Fragile Dollar Hegemony: Iran's
Oil Bourse could Topple the Dollar
by Mike Whitney
Two weeks ago George Bush was sent on
a mission to the Middle East to deliver a horse's head. We all
remember the disturbing scene in Francis Ford Coppola's "The
Godfather" where Lucca Brassi goes to Hollywood to convince
a recalcitrant movie producer to use Don Corleone's nephew in
his next film. The "Big shot" producer is finally persuaded
to hire the young actor after he wakes up in bed next to the severed
head of his prize thoroughbred. I expect that Bush made a similar
"offer they could not refuse" to the various leaders
of the Gulf States when he met with them earlier this month.
The media tried to portray Bush's trip
to the Middle East as a "peace mission", but that just
a smokescreen. In fact, three days after Bush left Jerusalem,
Israel stepped-up its military operations in the occupied territories
and resumed its merciless blockade of food, water, medicine and
energy to the 1.5 million people of Gaza. Clearly, Bush had green-lighted
the operations or Israel's aggression would have been seen as
a slap in the face of the President of the United States.
So, what was the real purpose of Bush's
trip? After all, he has no interest in peace or in honoring his
commitment to resolve the Israeli-Palestinian crisis. So, why
would he choose to visit the Middle East just as his second term
as president is winding down and there is no chance of success?
Sometimes personal visits are important;
especially when the nature of the information is so sensitive
that the message has to be made face to face. In this case, Bush
went to the trouble of traveling 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". For the last
two months, various sheiks and finance ministers have been moaning
and groaning about the falling dollar---threatening to break from
the so-called "dollar-peg" and covert to a basket of
currencies. Bush's trip appears to have rekindled the spirit of
brotherly cooperation. The grumbling has ceased and everyone is
back "on board". The regional leaders now seem considerably
less bothered by the fact that inflation is gobbling up their
economies and driving labor, food, energy and housing through
the roof. Reuters summed it up like this:
"After a flurry of public disagreements
over currency reform last year, Gulf central bankers are trying
to close ranks, talking up the pegs as a source of stability and
playing down the dollar's weakness as a temporary phenomenon."
Looks like Bush smoothed things over.
In the last two weeks, the Gulf leaders
have watched nervously while the Federal Reserve has slashed rates
by a whopping 125 basis points. The cuts are steadily eroding
the $1 trillion of capital the sheiks have invested in US Treasuries
"Inflation is at 16-year highs in
Saudi Arabia and Oman, a 19-year peak in the United Arab Emirates.
Gulf policymakers are intervening directly in loans, property
and commodity markets to offset rate cut." (Reuters)
Property values have skyrocketed. Commercial
property in the UAE has doubled since the beginning of 2007. The
inflation-bomb has forced other Gulf states to provide food subsidies
for their people and a "70% wage rise for some Emirati federal
Disgruntled migrant workers rioted in
Dubai recently, demanding to be fairly compensated for the sharp
increase in prices. The Saudi riyal has climbed to a 21-year peak.
Currency traders expect another 8% rise
in the dirham and riyal by April and they are predicting that
interest rates will compel Central bankers throughout Gulf states
to covert to either the euro or a basket of regional currencies.
So far, however, the loyal Saudi princes have continued their
support for the dollar.
Defending Dollar Hegemony
So, how important is it that oil continue
to be denominated in dollars? Would the United States wage war
to defend the dollar's status as the world's "reserve currency"?
The answer to this question could come
as early as this week, since the long-awaited Iranian Oil Bourse
is scheduled to open between February 1-11. According to Iran's
Finance Minister Davoud Danesh-Jafari, "All preparations
have been made to launch the bourse; it will open during the 10-day
Dawn (the ceremonies marking the victory of the 1979 Islamic Revolution
in Iran) The bourse is considered a direct threat to the continued
global dominance of the dollar because it will require that Iranian
"oil, petrochemicals and gas" be traded in "non-dollar
currencies". (Press TV, Iran)
The petrodollar system is no different
than the gold standard. Today's currency is simply underwritten
by the one vital source of energy upon which every industrialized
society depends---oil. If the dollar is de-linked from oil; it
will no longer serve as the de-facto international currency and
the US will be forced to reduce its massive trade deficits, rebuild
its manufacturing capacity, and become an export nation again.
The only alternative is to create a network of client regimes
who repress the collective aspirations of their people so they
can faithfully follow directives from Washington.
As to whether the Bush administration
would start a war to defend dollar hegemony; that's a question
that should be asked of Saddam Hussein. Iraq was invaded just
six months after Saddam converted to the euro. The message is
clear; the Empire will defend its currency.
Similarly, Iran switched from the dollar
in 2007 and has insisted that Japan pay its enormous energy bills
in yen. The "conversion" has infuriated the Bush administration
and made Iran the target of US belligerence ever since. In fact,
even though 16 US Intelligence agencies issued a report (NIE)
saying that Iran was not developing nuclear weapons; and even
though the UN's nuclear watchdog, the IAEA, found that Iran was
in compliance with its obligations under the Nuclear Nonproliferation
(NPT) Treaty; a preemptive US-led attack on Iran still appears
And, although the western media now minimizes
the prospects of another war in the region; Israel is taking the
precautions that suggest that the idea is not so far-fetched.
"Israel calls for shelter rooms to be set up in a bid to
prepare the public for yet another war, this time, one of raining
missiles." (Press TV, Iran)
"The next war will see a massive
use of ballistic weapons against the whole of Israeli territory,"
claimed retired general Udi Shani.
Russia also sees a growing probability
of hostilities breaking out in the Gulf and has responded by sending
a naval task force into the Mediterranean Sea and the North Atlantic.__According
to an article on the Global Research site:_ _"The flagship
of Russia's Black Sea Fleet, the Moskva guided missile cruiser,
joined up with Russian naval warships in the Mediterranean on
January 18 to participate in the current maneuvers....The current
operation is the first large-scale Russian Navy exercise in the
Atlantic in 15 years. All combat ships and aircraft involved carry
full combat ammunition loads. __(Global Research, http://globalresearch.ca/index.php?context=va&aid=7983)
France is also planning military maneuvers
in the Straits of Hormuz. Operation "Gulf Shield 01,"
will take place off the coast of Iran and will employ thousands
of personnel in combined arms operations that will include simulated
attacks on oil platforms."
Exercises are scheduled to take place
from Feb. 23 to March 5, and will involve 1,500 French, 2,500
Emirate, and 1,300 Qatari personnel operating on land, at sea
and in the air, the ministry said...
"Around a half-dozen warships, 40
aircraft and dozens of armored vehicles will be in the war games",
Fusalba said. __http://www.defensenews.com/story.php?F=3346953&C=mideast
Additionally, within the last week, three
of the main underwater cables which carry Internet traffic have
been cut off in the Persian Gulf and three-quarters of the international
communications between Europe and the Middle East have been lost.
Large parts of the Middle East have been plunged into darkness.
Is this merely a coincidence or is something
else going on just below the surface?
Ian Brockwell, of the American Chronicle
"On the assumption that the cables
cut were no accident, we must ask ourselves who would do such
a thing and why. Clearly Iran, who were most affected, would gain
nothing from such an action and are perhaps the target of those
responsible?...Maybe this is a prelude to an attack, or perhaps
a test run for a future one?
Communication has always been an important
factor in military action, and cutting these cables might affect
Iran´s ability to defend itself."
Despite the lack of media coverage, tensions
are mounting in the Gulf and the probability of a US-led attack
on Iran is still quite high. Bush is convinced that if he doesn't
confront Iran, then no one will. He also believes that if he doesn't
militarily defend the dollar, then America's days as "the
world's only superpower" will soon be over. So, the real
question is whether Bush will realize that America is already
hopelessly bogged-down in two "unwinnable" conflicts
or if he will "go with his gut" once again and lead
us into a ruinous region-wide conflagration.
Mike Whitney is a frequent contributor
to Global Research. Global Research Articles by Mike Whitney
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