7-01-06, 9:01 am
Iran’s attention toward nuclear energy is anything but new. Its relationship with the International Atomic Energy Agency (IAEA) goes back at least 20 years. The agency however, only began investigating Iran’s nuclear ambitions in 2003. Iran’s agenda to produce plutonium and enriched uranium has been aided by Russian and centrifuge technology with most of the dependency being on the latter. Iran’s nuclear R&D (research and development) of centrifuges is expected to increase later this year as it plans to install 3000 centrifuges at the current facility site located at Natanz.1 At another facility site, Isfahan, 85 tons of uranium hexaflouride has already been produced and is capable of manufacturing 10 nuclear weapons if it is enriched into weapons grade material.
So when can it be expected for Iran to develop its nuclear bomb, if that is the intention? Time frames are rather sketchy considering several factors. Because nuclear development for energy purposes and weaponry are similar during the early stages, it can be difficult to make a distinction for any nations’ intentions for the technology. Since Iran has managed to keep some of its facilities under the radar, it will be hard for the IAEA to gather exact intelligence all of the time. Another key factor is Iran’s access and proficient application of technology. For instance, Iran has to be accurate and timely at completing uranium enriched centrifuges and other technical processes. Predictions range from six months to 10 years. Scholars from the ISIS (Institute for Science and International Security) and the IISS (International Institute for Strategic Studies) are speculating it will be between three to five years.2 Because Iran has enough oil and natural gas to sustain itself for generations, Washington and the IAEA contend that Iran’s nuclear ambitions are based on weapons development and not energy production. Whatever the case, nuclear experimentation for any nation defines its technologic advancement -- be it for civilian and/or military purposes. Aside from these factors there is a much more sobering reason why Iran has become a pebble in America’s shoe.
What else is on the radar?
Iran is the second largest exporter of petroleum among the OPEC (Organization of Petroleum Exporting Countries) member states. Since 2005, Iran has been constructing an economic policy to create its own oil 'bourse' or exchange. Iran would execute this by conducting petroleum transactions with euros instead of dollars.3 Why?
In value the euro (the consolidated currency of the European Union) is higher than the dollar. In 'dollar' terms, the dollar only equals to about 83 cents of the euro compared to the 'euro' value to the dollar being about $1.20. In economic terms and basic common sense- the euro has a higher value. If we turn the clock back to the year 2000, it will show us that Saddam Hussein began to sell oil to his contractors in euros. Many believe that this is the real reason why the U.S invaded Iraq 3 years later. Iraq, another OPEC member, had to be diverted from selling oil in euros as an effort to prevent the 'domino theory' among other OPEC members. The invasion of Iraq was designed to undermine its position in OPEC and to revert back to the dollar for petroleum transactions.4
It is essential to understand the conjecture behind the war in Iraq in order to comprehend the implications behind Iran. Iran has been enforcing the euro exchange policy towards its European and ACU customers since 2003.5 According to Mostakhdemin Hosseini, head of the Iranian Stock Exchange, Tehran gave its approval to the new 'bourse' that was expected to begin in late March of 2006. March has now past and the euro petroleum exchange has not officially opened. If Iran’s oil bourse comes to fruition, it would be widely accepted by several members of the international community. Particularly Russia, China, and India – as the former two already have euros in their central banks.
In 2004, Iran secured a 25-year deal to supply India with LNG (liquefied natural gas) and in 2005, a 30-year deal to supply China with natural gas.6 China’s colossal appetite for oil and its continuous steps toward super power status will greatly increase if it can thrive in a euro-based petroleum exchange simply because it would weaken and perhaps topple the U.S.’s dollar-based petroleum exchanges vis-à-vis the NYSE (New York Stock Exchange) and the London-based IPE (International Petroleum Exchange).7 Military might has enabled the U.S. to spread its economic hegemony throughout the world including designating its 'dollar' as the supreme equalizer. This means that the dollar’s forced acceptance has made it the global reserve currency. The dollar can be used to buy or sell anything around the world. And oil, the world’s most lucrative resource, has for a very long time been traded in dollars- or 'petro-dollars'. It is the petro-dollar that has afforded America its wealth, which the petro-euro could likely terminate that in the long term. America is already at an $8 trillion deficit which means it can’t afford an increased devaluation of the dollar (which has lost close to a third of its value against the euro since 2000)8. The Federal Reserve fully understands the danger that the dollar could be facing from a petro-euro economy- especially with the enormous U.S. deficit. The Fed could face catastrophic consequences if the euro became the global reserve currency due to Iran and other OPEC member’s convergence to a petro-euro system.
According to Javad Yarjani, a top OPEC official, a complete petro-euro market is contingent on Norway and Britain adopting the euro, and its stability against the dollar.9 Subsequently, with a deteriorating dollar, the Fed’s decision on November 10, 2005 to discontinue publishing the money supply for public record as of March 23, 2005 (just around the time the Iranian oil exchange was expected to begin) should not be thought of as coincidental.10 . Participating members of the EU (European Union) import more oil from OPEC states than the U.S. and would probably be assuaging for them to convert petroleum revenues to euros.
Understanding the dollar, euro, and oil entanglement
In 1945, the inception of two U.S. dominated International Financial Institutions- The World Bank and IMF (International Monetary Fund) launched the U.S. dollar as the global reserve currency. In doing so the United States has sets up trade agreements with foreign countries with the condition that these countries can only buy and sell goods to the U.S. in dollars only. This is how the dollar established its global supremacy.
In contrast the United States doesn’t accept foreign currencies as payment for its goods, and therefore, it exports less than what it imports. Because of this trade imbalance the United States accumulates debt.11 In other words, for every gallon the U.S. buys or borrows, it can only sell or give back a quart. Foreign banks must keep stockpiles of dollars in reserve primarily for oil purchases. This is how the United States has been able to monopolize the oil economy despite the fact that it only accounts for three percent of world production. When gold ceased to back the dollar in 1971, petroleum dependent countries had to purchase oil with non-secured U.S. dollars. This policy positioned the U.S. to control the oil, and subsequently, the global economy simply because regardless of U.S. debt to foreign countries, these countries needed oil that could only be purchase with U.S. currency.12
OPEC’s uniformity of 'petro for dollars' was broken under Saddam Hussein in 2000 during the UN’s 'Oil for Food' program. Saddam cut oil deals in euros to international buyers until the March 2003 invasion of Iraq. The foremost explanation for the invasion was that Saddam had WMD- a contention that has been widely discredited. The Persian Gulf accounts for 60 percent of crude oil reserves- from that Iraq have 11.5 percent and Iran 13 percent. Shortly after the invasion, July 2003, The United Nations passes Resolution 1483. This is an excerpt of the document:
The establishment of a Development Fund for Iraq to be held by the Central Bank of Iraq and To be audited by independent public accountants approved by the International Advisory and Monitoring Board of the Development fund for Iraq and looks forward to the early meeting of That International Advisory and Monitoring Board, whose members shall include duly qualified Representatives of the Secretary-General, of the Arab Fund for Social and Economic Development, and of the President of the World Bank;13
In other words, under U.S. and World Bank mandates, Iraq’s oil sales were re-converted to dollars. If Iran decides to install its oil exchange it will create serious consequences for the U.S. dollar and thus, the U.S. economy. With Russia and China already entertaining the possibility of purchasing oil with euros, an official transition will drastically depreciate the greenback because there would be more euros in global circulation than dollars. Oil purchasing countries will then purchase more euros to secure their sales on the Iranian exchange, therefore, avoiding the NYMEX and IPE. The surplus of non-preferable dollars results in massive inflation for Americans.14 Countries that continue to buy oil from the U.S. will also feel the impact of dollar depreciation.
As for Iran and other OPEC members, a euro based oil exchange is favorable because the EU states account for 45 percent of Middle East petroleum sales. Because of that, Middle East – EU trade will significantly rise followed by growing EU interest to invest in the Middle East.15 The Middle East holds a relatively small share of European assets whereas it holds $700 billion worth of U.S. assets- an amount that will inflate if Middle East investors convert their asset value to euros.
How sharp are the curves?
For all that is optimum about Iran’s possible oil exchange, pessimism hasn’t forgotten to cast its shadow. Iran’s quest to abate America’s economic hegemony has been labeled everything from 'rhetorical' to 'pipe dream.' It is said that traders on the NYMEX and IPE, where most traders exchange, are not willing to relocate to Kish Island- where the Iranian exchange would be located- to trade oil. Lack of a candid, supervisory bank and inefficient technology also contribute to trader’s reluctance to participate.16 American traders are not likely to assimilate to Muslim culture, particularly, 'Sharia' or Islamic law.
Iran’s non-membership to the World Trade Organization (WTO) will disable the country’s ability to secure trading contracts in addition to having no jurisdiction over where its oil finally gets traded. If it ends up in the hands of countries that continue to reserve dollars for oil purchases, then of course, the dollar will maintain some type of leverage. Iran’s major export is its petroleum and any shortcoming of a new exchange can strongly endanger an economy that some already believe to be fragile. Possibly more sobering is Iran’s daily production/sale quotas as conditions for OPEC membership. On the selling side of the business- all sales include interest. Under Islamic law, interest or ‘usury’ is prohibited. If Iranian oilmen are obedient to Sharia, then how, or will they circumvent this obstacle? No matter what the pro-con scenario of an Iranian oil exchange may be, one thing is for certain. Iran understands that its actions can be very pivotal to America’s domination of the oil economy and the global economy in general. The power brokers in Tehran are possibly ascending to a unique economic challenge to the U.S. economy.
Washington’s concerns and implications
The U.S. has reserved several options of countering the launch and success of an Iranian Oil Exchange- options that range from implanting computer viruses to military intervention. If the Bush Administration resorts to military action against Tehran, it can now be confirmed that the reasons have more to do with than just Iran’s violation of nuclear non-proliferation policies. Washington knows that Iran has alliances with China, Russia, and India- 3 major and nuclear powers of Asia. So if the U.S. were to launch war, it is extremely unlikely that the big three Asian powers will sit back and do nothing. With US military forces already spread thin as it occupies Iraq, a campaign next door in Iran will not be a wise thing to do.
To start, Iran has a population triple that of Iraq, a geographic mass that is quadruple, and a terrain that is very difficult to navigate.17 The Iranian military doesn’t measure to America’s, but, it is neither static nor feeble. A U.S.-led military attack on Iran is not a question of 'if', but, 'when'?
The UN Security Council will not have an easy or perhaps a successful attempt at imposing economic sanctions against Iran because Russia and China will use their veto power to block it. Because of this a military attack will be self-legitimizing for the U.S. Israel will join and possibly initiate a strike against Iran.18
Conclusion
The pretext for war with Iran will solely be based on its plans to build a nuclear bomb and its sponsorship of terrorism. An attack against Iran because of its nuclear program is illegal according to Article 51 of the United Nations Charter. Furthermore, Iran has no legal bind to the Non-Proliferation Treaty. As for Iran’s charges of supporting terrorism, well, consider this; terrorism is not a person, regime, or state- it is however, a tactic, a method, and strategy. And as long as U.S. foreign policy is seen by others around the world as oppressive and imperialistic, then such 'terrorist' acts will persist. Iran will not have a nuclear bomb by next week, next month, or even next year. But what Iran may be able to execute in that sort of time frame is a threat to America’s economic imperialism.
Footnotes:
1 U.S. Department of State, U.S. Policy Toward Iran. Statement of Robert Joseph, Under Secretary for Arms Control and International Security to the House Committee of International Relations. March 8, 2006.
2 Omestad, Thomas, 'How Close is Iran to the Bomb?' U.S. News & World Report, Vol. 140 Issue 3, p28-29, 23 January 2006
3 Clark, William, ' The Real Reason Why Iran is the Next Target: The Emerging Euro-dominated International Oil Marker', Global Research 27 ( October 2004 ) energybulletin.net , 1
4 Ibid. , 2
5 Ibid.
6 LaFranchi, Howard, 'Iran’s oil gambit- and potential affront to the US', The Christian Science Monitor www.csmonitor.com/2005/08/30
7 'Iran takes on US but at what cost?', The Middle East, Issue 365, p.20, March 2006
8 Ibid. , 22
9 'The Choice of Currency for the Denomination of the Oil Bill' Speech by Javad Yarjani, Head of OPEC’s Petroleum Market Analysis Dept., during Spain’s Presidency of the European Union in Oviedo, Spain. 14 April 2002.
10 Document: Federal Reserve Statistical Release; Discontinuance of M3, 23 March 2006, p.1
11 Nunan, Collin, 'Petrodollar or Petroeuro: A new source of global conflict', Feasta Review, no.2 (2004) 125-129.
12 de Ruijter, Rudo, 'How can the Dollar Collapse in Iran?' Portland Independent Media Center, portlandimc.com , 28 (February 2006). 13 Document: United Nations Security Council, Resolution 1483 (2003), UN Security Council 4761st meeting, 22 May 2003. p. 4
14 Petrov, Krassimir, Ph.D., 'The Proposed Iranian Oil Bourse', 15 January 2006. www.gold-eagle.com
15 Islam, Faisal, 'When will we buy oil in euros'? The Observer (Guardian Unlimited) 2 February 2003 16 Ezrati, Milton, 'Iran’s plan to weaken the dollar will fail', The Christian Science Monitor, 29 March 2006.
17 Pollack, Kenneth. 'Securing the Gulf', Foreign Affairs Jul/Aug 2003 Vol. 82 Issue 4, p2,
18 Joseph Cirincione: An interview with Joseph Cirincione by The Council on Foreign Relations, April 4, 2006.
