May 11, 2006

Hyperinflation or: How I Learned To Stop Worrying And Love The Iranian Oil Bourse.

History: Post WWII The Bretton Woods system was adopted to maintain monetary stability across the major industrial powers. The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value—plus or minus one percent—in terms of gold. August 15, 1971 Richard Nixon makes the Dollar incontrovertible to gold, leading to by March of 1976 a free float on all world currencies. The Bretton Woods currency exchange market had closed in 1972. 1974 saw the acceptance of an iron clad agreement in which the House of Saud would be protected explicitly by the US, and in turn, would only ever accept US dollars for oil. Being the most powerful member of OPEC, this effectively 'pegged' the dollar back to a commodity - Oil. 1974 - Present Countries needing oil are forced to keep vast reserves of Petrodollars - US Dollars - in order to purchase from OPEC. The US has been able to build a massive trade deficit on this basis of petrodollars. 2000 Iraq begins accepting Petroeuros. Sept. 11th, 2001 "Iraq" attacks the US. Many discrepancies exist in the official story. Key evidence is withheld by the US Government. March 2003 The US invades Iraq and restores the oil currency back to the Petrodollar, ensuring the safety of the massive US trade deficit. March 23rd, 2006 The US Federal Reserve abrubtly stops releasing information regarding M3. This has started some speculation in the investment and banking community on the possible instability in the dollar system that the Fed is trying to hide. Within the next few months Iran will open up it's Oil Bourse on the Island of Kish. For the first time oil will be a commodity availably on an open market pegged to Petroeuros instead of Petrodollars. Doomsday analysis: · The Europeans will not have to buy and hold dollars in order to secure their payment for oil, but would instead pay with their own currencies. The adoption of the euro for oil transactions will provide the European currency with a reserve status that will benefit the European at the expense of the Americans. · The Chinese and the Japanese will be especially eager to adopt the new exchange, because it will allow them to drastically lower their enormous dollar reserves and diversify with Euros, thus protecting themselves against the depreciation of the dollar. One portion of their dollars they will still want to hold onto; a second portion of their dollar holdings they may decide to dump outright; a third portion of their dollars they will decide to use up for future payments without replenishing those dollar holdings, but building up instead their euro reserves. · The Russians have inherent economic interest in adopting the Euro – the bulk of their trade is with European countries, with oil-exporting countries, with China, and with Japan. Adoption of the Euro will immediately take care of the first two blocs, and will over time facilitate trade with China and Japan. Also, the Russians seemingly detest holding depreciating dollars, for they have recently found a new religion with gold. Russians have also revived their nationalism, and if embracing the Euro will stab the Americans, they will gladly do it and smugly watch the Americans bleed. Is it being blown out of porportion? Could any good come of this? The Real Reason Iran is the Next Target

posted by ian would say 18 years ago
  • This is what it's all about ; the main event on your fight card.
  • A well written and comprehensive article from Haaretz, summarising Clark's and Petrov's views. The single best graph I've found of the importance of oil in the world currency market:
    1) January 1999: launch of the euro. 2) January 1999 ­ Oct 2000: euro in "bear market² versus the dollar. 3) November 2000: Iraq switches oil sales to euro. Euro's fall versus the dollar is halted. 4) April 2002: senior OPEC representative gives speech in which he states that OPEC would consider possibility of selling oil in euros. 5) April 2002 to May 2003: euro in "bull market" versus the dollar. 6) June 2003: US switches Iraqi oil sales back to dollar. 7) June 2003 to September 2003: euro falls versus dollar. 8) October 2003 to early February 2004: statements by Russian and OPEC politicians/officials that switch to euro for oil sales is being considered. Euro's value versus the dollar increases. 9) 10 February 2004: OPEC meets and no decision to switch to euro is taken. 10) February 2004 to May 2004: euro falls versus the dollar. 11) June 2004: Iran announces intention to establish oil-trading market to rival those of London and New York. 12) June 2004: euro's value versus the dollar begins to increase again.
  • I think it's a little simplistic to say that the decline in the dollar vs the euro is based on the oil market. The Bush administration's fiscal policies have caused the US national debt to soar, which would logically lead to a weaker dollar. Some even speculate that the administration is intentionally trying to weaken the dollar vs other major currencies. (Lower $ = US goods are cheaper on the global market = more US exports and fewer foreign imports = more profits for domestic business (in $ terms) = happy voters.) Despite that, there is always the possibility that a shift to petroeuros could cause a sudden and dramatic devaluation of the dollar. That, my friends, would be bad. Investing some money in some foreign securities may be a good idea...
  • I've got about 42GBP in a dish on my desk. Think that'll cover me when I need a post-print-stamped quadrillion dollar bill for a loaf of bread?
  • I was listening to this on the radio a few days ago and someone mentioned that Finland also wanted to open an oil market to compete with London that would also be based on the euro. I haven't been able to find anything about that. The Finland market wasn't a "fuck you america" statement like Iran, but it was more of a way to help control its own destiny. The US went from the gold standard to the silver standard to the oil standard. If that too goes away, the dollar will truly be backed by faith. Like one of my econ professors said, what backs the greenback? Well let's look at one and see... Here it is "In God We Trust". Oh, and while we're at it, let's piss off one of our creditors.
  • The dollar isn't officially on an "oil standard" but the fact that most oil is on a dollar standard does have a de facto stabilizing influence on the dollar, which may well be much more volatile if the world shifts to petroeuros.
  • Yeah, I been watching this for some time. What jaypro22 says is absolutely right, it is much more complex than this with lots of other factors in play, but all of them look bad for the US economy. Personally, I think a disastrous 25% reduction in the value of the dollar & resulting collapse of the US economy would be a *good* thing in the long run, both for the US & the world. It would take me a long time to outline the reasoning behind this & my projections of scenarios, so I'll save it.
  • I don't like the sound of these 'ere "Oil Bourses"... they might turn the place into a boncentration bamp.
  • Neat post. I agree with others though that there's more to the picture than just the petrodollar angle. A lot of the Euro vs US$ movement can be explained by other events: e.g. January 1999 ­ Oct 2000: euro in "bear market² versus the dollar. This was also the time of the dot-com boom, there was a huge movement of foreign funds into the US, as investors bought into tech stocks. June 2003 to September 2003: euro falls versus dollar. Wasn't this during the time of "optimism" in the Iraq war? If so, that alone could explain the dollar's rise. Either way, the huge debt/deficit and trade accounts all look unsustainable. It's a tipping-point scenario.
  • Oops. Screwed up the link. Gold soars to new high.
  • I am not expert enough in the details to hash the economic numbers, but I wonder if the view on China's expected actions is not overly simplistic. China is trying to upgrade their economy and country into the twentieth century, financed through contract manufacturing for export. That shift in China's economic and industrial base is driving a hugely increasing demand for oil in China. If the cost of oil gets too high, China's growth and upgrade stalls. However, China's huge holdings of US dollars also support the economy of their major customer. If China dumps those dollars and sends the US economy into a tailspin then China's manufacturing contracts won't be renewed because there won't be any customers. Also stalling China's growth and upgrade. So I can't see China dumping dollars wholesale unless they feel they can afford to kiss off the US as an export market.
  • Oh. Bretton Woods. I thought you said Evelyn Woods. No wonder I got through that article so fast.
  • I had no idea abou the Petrodollar concept, had always thought oil was in dollars for convenience. Now at least I what Hawkwind were at least babling maniacally on a consistent subject in the middle of their song Assassins of Allah (Hassan I Sabha) when they chanted "Petro-dollar Petro-dollar Petrol-D'allah Petrol-D'allah... Death unto all infidels in oil". Not that any of that matters. Move along. We are not the droids you are looking for.
  • Iran Asks Japan to Pay Yen for Oil, Starting Immediately The implications may be massive, espeically if any other OPEC regimes follow suit...
  • Ouf. But why not euro? Silly Iranians. And what's China going to do with all of its surplus dollars if it can't use them to buy oil?
  • If the dollar drops as much as some say, use it line birdcages?
  • to line
  • No, no, they could use them to make green steamed buns!
  • I'm still taking reservations for the mofi commune up here, but from now on you'll have to make your deposit payment in Canadian dollars. (or beer, of course).
  • Ralph, I trust that I still have a spot reserved? Especially considering that rock bitch backed out, I have first dibs on her digs.
  • I miss the rock bitch. Nunia, come home!