Iran: Threatening US Economic Dominance

There has been a landslide of news out of Iran this week. Taken one bit at a time, it wouldn’t be so bad… but as it is all happening all at once, it does not bode well for the economic, social, and military balance in the world.

Here’s a list of the major news from Iran. I’ll explain their individual, and collective significance below.

  1. The Legislation to block UN Inspectors from Iranian Nuclear facilities if Iran is referred to the UNSC needs only the signature of the Iranian President to pass. That is expected to happen this week.
  2. El-Baradei of the IAEA says if Iran resumed full enrichment production they would have a nuclear bomb within only a few months.
  3. The US has authorized it’s Iraqi Ambassador to talk with the Iranians about Iraq border security, unfortunately Michael Ledeen of NPR says: “The Islamic republic will never do anything to help us, our soldiers, or our allies. The Iranians … see themselves as our gravediggers.
  4. Iran is preparing to sell it’s oil in Euros instead of Dollars.
  5. Iran has signed major contracts with China and India for oil and natural gas.

Now, the first 2 points deal with the Nuclear issue. It is clear that Iran wants the Bomb and the new hard-line President will get it. The question will only be, what will the United States do about it? While they wouldn’t be happy about it, I don’t think the Europeans place as much significance on Iran having nukes as the US does. As long as Israel has nukes, it’s difficult to argue that their mortal enemies wouldn’t want them as well. The key would be to ensure that those Nukes are never used. That brings me to the 3rd point.

The US Ambassador in Iraq is now talking directly to the Iranians, this is quite unprecedented and marks the first direct dialogue between the two countries for decades. That said, the prospects of it helping either the situation in Iraq, or the Nuclear situation is pretty minimal. This will be seen by the Iranians as the US coming to them for assistance… the US is weak in their eyes. The ongoing carnage in Iraq is proof to the Iranians. The Iranians will be the ones using this as leverage.

And finally. There is oil. The Iranians are apparently moving towards selling all oil for Euros instead of Dollars. This is a direct attack on the basis of the American economy. Saddam’s Iraq was the first OPEC country to do it November 2000 but they only accounted for 5% of OPEC production (and much less than that now).

By Contrast, Iran is the 2nd largest exporter in OPEC after Saudi Arabia. They also sit on the 2nd largest proven oil reserves remaining in the world.

To understand why switching to the Euro represents a major event, read this webpage, the author explains it well.

At the end of World War II, the USA was the world’s biggest national economy… In 1971, in response to the depletion of U.S. gold reserves, President Richard Nixon announced that the dollar would no longer be redeemable for gold. So the system of fixed exchange rates via gold-backing fell apart.

In 1973, the Organization of Petroleum Exporting Countries (OPEC) quadrupled the price of oil but continued to accept only U.S. dollars in payment, so that demand for dollars soared. From then on, the dollar was effectively backed by oil instead of gold

So America can export dollars, which cost nothing to produce, and receive real goods and services in return. When those dollars eventually find their way into foreign reserves, they can be invested only in American assets. This creates a demand for U.S. treasury bills without high interest rates, and inflates the U.S. property market and stock market.

Now, do you understand why China and India “own” the United States? Booming economies thirsty for oil… Oil sold in Dollars… Dollars used to buy US Treasury Bills… US Market supported solely by foreign countries.

The deal between China and India alone was worth $70 billion over its’ 25-30 year lifespan. That will now be 60 Billion Euros. That money will bet taken straight out of the US economy and into the European Union instead.

So you see. In Iran, (and Iraq before it) The United States faces far more than simply a military threat. It faces a threat to its’ currency hegemony in the world economy that it has enjoyed since the end of World War II and which forms the basis of the strength of the US market. The Iranians have a lot of levers to pull that will disrupt and annoy the United States. And they’re pulling them with the help of emerging economies, and the EU, who want to assert themselves as the heirs to the United States throne.

As oil production continues to fall in relation to demand, this situation will only be exacerbated… and I fear confrontation will ensue if cooler heads are not in control of the most powerful militaries, and economies, in the world.

Update
Here’s a link to a story on one deal between India and Iran.

Members of the powerful House International Relations Committee on Thursday warned India would “imperil” its relationship with the USA if it went ahead with a gas pipeline deal with Iran despite U.S. concerns.

Some heavy words:

“India must decide where it will stand — with the ayatollahs of terror in Tehran or with the United States,” Mr. Lantos said.

South Asia Times has the details of the longterm deal.

Count another 33 Billion Euros to the EU instead of $40 Billion to the US.

Update 2: LATE NEWS
I was searching for links to the agreements reached in March 2005 between Venezuela and Iran… at the same time I found this news from Friday, Dec 3rd, 2005 on 21 additional Memoranda of Understanding signed between Venezuela (the 3rd largest oil exporter to the US) and Iran.

The MoUs envision expansion of cooperation in gas, petrochemical, and aluminum fields, construction of a brick factory and of a second cement factory in Venezuela by Iranian contractors, establishment of bank branches in both countries, construction of a flour factory, dairies, cooling industries, plastic auto parts, irrigation systems, detergents, ceramics, food packaging, and bread baking.

With the newly signed agreements, the number of MoUs inked by the two countries reached 50 in the past one year.

Are these precursors to Venezuela selling its’ oil in Euros as well… to better “synchronize” with its’ new best friend in Iran.. (and to ensure its’ other new partners in China and India don’t have to run to the ATM to get USD?)

We are living in fascinating times. I think we are on the verge of a very major economic shakeup. Do you still think it’s the Bomb that the US is so worried about in Iran?

9 thoughts on “Iran: Threatening US Economic Dominance”

  1. Interesting theory. But we’re talking about less than $100 billion here. A lot of money to you and me, certainly — but an undetectable drop in the bucket when you consider that the global economy in 2003 was about $50 TRILLION.

    So, I don’t think I’ll be trading in my dollars for euros just yet, thank you.

  2. The total size of the global economy is about $50 trillion. I don’t think this deal is going to make a big dent in the dollar’s dominance.

    In fact, if you check the charts, you’ll see that the dollar has been steadily climbing against the euro since March (from $1.31 to $1.17), so I’m going to hold on to my greenbacks for now, thanks.

  3. As Saudi Arabias’ oil fields diminish one country will take its’ place at the top of the oil exporter market. That country is Iran.

    $40 billion (at todays prices) can easily turn into 160 Billion when oil reaches $120… and so and so forth.

    It’s an emerging threat that I don’t think we can ignore (and of which I think the US is keenly aware.

  4. Plus, as Iraq and Iran build their economic ties (as they already seem to be intent on doing) you can bet that Iraq will also start to denominate its’ oil in Euros, but that’s probably a decade or more away.

  5. Boy, you lefties have got us all down and out, don’t you? You need more balance in your reading, Chris. The moonbats will not inherit the earth, I assure you.

  6. Hey, don’t get me wrong.. i would *much rather* the status quo to continue, it would be much easier on you, me, and more importantly my children and grandchildren.

    It just seems that there are many forces at work, and the general direction of the world economy, is moving away from the United States as the driving force that it has been since WW2.

    If you think I somehow relish in this thought then you are terribly mistaken.

  7. We won’t go easily… your source of economic prediction is pretty leftist and you have to realize that the US will not be without alternatives. You can’t but your rival in a box and be sure they will not make a move you didn’t anticipate.

    And yes, you are correct, power does rise and wane but for the foreseeable future the US hegemony is not going to be seriously damaged. Maybe in 500 years or so.

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