The Deep Breath Before the Plunge
Iranian President Mahmoud Ahmadinejad just announced that starting this July, Iran will stop trading oil for dollars. Instead, anyone who wants to buy oil from Iran will have to pay for it in euros.
Coming on the heels of the Iranian Oil Bourse (IO
, an energy exchange Iran just registered on the Island of Kish on May 5, this looks like a calculated effort to undermine the US dollar...........In related news, Russian President Vladimir Putin has announced a similar plan: he is calling for Russia to establish an oil exchange denominated in rubles. Depending on how Russia is prepared to go in its requirements for selling oil, this could prove far more damaging to the global market for petrodollars.
Russia is the world's second largest oil producer after Saudi Arabia, producing some nine million barrels a day, or about ten percent of the world's total.
Combined, Russia and Iran account for fifteen percent of global oil production..........
With the gathering momentum of oil producing countries away from the dollar and toward the euro, the foreign demand for dollars is falling. Falling demand for dollars lowers the value of the dollar against other currencies, reducing the buying power of Americans.
Until now, the threat of global economic instability has kept the major players - Europe and China particularly - in the dollar game. Now Iran sees a chance to tweak the nose of its prime antagonist, and Russia sees a chance to get back in the game of global power politics.
The best outcome for all would be a smooth, managed transition from a pre-eminent petrodollar system to a basket of oil trading currencies, including the dollar, euro, ruble, renminbi, and others. However, the Bush administration has made it very clear that it is not prepared to share power.
It remains to be seen just how far the United States will go diplomatically and militarily to preserve its hegemony, and how far Iran, Russia, and other potential rivals waiting in the wings will go to break that hegemony up.
Analysts from all over the political spectrum are speculating that this round of increasingly aggressive posturing could escalate into a major conflict, even another world war. The potential for global devastation is so appalling that whatever its likelihood, the parties involved should be doing everything they can to let careful diplomacy map a way out.
Unfortunately, the United States refuses to engage Iran diplomatically, choosing instead to conduct illegal reconnaisance missions into Iranian territory, force a confrontation in the fractious UN Security Council, and plan a military onslaught of missile strikes, possibly including tactical nuclear weapons, on Iranian targets.
The fallout - no pun intended - from that conflagration would certainly throw the world into a turmoil from which there is no way to predict what may emerge........
In related news today, Venezualan Leader Hugo Chavez stated, " We are against America " as the United States this week designated Venezuala as a " Country of Concern " and will discontinue selling them various weapons and plane parts. The US gets a significant portion of its imported oil from Venezuala. As tensions between the two countries grow, how long before Venezuala stops sending the US its oil. Venezuala has recently suggested also it is considering trading its oil, only in Euros, meaning more trouble for the oil trade dependent dollar. This administration has created by its actions and policies a growing sentiment against the US, for what is seen by much of the world as its emperial actions. The inevitable repercussions are steadily increasing.
