THE DEFACTO USDOLLAR OIL STANDARD
Let's back track a bit. In 1945, the world embraced a USDollar Gold Standard. Not labeled as such, the 1971 abandonment of the Bretton Woods agreement by Richard Nixon represented a US Treasury default. Charles DeGaulle demanded gold for the seemingly minor trade surplus that France enjoyed bilaterally with the United States. Nixon basically said "F.U." to France, and told him to go eat our USTB paper rather than to wallow in our gold. The US then began to enjoy the extreme benefits of a world financial system which catered to our debt production. Sadly, the biggest exports out of the USEconomy these past few years are jobs and debt securities. After the Arab oil embargo in 1973, the world put in place a defacto USDollar oil standard. That is the important point. The USDollar has a defacto backing which receives far too little publicity. The US-Saudi security alliance has sealed the Petro-Dollar standard. The USDollar is not backed by oil. Oil is backed by the USDollar via that alliance. If anything, the USDollar is nowadays backed by a powerful military and permission to have access to the US marketplace, i.e. shopping malls, retail chains, and car dealer showrooms.
The Petro-Dollar meant the Persian Gulf oil producers would recycle their oil revenues into the US financial system, bonds and stocks, even real estate property. The Petro-Dollar system meant the US Military would protect the Arab sheikdoms and their royal governments. The Petro-Dollar system also meant that global nations would accumulate US Treasurys to pay for large oil transactions. The world banking system, and in particular the central bank currency reserves system, would be US$-centric.
The Iranian Oil Exchange challenges the Petro-Dollar. This time it is different. Iran aint Iraq. Iran has two big friends who have a good memory of recent heavy-handed dealings. When the United States invaded Iraq, established the reconstruction, and began to install a new government, it did so with little resistance. In the process two big events took place, not mentioned much by the lapdog US press & media. Russia got screwed out of multiple billion$ in Iraqi debt. China got screwed out of multiple billion$ in large contracts for Iraqi oil.
MOTIVES FOR THE IRAQ WAR
The American public was once led to believe the Iraq War was all about removing the threat of weapons of mass destruction (WMD), and spreading democracy in the Persian Gulf. These are lofty goals held as high ideals in the US historically. My view was the former was pure smoke screen intended for the uneducated (scared, patriotic) masses to devour, and the latter was an impossibility in a Moslem nation whose religious factions are openly hostile to each other. Behind the scenes, six motives for the Iraqi War can hardly be minimized or dismissed, all of which are financial in nature. At best, these are coincidental add-on benefits. At worst, these are hidden motives. You be the judge. It is not for me to say. The editorial world has an inherent responsibility to report the news, and offer analysis of it. The US media sorely falls short in providing balanced reporting, possibly due to conglomerate ownership of the media networks by large corporations, a factor which was not the case during the VietNam era, and not during the Watergate era.
While we hear in the media like an endless drumbeat the benefits of WMD removal and democratic reform, we hear next to nothing about the six other major potential motives.
- Stop the world market sale of crude oil in euro denomination by Saddam Hussein, which benefited Iraq as they held a rising euro currency instead of a falling USDollar currency
- Guarantee the United States "first in line" position for purchasing Iraqi crude oil output, at a time when locking in supply chains became critical to economic health, and major oil field production was on the decline
- Establish low-cost US Military bases in the strategically centered Iraq, next door to Saudi Arabia, after repeated requests that the Saudis were uncomfortable with large US presence on their soil
- Corner the entire oil services contracts with US corporations for rebuilding Iraqi oil operations, securing multi-year multi-billion dollar deals, shutting out European firms
- Cancel and rescind all oil purchase contracts with China extending to future years
- Put France, Germany, and Russia in secondary positions for bargaining on Iraqi debts, which would be paid from future Iraqi oil revenue controlled by the US
These are not small factors, yet they receive little attention. They drive home the point that military activity might be the ultimate fixed investment, clearing the path for future business activity. A friend hoots about his big Halliburton (symbol 'HAL') stock gains. Each factor could fill a book with consequences to economies, corporations, banking, business contracts, geopolitics, and military implications. The sale of Persian Gulf crude oil for three years has been brisk, in USDollar terms. The investment to preserve the US Treasury Bond system has been successful. Nevermind that half of all USTBond purchases come from overseas by foreign hands, the embodiment of a massive transfer of wealth. The Iranian Oil Exchange threatens the Persian Gulf sales on the eastern flank, the flank more tied to former Soviet republics where China has made huge inroads, the flank where the big important new oil pipeline is located, connected to the Central Asian republics.
Iraq, Russia and China remember well their Iraqi debt loss. They remember well their energy contract loss. With Iran, it is their second chance to halt any second shock & awe thrust executed by the USA. By raising the defense, the US must raise the stakes. We see it.
BACK TO IRAN
By enlisting Russian and Chinese assistance militarily, Iran has won some effective defense. Clearly, Russia is the key participant, but not without China supplying key Silkworm missiles themselves. Recall Putin is a master chess player. Russia recently announced the sale of world class missile systems to Iran. Be sure that overtaking Iraq was akin to taking the lunch pail from a 7-yr old boy sitting for a school bus. Overtaking Iran bears no resemblance to Iraq. Iran has over 70 million people, as opposed to Iraq's 23 million. Iran has no easy borders and no friendly neighbor for the US to base an attack. The "shock & awe" was mere target practice and an exercise of advanced weaponry on largely undefended sites. Iran is not that 8-yr old undefended schoolboy. The bear and the dragon walk to the boy's left and right, like body guards. Iraq was not the Luftewaffe, the Panzers, or Werrmacht from the powerful Germany Military in World War II. This Iran is much more formidable an adversary. The failure to influence Iranian national elections has led to a gathering storm in Iran. My view is that the storm is to widen the crack on the Petro-Dollar, and the winds are to shake its foundation in the banking sector.
Iran does not have a solid mandate and consensus for a stable mullah-led Islamic government. They have bigtime problems. My few Moslem friends laugh about how seriously the USGovt leaders and the American public took the calls for Iran to wipe Israel off the map. Teheran leaders have a challenge of their own, to distract the public from the economic troubles in their country, and to defuse the resentment for the draconian rules imposed by mullahs on daily life. We in the United States mistakenly regard their election of Ahmadinejad as a wide mandate with a majority. It is easy to win a loud majority when the opposition is forbidden to appear on the ballot for the election. In the US high schools, we have a lovely custom of meeting on Friday late afternoons a little early before the closing bell for the clear purpose of whipping up the student body emotions. The football coach and certain important teachers will stir up the young kids to a frenzy, as that night a football game is to be played. The emotions are directed toward the other team, the other school, urging the varsity squad good guys to kick the butts from the opposition, to run their noses into the ground. School unity is easy to achieve. Ahmadinejad had the same purpose, to whip up the crowds in national unity. Israel and the United States are the easy targets, with Israel the less risky target. My Moslem friends point to US high school pep rallies as being very similar. Recall that so many of Iran's population are under the age of 30 years.
The entire nuclear story is the disinformation about Iran. Can anyone remember the incessant drumbeat of Weapons of Mass Destruction concerning Iraq? Have we learned anything?It is a sad observation for me that Americans and their leaders do not learn from history, when it comes to bubbles, to dealing with tyrants who opposed communism, to misunderstanding cultures abroad. We were made fools (not me) about WMD in Iraq. We are being made fools about nuclear proliferation in Iran now. Few even at the Vancouver Gold Show seemed to identify the vast disinformation on the Iranian threat. The threat is to the Petro-Dollar superstructure banking system.
RUSSIA WANTS A STRONGER EURO
In 2004 and 2005, it became clear that the Saudi-led OPEC ministers were increasingly uncomfortable with the declining USDollar as legal tender for oil sales incoming revenues. It seemed to me that OPEC had enlisted the only other military power with a vested interest in selling oil in euro denomination for political alliance and help, Russia. Behind the scenes, it seemed to me that Russia has become the spearhead to fracture the Petro-Dollar. Iraq was all about defense of the Petro-Dollar. Iran is all about the fracture of the Petro-Dollar. That fracture will be enforced by military means, or brought about with military support behind the levered pressure.
With over 80% of its energy product sales to Europe, Russia has a vested interest to sell in euros. Imagine how ridiculous it would be for the US to purchase Canadian oil in Japanese yen transactions. Soon we might purchase Canadian oil with Canadian Dollars! Putin might have tweaked the nose of Europeans with a Ukrainian finger to gain the attention of Europeans to constructively engage Iran. It is my belief that Putin eagerly wants Europe to engage, secure, and conduct business with Iran for the purchase of oil & natural gas products in euro transactions, SO THAT CHINA WILL NOT LOCK UP IRANIAN OUTPUT. Remember that Putin and the Russians have more European blood coursing their veins that the Chinese genetic variety. The ties from Russia to Europe might have a long history of conflict, but that history is full of long tentacles and deep embraces. Russia might see China as an eventual adversary, since their eyes are open. USGovt leaders still see China as a low-cost supplier and credit supplier. With undue focus on Iraq to fight terrorism, the US leaders might be outflanked by Russia and China in Iran. In no way does a UN assault complete any Pincer maneuver.
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