity of petrodollar wars theory) writes: "... Bush's war in Iraq was not about existing weapons of mass destruction, about defending human rights, about spreading democracy, or even about seizing oil fields. It was about defending the dollar, ergo the American Empire; it was about setting an example that anyone who demanded payment in currencies other than U.S. Dollars would be likewise punished....The Iranian government has recently proposed to open in March 2006 an Iranian Oil Bourse�If so...The Europeans will not have to buy and hold dollars in order to secure their payment for oil, but would instead use with their own currency. The Chinese and the Japanese will be especially eager to adopt the new exchange. It will allow them to drastically lower their enormous dollar reserves and diversify them with Euros... The Russians have economic interest in adopting the Euro... Russians have also revived their nationalism; if embracing the Euro will stab the Americans, they will gladly do it and smugly watch the Americans bleed. The Arab oil-exporting countries will eagerly adopt the Euro as a means of diversification against rising mountains of depreciating dollars. Should the Iranian Oil Bourse gain momentum and accelerate, the interests that matter...will eagerly adopt the Euro, thus sealing the fate of the dollar. Americans cannot allow this to happen, and if necessary, will use a vast array of strategies to halt or hobble the exchange�s operations: Sabotaging the exchange, coup d'etat, Negotiating acceptable terms, joint UN war resolution, unilateral unclear strike, and unilateral total war. [this section is made brief]"
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Jerome R. Corsi (4) has stated in his writings: "Iran and Venezuela have joined forces in an effort to undermine the U.S. dollar. In October 2005, Venezuelan President Hugo Chavez announced that Venezuela was ready to move the country's foreign-exchange holdings out of the dollar and into the euro. He also called for the creation of a South American central bank designed to hold in euros all the foreign assets."
Also, Mike Whitney (5) in his article dated Feb. 4 2006 claims: "Many war-weary newshounds are probably wondering why Russia caved in at the IAEA board meeting and agreed to have Iran sent before the UN Security Council� Obviously, Russia's foreign minister comment that the referral to the UNSC is "only a warning" doesn't adequately explain why Russia would have placed its ally in such grave danger of a preemptive attack. It may be, in the words of the Godfather, that the Bush administration made Putin "a deal he couldn't refuse". For one thing, Most News reports just yesterday that "Lukoil will replace the disgraced Halliburton" in providing fuel in Iraq...The truth is, that even the control of oil is not nearly as critical to the US as maintaining it's continued dominance in the exchange of oil in greenbacks. If Iran is allowed to open its oil bourse (exchange) in March and openly compete with the US's monopoly on trading oil in petrodollars, the central banks across the globe will dump hundreds of billions of dollars overnight, and the American economy will disappear beneath the waves."
In his other article, Mike Whitney (6) has added: "...The [US] administration has no hope of securing the votes needed for sanctions or punitive action. The trip to the Security Council [of the Iranian nuclear case] is purely a ploy to provide the cover of international legitimacy to another act of unprovoked aggression... We should now be focused on how Washington intends to carry out its war plans, since war appears to be inevitable. Bush has no intention of occupying Iran. Rather, the goal is to destroy major weapons-sites, destabilize the regime, and occupy a sliver of land on the Iraqi border that contains 90% of Iran's oil wealth. Ultimately, Washington will aim to replace the Mullahs with American-friendly clients who can police their own people and fabricate the appearance of representative government. But, that will have to wait. For now, the administration must prevent the incipient Iran bourse (oil-exchange) from opening in March and precipitating a global sell-off of the debt-ridden dollar.."
The answers to the theory
Paul Craig Roberts has written "readers keep asking if Bush is attacking Iran because it plans to open an oil bourse that would permit oil to trade in Euros..., the answer is no..., the dollar's value depends on the world's willingness to hold dollar denominated assets, not on the currency used to pay oil bills." (7)
Once again looking at the articles of Hadi Zamani on the subject makes many points clear. He writes in the articles mentioned earlier that: "...those who oppose this doctrine argue [I have put the reasons that Zamani has mentioned in numbers changed some words accordingly]:
1- This doctrine exaggerates the status of dollar for the US economy.
2- The doctrine is ignoring the elements that have resulted in the present role of dollar as the reserves currency in the world and coasts of staying in such a position.
3- The euro is not able to tolerate the costs of being a currency for exchange reserve and the European countries are not ready for such a burden.
4- This doctrine is not taking into consideration the realities and complex mechanisms of the oil market
5- The doctrine is based on several handpicked evidences and it degrades the functions of the global economy into several conspiracies.
6- The first reason for the present role of dollar as the dominant currency in exchange reserves is the power of the American economy, not political conspiracies. The UIS produces almost one third of the Gross Global Products.
7- In the long run, dollar has more stability as compared to the other currencies.
8- Transferring the euro into the currency for the global reserves will increase its value 20 to 40 percent, and such an increase will weaken the exports of the euro countries considerably. The European economy is not powerful enough to tolerate such a pressure.
9- There is no serious indication that the countries of the world, including the oil exporting countries are ready to accept a euro based oil market. Since 1986 the oil prices are determined according to complex tables and spot changes in the New York and London exchange markets (called New York Mercantile Exchange, or NYMEX and International Petroleum Exchange or IPE correspondingly.)
10- OPEC countries are not ready to change the basis for oil transactions so easily. OPEC has tried several times to change the basis for the oil prices to euro, or Special Drawing Rights (SDRs of the IMF) or a basket of currencies and each time it has been abandoned.
The plan for establishment of Iranian Oil Bourse was first tabled in 2000� The IOB will include petrochemical products and gas too. In the initial phase the transactions does not include crude oil (perhaps up to three years). Later it will include all oil transactions including the swap operations of the Caspian Sea oil. According to the claims of the Iranian government the IOB will turn into a major oil transactions center in the Middle East. The transactions will be in euros and the monopoly of dollar over the global oil markets will be ended.
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However, entering this business requires a reform and preparation in the economic, legal and administrative structure of the country. At the moment Iran lacks proper financial, banking, insurance, customs, and commercial structures, proper tax laws, the dominance of the governmental sector, lack of competition in market, weakness in attraction of foreign investment, lack of necessary expert manpower, lack of necessary advanced technology, weakness in the electronic commerce structure, lack of necessary economic, legal and technical infrastructures, lack of system of the credit cards in global level, lack of commercial customs, Iran is not still a member of the World Trade Organization (WTO), Iran is already under American sanctions, Iran is not in a proper situation in the global economy, Iran has to observe the OPEC quotas, and this limitation cannot work in an international oil bourse. The IOB is based on the good market for the producers, but the fluctuations in the oil prices may put the same countries in a difficult situation.
Zamani adds an important point for those who care about the religious aspects of the IOB and he says, "It seems that the IOB is against the religious rules of Islamic Shari'a in Iran. The IOB faces problems based on the Islamic jurisprudence limitations and stumbling blocks...oil bourse is in fact a future market. One of its aims is to reduce risks of the oil transactions... according to the studies of the Iranian experts, the mechanism of future oil bourse transactions is basically contrary to the Islamic jurisprudence of the Islamic Republic of Iran (please refer to the article in Persian by Hojaolislam Ghanimi Fard, and Mohammad Aram Bonyar in the site of Imame Sadegh University regarding the "Feasibility Study of the Establishment of the Oil Bourse by the Islamic Republic of Iran)." Zamani concludes: "The success of the oil bourse depends on transparency of the economic structure and rationalization of the Iranian foreign policy." (8)
Also, Colin Nunan has written in the Energy Bulletin "...However, others have claimed that the idea that the currency in which oil is sold matters at all is based on a poor understanding of economics...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�So can we conclude that an Iranian oil bourse trading oil in euros is the real reason for the current crisis? Perhaps this is prematurely jumping to conclusions... I have yet to see a clear statement on this from the Iranian government." (9)
The IOB is a good idea. In the hands of a proper Iranian government that establishes good relations with many countries, including and especially the USA, it could turn in the long run into a profitable center. The present day Iran lacks the necessary preparations for such a move. Even if taking steps for such reforms are started today, it will take sometime to make the necessary grounds ready. However, the government of the Islamic regime of Iran is not even walking in the direction of those reforms. Unfortunately the IOB is a stillborn.
Notes and references:
(1) According to the official Mehr News Agency in Iran: "Iran is to a form joint oil brokerage as the reputable international stock exchanges like London, New York and Singapore." ( http://www.payvand.com/news/05/nov/1248.html, dated 11/27/2005)
(2) http://news.gooya.com/world/archieves/039259.php dated 11/29/2005
(3) http://www.freemarketnews.com/Anaysis/183/3744/2006-02-10.asp?nid=3744&wid=183 dated 2/10/2006.
(4) http://worldnetdaily.com/news/printer-friendly.asp?ARTICLE_ID=48751, dated 2/11/2006.
(5)http://www.opednews.com/maxwrite/print_friendly.php?p=opedne_moke_whi_060204_whi, dated 2/11/2006
(6)http://www.jihadunspun.com/intheatre_internal.php?article=106112&list=/home.php, dated Feb.4, 2006
(8) http://news.gooya.com/world/archieves/040054.php dated 11/29/2005
(9) http://www.energybulletin.net/print.php?id=12463 dated 30 Jan.2006
Bahman Aghai Diba is a consultant to the World Resources Company in the Washington DC area