The oil bomb

Iran has really gone and done it now. No, they haven’t sent their first nuclear sub into the Persian Gulf. They are about to launch something much more deadly â€" next week the Iran Bourse will open to trade oil, not in dollars but in Euros.â€"Scottish Socialist Voice, issue 264).
The Iranian Oil Bourse (OIB) was registered on May 5 this year. The consequences are horrendous: with the dollar no longer the sole currency with which to trade oil, its credibility as the benchmark has weakened gravely and thrown all world currencies into a tailspin â€" either crashing in value making essential imports unsustainable, as with Pakistan, or increasing in value reducing their exports drastically causing huge trade deficits, as with Europe. There has been a run on non-oil producing Third World currencies as capital flight continues unabated, as in Pakistan too. That is why soft currencies are weakening against all hard currencies while non-dollar hard currencies are strengthening.
The fall in the dollar’s value was one of the triggers of the oil price rise. Three other triggers contributed heavily too: the greed-driven speculation of oil brokers and hedge funds, the Iraq war and the new Iranian oil bourse that caused a further decline in the dollar, raising oil prices even more, like a self-sustaining upward spiral. Now add a fourth trigger: the increasing probability of some kind of strike against Iran. Estimates are that the Iraq war alone trebled the cost of oil. By May the world had spent an extra $6 trillion on higher energy prices alone since the Iraq war. Else the price would have been $40 â€" even less but for greedy speculators and hedge funds. Oil has been trading on two dollar-denominated oil bourses, NYMEX and IPE, both privately owned by US citizens. They play a huge role in determining crude oil prices. The New York Mercantile Exchange Inc (NYMEX) was established more than 135 years ago. London’s International Petroleum Exchange (IPE), now Intercontinental Exchange (ICE), was established in 1980. NYMEX “pioneered the development of energy futures and options contracts in 1978 as [a] means of bringing price transparency and risk management to this vital market.â€� This is precisely what opened the door to greed-driven speculation that has driven the price of crude unnaturally high. “IPE is one of the world’s largest energy futures and options exchanges. Its flagship commodity, Brent Crude, is a world benchmark for oil prices…â€� Brent is British North Sea, not OPEC.
This kept the demand for the dollar high as oil producers were paid in dollars that they invested in western, particularly American, banks, stocks, bonds, real estate, in bailing out US corporations (like Saudi Prince Al Waleed once did Citibank and recently the UAE did) and buying billions of dollars worth of useless armaments. It was also necessary for oil-importing countries to have huge dollar reserves to buy oil. But when on May 5 Iran registered its Euro-denominated IOB in competition with the dollar-denominated NYMEX and IPE, and many countries supported it, the dollar took more beating.
This requires some explaining. Iran did this to break free from the tyranny of the dollar. Russia and Europe welcomed the Iranian oil bourse because 70 percent of Europe’s oil is imported from Iran. The two most oil-hungry nations growing hungrier by the day, China and India, also said that they were very interested. Now you see why Iran’s president is “the most dangerous man in the world?� It has nothing to do with the damned nuclear bomb. It has to do with the detonation of the oil bomb that has detonated the dollar bomb. For America this is war, literally, because having left the Gold Standard in 1971 it had, de facto, made oil the commodity on which the dollar is based by ensuring that oil is sold mostly in dollars. (When Saddam said in April 2002 that he was considering selling some Iraqi oil in Euros he signed his death warrant). Came the decline in the dollar came the decline in the value (purchasing power) of oil revenues as well as OPEC’s dollar-based assets. Oil-exporting countries started thinking in terms of selling some oil in Euros. This would put the dollar even more on the skids. President Bush’s first Middle East trip this year, ostensibly a “peace mission�, was actually to deliver what Mike Whitney calls “the horse’s head� (as in the film, The Godfather). “Bush went to the trouble of travelling half-way around the world to tell the Saudis and their friends in the Gulf States that they were going to continue linking their oil to the dollar or they were going to “sleep with the fishes.�