By Zubeida Mustafa
THE Internet is a double-edged sword. It is a useful and accessible source of information. But it can also swamp you with disinformation leaving you totally confused and incapable of logical thinking. The issue that is doing the rounds on the Internet these days — but has not been taken up by the print media in a big way — is that of the Iranian oil bourse (IOB) that is on the anvil and is expected to trade in euros.
It seems to have assumed extraordinary importance because it is being linked directly to the current American confrontation with Tehran, which many fear would lead to war. After a similar build-up of rhetorics three years ago, the United States had attacked Iraq — and is still not ruing the consequences — so no one now dismisses as nonsense the talk of another military adventure by the Bush administration.
As is the case with conspiracy theories, there are some grains of truth in what is being said. It is the interpretation and the motives being read into the statements made and actions taken which leave one wondering about their credibility. The IOB theory goes as follows.
The United States attacked Iraq primarily not for any of the proclaimed reasons — gain control of Iraqi oil reserves, destroy Saddam Hussein’s weapons of mass destruction (WMD), regime change in Baghdad — but to prevent the Saddam government from switching over to the euros as the currency of transaction to sell its oil. Regime change and control of oil came as a bonus. The WMD never existed as we are now told. Of course the American objective of preempting the petroeuros can only be confined to the realm of speculation for such issues are not reported by the mainstream media in the US.
We know for certain that some moves were made though one can only deduce the motives behind them as the conspiracy theorists do. But obviously there is no way of confirming these motives.
For instance, Saddam Hussein had announced in 2000 that Iraq’s oil would be sold for euros, a currency stronger than the dollar, and he even started trading some of the Iraqi oil in euros. In June 2003, after the American conquest of Iraq, when Iraqi oil sales returned to the international market, it was announced that the transaction would be in dollars. It is left to the readers to decide if the conspiracy theorists have a point.
When the war drums began to be sounded in Washington against Iran, the most dangerous member of the axis of evil, the theory about petroeuros once again returned to the Internet. The major fact announced in this regard is the announcement by Mr Mohammad Javad Asemipur, an adviser to Iran’s oil ministry and the person responsible for this project, that his government intends to create an Iranian oil bourse.
This would be in addition to (and obviously in competition with) the existing two oil bourses (in London and New York) owned by American corporations. Iran has been trading its oil in euros with its EU customers. This move, according to William Clark, who has been studying this development very closely, would have “noteworthy” macroeconomic implications especially because the EU imports more oil from Opec producers than the US and accounts for 45 per cent of the Middle East’s imports.
According to the researchers, if the euro was to be made the currency of oil trade, the dollar would lose its preeminent status as the world reserve currency that it has enjoyed since 1971 when President Nixon removed the US currency from the gold standard.
Since this gives the United States an unparalleled advantage — it controls the world trade and can import goods and services for very low relative costs — it is obviously in its interest that a switchover to the euro does not take place.
According to William Clark and other researchers who accept his reasoning, the Bush administration is looking for a pretext to attack Iran and the nuclear issue, on which such a rumpus has been created, simply serves as a casus belli. If it wasn’t uranium enrichment it would have been something else.
It is difficult to say with authenticity if the US is gunning for Iran because of the euro issue. It is, however, interesting to note that initially it was announced that the Iranian oil bourse was to start functioning in March 2005. Then the schedule was changed to March 20, 2006.
Now The Globe and Mail of Toronto has reported that it has been put off to a much later date. “But they are jumping the gun if they still figure Iran is within days of launching a new international oil exchange that would sell its own and other Middle Eastern oil producers’ black gold in euros rather than US dollars — and which, the theory goes, could ultimately torpedo the greenback and the US economy.
Despite repeated reports over the past 18 months or so … the start date has been postponed by at least several months and maybe more than a year. ‘In the middle of 2006, we are able to start the bourse,’ Mohammad Asemipur said when reached in Tehran. The plan is to trade petrochemical products first, with a crude oil contract coming last, a rollout that likely will take three years, he said,” The Globe and Mail wrote in its March 15 issue.
This shows that the Iranians are proceeding cautiously with the project. Many Iranian experts and leaders have also reiterated that the bourse will pose no threat to the American dollar. What merits some serious American thinking, however, is the state of its own economy that has made America so vulnerable.
Washington has been depending on its military superiority to dominate the world. But the sustenance of its war machine might prove difficult for its weakening economy as happened in the case of the USSR leading to its collapse.
Here is some information that has a bearing on the American policy vis-a-vis Iran and other countries which the policymakers in Washington must have carefully considered. The Economist of London (March 18, 2006) reports some interesting features about the world currencies. America’s current account deficit is likely to hit an annual rate of $1 trillion before the end of the year since the US is manufacturing only 63 per cent of the goods it needs to meet its domestic demand and it is outsourcing its manufacturing to cheaper Third World countries.
Its heavy dependence on imports has weakened the dollar which is down by 28 per cent against the euro since its peak in 2002. It is expected to fall to $1.35 against the euro by the year’s end.
Net foreign direct investment by American firms has also fallen to $21 billion from $252 billion two years ago. So far the dollar has been cushioned from the jolts this performance would have caused by the fact that most international trading takes place in dollars.
But what would be worrying to the US is the trend that has set in for many countries to convert their foreign currency reserves into euros. Iran has been indicating its plan to introduce this change. Syria has confirmed its plans to use euros instead of dollars for its external transactions while the UAE has reacted to the American move to block a Dubai company from buying five of its sea ports by threatening to move 10 per cent of its reserves into euros. More and more oil exporters are talking openly about selling oil in euros.
Can America preempt many of the unfavourable moves by applying sanctions against Iran and thus showing its economic muscles to the others? One cannot be certain because the rest of the world has been quietly realigning itself and the US may suddenly find itself isolated. Consider this.
Iran has entered into a $100 billion accord with China for developing the 26 billion barrel Yadavaran oil field in return for which it could buy 10 million tons of liquefied natural gas per year for 25 years.
Russia has $10 billion contracts with Iran to build nuclear reactors. Japan buys 550,000 bpd of oil from Iran and a Japanese company will be developing the Azadegan oil fields. India imports 150,000 bpd of oil from Iran. South Korea refines about 10,00bpd of Iranian crude and has developed the Soroush-Nowruz oilfields. Will all these countries agree to sanctions against Iran? As the drama unfolds against the backdrop of the changing international economic partnerships, we have to wait and see what comes next.