[ECON 01-20-06] The Proposed Iranian Oil Bourse

[Francois Cellier]

From the Energie Bulletin

The Proposed Iranian Oil Bourse
by Krassimir Petrov


I. Economics of Empires

A nation-state taxes its own citizens, while an empire taxes other nation-states. The history of empires, from Greek and Roman, to Ottoman and British, teaches that the economic foundation of every single empire is the taxation of other nations. The imperial ability to tax has always rested on a better and stronger economy, and as a consequence, a better and stronger military. One part of the subject taxes went to improve the living standards of the empire; the other part went to strengthen the military dominance necessary to enforce the collection of those taxes.

Historically, taxing the subject state has been in various forms—usually gold and silver, where those were considered money, but also slaves, soldiers, crops, cattle, or other agricultural and natural resources, whatever economic goods the empire demanded and the subject-state could deliver. Historically, imperial taxation has always been direct: the subject state handed over the economic goods directly to the empire.

For the first time in history, in the twentieth century, America was able to tax the world indirectly, through inflation. It did not enforce the direct payment of taxes like all of its predecessor empires did, but distributed instead its own fiat currency, the U.S. Dollar, to other nations in exchange for goods with the intended consequence of inflating and devaluing those dollars and paying back later each dollar with less economic goods—the difference capturing the U.S. imperial tax. Here is how this happened.

Early in the 20th century, the U.S. economy began to dominate the world economy. The U.S. dollar was tied to gold, so that the value of the dollar neither increased, nor decreased, but remained the same amount of gold. The Great Depression, with its preceding inflation from 1921 to 1929 and its subsequent ballooning government deficits, had substantially increased the amount of currency in circulation, and thus rendered the backing of U.S. dollars by gold impossible. This led Roosevelt to decouple the dollar from gold in 1932. Up to this point, the U.S. may have well dominated the world economy, but from an economic point of view, it was not an empire. The fixed value of the dollar did not allow the Americans to extract economic benefits from other countries by supplying them with dollars convertible to gold.

Economically, the American Empire was born with Bretton Woods in 1945. The U.S. dollar was not fully convertible to gold, but was made convertible to gold only to foreign governments. This established the dollar as the reserve currency of the world. It was possible, because during WWII, the United States had supplied its allies with provisions, demanding gold as payment, thus accumulating significant portion of the world’s gold. An Empire would not have been possible if, following the Bretton Woods arrangement, the dollar supply was kept limited and within the availability of gold, so as to fully exchange back dollars for gold. However, the guns-and-butter policy of the 1960’s was an imperial one: the dollar supply was relentlessly increased to finance Vietnam and LBJ’s Great Society. Most of those dollars were handed over to foreigners in exchange for economic goods, without the prospect of buying them back at the same value. The increase in dollar holdings of foreigners via persistent U.S. trade deficits was tantamount to a tax—the classical inflation tax that a country imposes on its own citizens, this time around an inflation tax that U.S. imposed on rest of the world.

When in 1970-1971 foreigners demanded payment for their dollars in gold, The U.S. Government defaulted on its payment on August 15, 1971. While the popular spin told the story of “severing the link between the dollar and gold”, in reality the denial to pay back in gold was an act of bankruptcy by the U.S. Government. Essentially, the U.S. declared itself an Empire. It had extracted an enormous amount of economic goods from the rest of the world, with no intention or ability to return those goods, and the world was powerless to respond— the world was taxed and it could not do anything about it.

From that point on, to sustain the American Empire and to continue to tax the rest of the world, the United States had to force the world to continue to accept ever-depreciating dollars in exchange for economic goods and to have the world hold more and more of those depreciating dollars. It had to give the world an economic reason to hold them, and that reason was oil.

In 1971, as it became clearer and clearer that the U.S Government would not be able to buy back its dollars in gold, it made in 1972-73 an iron-clad arrangement with Saudi Arabia to support the power of the House of Saud in exchange for accepting only U.S. dollars for its oil. The rest of OPEC was to follow suit and also accept only dollars. Because the world had to buy oil from the Arab oil countries, it had the reason to hold dollars as payment for oil. Because the world needed ever increasing quantities of oil at ever increasing oil prices, the world’s demand for dollars could only increase. Even though dollars could no longer be exchanged for gold, they were now exchangeable for oil.

The economic essence of this arrangement was that the dollar was now backed by oil. As long as that was the case, the world had to accumulate increasing amounts of dollars, because they needed those dollars to buy oil. As long as the dollar was the only acceptable payment for oil, its dominance in the world was assured, and the American Empire could continue to tax the rest of the world. If, for any reason, the dollar lost its oil backing, the American Empire would cease to exist. Thus, Imperial survival dictated that oil be sold only for dollars. It also dictated that oil reserves were spread around various sovereign states that weren’t strong enough, politically or militarily, to demand payment for oil in something else. If someone demanded a different payment, he had to be convinced, either by political pressure or military means, to change his mind.

The man that actually did demand Euro for his oil was Saddam Hussein in 2000. At first, his demand was met with ridicule, later with neglect, but as it became clearer that he meant business, political pressure was exerted to change his mind. When other countries, like Iran, wanted payment in other currencies, most notably Euro and Yen, the danger to the dollar was clear and present, and a punitive action was in order. Bush’s Shock-and-Awe in Iraq was not about Saddam’s nuclear capabilities, about defending human rights, about spreading democracy, or even about seizing oil fields; it was about defending the dollar, ergo the American Empire. It was about setting an example that anyone who demanded payment in currencies other than U.S. Dollars would be likewise punished.

Many have criticized Bush for staging the war in Iraq in order to seize Iraqi oil fields. However, those critics can’t explain why Bush would want to seize those fields—he could simply print dollars for nothing and use them to get all the oil in the world that he needs. He must have had some other reason to invade Iraq.

History teaches that an empire should go to war for one of two reasons: (1) to defend itself or (2) benefit from war; if not, as Paul Kennedy illustrates in his magisterial The Rise and Fall of the Great Powers, a military overstretch will drain its economic resources and precipitate its collapse. Economically speaking, in order for an empire to initiate and conduct a war, its benefits must outweigh its military and social costs. Benefits from Iraqi oil fields are hardly worth the long-term, multi-year military cost. Instead, Bush must have went into Iraq to defend his Empire. Indeed, this is the case: two months after the United States invaded Iraq, the Oil for Food Program was terminated, the Iraqi Euro accounts were switched back to dollars, and oil was sold once again only for U.S. dollars. No longer could the world buy oil from Iraq with Euro. Global dollar supremacy was once again restored. Bush descended victoriously from a fighter jet and declared the mission accomplished—he had successfully defended the U.S. dollar, and thus the American Empire.


II. Iranian Oil Bourse

The Iranian government has finally developed the ultimate “nuclear” weapon that can swiftly destroy the financial system underpinning the American Empire. That weapon is the Iranian Oil Bourse slated to open in March 2006. It will be based on a euro-oil-trading mechanism that naturally implies payment for oil in Euro. In economic terms, this represents a much greater threat to the hegemony of the dollar than Saddam’s, because it will allow anyone willing either to buy or to sell oil for Euro to transact on the exchange, thus circumventing the U.S. dollar altogether. If so, then it is likely that almost everyone will eagerly adopt this euro oil system:

· The Europeans will not have to buy and hold dollars in order to secure their payment for oil, but would instead pay with their own currencies. The adoption of the euro for oil transactions will provide the European currency with a reserve status that will benefit the European at the expense of the Americans.

· The Chinese and the Japanese will be especially eager to adopt the new exchange, because it will allow them to drastically lower their enormous dollar reserves and diversify with Euros, thus protecting themselves against the depreciation of the dollar. One portion of their dollars they will still want to hold onto; a second portion of their dollar holdings they may decide to dump outright; a third portion of their dollars they will decide to use up for future payments without replenishing those dollar holdings, but building up instead their euro reserves.

· The Russians have inherent economic interest in adopting the Euro – the bulk of their trade is with European countries, with oil-exporting countries, with China, and with Japan. Adoption of the Euro will immediately take care of the first two blocs, and will over time facilitate trade with China and Japan. Also, the Russians seemingly detest holding depreciating dollars, for they have recently found a new religion with gold. Russians have also revived their nationalism, and if embracing the Euro will stab the Americans, they will gladly do it and smugly watch the Americans bleed.

· The Arab oil-exporting countries will eagerly adopt the Euro as a means of diversifying against rising mountains of depreciating dollars. Just like the Russians, their trade is mostly with European countries, and therefore will prefer the European currency both for its stability and for avoiding currency risk, not to mention their jihad against the Infidel Enemy.

Only the British will find themselves between a rock and a hard place. They have had a strategic partnership with the U.S. forever, but have also had their natural pull from Europe. So far, they have had many reasons to stick with the winner. However, when they see their century-old partner falling, will they firmly stand behind him or will they deliver the coup de grace? Still, we should not forget that currently the two leading oil exchanges are the New York’s NYMEX and the London’s International Petroleum Exchange (IPE), even though both of them are effectively owned by the Americans. It seems more likely that the British will have to go down with the sinking ship, for otherwise they will be shooting themselves in the foot by hurting their own London IPE interests. It is here noteworthy that for all the rhetoric about the reasons for the surviving British Pound, the British most likely did not adopt the Euro namely because the Americans must have pressured them not to: otherwise the London IPE would have had to switch to Euros, thus mortally wounding the dollar and their strategic partner.

At any rate, no matter what the British decide, should the Iranian Oil Bourse accelerate, the interests that matter—those of Europeans, Chinese, Japanese, Russians, and Arabs—will eagerly adopt the Euro, thus sealing the fate of the dollar. Americans cannot allow this to happen, and if necessary, will use a vast array of strategies to halt or hobble the operation’s exchange:

• Sabotaging the Exchange—this could be a computer virus, network, communications, or server attack, various server security breaches, or a 9-11-type attack on main and backup facilities.
  
• Coup d’état—this is by far the best long-term strategy available to the Americans.
  
• Negotiating Acceptable Terms & Limitations—this is another excellent solution to the Americans. Of course, a government coup is clearly the preferred strategy, for it will ensure that the exchange does not operate at all and does not threaten American interests. However, if an attempted sabotage or coup d’etat fails, then negotiation is clearly the second-best available option.
  
• Joint U.N. War Resolution—this will be, no doubt, hard to secure given the interests of all other member-states of the Security Council. Feverish rhetoric about Iranians developing nuclear weapons undoubtedly serves to prepare this course of action.
  
• Unilateral Nuclear Strike—this is a terrible strategic choice for all the reasons associated with the next strategy, the Unilateral Total War. The Americans will likely use Israel to do their dirty nuclear job.
  
• Unilateral Total War—this is obviously the worst strategic choice. First, the U.S. military resources have been already depleted with two wars. Secondly, the Americans will further alienate other powerful nations. Third, major dollar-holding countries may decide to quietly retaliate by dumping their own mountains of dollars, thus preventing the U.S. from further financing its militant ambitions. Finally, Iran has strategic alliances with other powerful nations that may trigger their involvement in war; Iran reputedly has such alliance with China, India, and Russia, known as the Shanghai Cooperative Group, a.k.a. Shanghai Coop and a separate pact with Syria.

Whatever the strategic choice, from a purely economic point of view, should the Iranian Oil Bourse gain momentum, it will be eagerly embraced by major economic powers and will precipitate the demise of the dollar. The collapsing dollar will dramatically accelerate U.S. inflation and will pressure upward U.S. long-term interest rates. At this point, the Fed will find itself between Scylla and Charybdis—between deflation and hyperinflation—it will be forced fast either to take its “classical medicine” by deflating, whereby it raises interest rates, thus inducing a major economic depression, a collapse in real estate, and an implosion in bond, stock, and derivative markets, with a total financial collapse, or alternatively, to take the Weimar way out by inflating, whereby it pegs the long-bond yield, raises the Helicopters and drowns the financial system in liquidity, bailing out numerous LTCMs and hyperinflating the economy.

The Austrian theory of money, credit, and business cycles teaches us that there is no in-between Scylla and Charybdis. Sooner or later, the monetary system must swing one way or the other, forcing the Fed to make its choice. No doubt, Commander-in-Chief Ben Bernanke, a renowned scholar of the Great Depression and an adept Black Hawk pilot, will choose inflation. Helicopter Ben, oblivious to Rothbard’s America’s Great Depression, has nonetheless mastered the lessons of the Great Depression and the annihilating power of deflations. The Maestro has taught him the panacea of every single financial problem—to inflate, come hell or high water. He has even taught the Japanese his own ingenious unconventional ways to battle the deflationary liquidity trap. Like his mentor, he has dreamed of battling a Kondratieff Winter. To avoid deflation, he will resort to the printing presses; he will recall all helicopters from the 800 overseas U.S. military bases; and, if necessary, he will monetize everything in sight. His ultimate accomplishment will be the hyperinflationary destruction of the American currency and from its ashes will rise the next reserve currency of the world—that barbarous relic called gold.

-----------------------

Krassimir Petrov ( Krassimir_Petrov@hotmail.com ) has received his Ph. D. in economics from the Ohio State University and currently teaches Macroeconomics, International Finance, and Econometrics at the American University in Bulgaria. He is looking for a career in Dubai or the U. A. E.

[Fredfredson]

An excellant and disturbing article.

Great catch Francois!

Interesting that this trading system comes online at the time that the rumormill suggests a strike will be made against Iran.

The next couple of months will be very interesting.

F

[potter]

Originally Posted by Fredfredson

An excellant and disturbing article.

Great catch Francois!

Interesting that this trading system comes online at the time that the rumormill suggests a strike will be made against Iran.

The next couple of months will be very interesting.

F

My thoughts as well.

[spindok]

Dizzying to me.

If the inflationary scenario is what we are looking at how can individuals protect themselves? How does this play out on the micro scale?

It seems to me that a prudent choice would be to eliminate debt and the variable rate loans and second mortgages we have been feeding on for the last decade or so. Of course that is always a prudent choice.

But where to invest?

I have concentrated this year on some things that I have felt would hold real value and use over time, ie. home improvements, diamond earrings for the Mrs., payoff of the second mortgage, A few zero coupon bonds (Israel actually), education for my daughter.

Anyway I would appreciate some insight as to what individuals could do to protect against this eventuality.

Spindok

[Fredfredson]

Good questions Spindok.

Personal protection, from an economic perspective, requires at least three core principles to be followed.

Minimize debt, variable interest first but ultimately any debt needs to be reduced. Sounds like your already going in this direction which is an excellant start.

Invest in real value, as opposed to paper value.

This second principle is a toughie, personally "real value" to me is property, gold (physical metal NOT paper certificates) and compatible buisiness ownership (not shares only but sweat equity as well).

There is a third principal which, for me, is also very important and that is reduce reliance on the external system for support as much as possible. This does not mean run to the hills in Y2K survivalist mode but it does mean recognize the dangers of this unsustainable and fragile system and work to reduce our dependence on it.

These three principles give us maximum flexibility to weather financial storms IN EITHER DIRECTION.

Caveat Emptor always applies though

F

[Francois Cellier]

I agree pretty much with Fred.

1. My wife and I have tried reducing debt as much as possible, in spite of the fact that mortgage interests can be attractive from a taxation stand point. We have not eliminated the mortgages on rental property, because we need the mortgage on the rental property to justify the rent that we ask (Switzerland is a bit more socialist than the U.S. !!)
   
2. We have reinvested the money that we received from selling out property in the U.S. in a vacation home in Switzerland ... for precisely the reasons that Fred mentioned: real estate is something tangible.
   
3. We have invested (and are investing) in getting out from fuel dependency as much as can reasonably be done. For this reason, we invest in solar and geothermal. Soon, we won't use oil any longer to heat either of our two houses. The rental property is still using oil heating though.

Another principle that can be helpful: if you believe that the markets are volatile, you need to diversify your investments. In this way, you won't make as much money, if the markets improve, but you will lose less, when they turn sour.

[Quarken]

The author sounds like a nut case IMHO.

[potter]

That's some good advice there gentlemen, thank you

[Francois Cellier]

From SwissInfo

Iran, at risk of U.N. sanctions, says moving assets
By Parinoosh Arami
January 20, 2006 9:35 PM


TEHRAN, Iran (Reuters) - Embroiled in a nuclear standoff with the West, Iran said on Friday it was moving funds out of Europe to shield them from possible U.N. sanctions and flexed its oil muscles with a proposal to cut OPEC output.

"Yes, Iran has started withdrawing money from European banks and transferring it to other banks abroad," said a senior Iranian official, who asked not to be named.

Central Bank Governor Ebrahim Sheibani was quoted as saying Tehran had started shifting funds. But he sidestepped a question on whether the assets would go to Asian accounts.

Financial markets reacted nervously to the uncertainty about Iran's foreign holdings, estimated at more than $30 billion (16.9 billion pounds), helping send oil to a four-month high above $68. U.S. stock prices fell and the dollar dipped against the euro and the safe-haven Swiss franc.

The United States called the step an act of isolation. "I think it is an indication that Iran is further isolating itself from the rest of the world," State Department spokesman Sean McCormack said.

Although countries flouting U.N. sanctions would risk international condemnation, financial experts said some Asian countries, including Indonesia, Malaysia and Thailand, lack strong banking controls. This could allow Iran to disperse reserves into front companies and escape government intervention.

Lebanon and Switzerland were also cited as possible havens.

The United States and the European Union want the International Atomic Energy Agency, at an emergency board meeting on February 2, to refer Iran to the U.N. Security Council for pressure including possible sanctions.

Swift action is considered unlikely, however.

Russia, China and India, with major commercial interests in the Islamic republic, have urged caution.

IAEA chief Mohamed ElBaradei has refused an EU request to hasten a report on Iran's atomic activities so it would be ready for the February 2 meeting, diplomats said.

Officials close to the IAEA said ElBaradei also viewed as premature Western pressure to refer Iran to the Security Council. Diplomats said he had promised the Iranians they would have until the next regular IAEA board meeting on March 6 to increase access to nuclear sites and documents.

U.S. lawmakers introduced a Senate resolution calling on the IAEA to refer the matter to the Security Council and urging Russia and China to support the efforts.


INDIA URGES CAUTION

India, a nuclear weapons power with warming ties with Washington and an old friendship with Iran, advocated more talks between Tehran and the EU trio of France, Germany and Britain.

The European three scrapped the talks last week after Iran removed IAEA seals on uranium enrichment equipment and resumed a nuclear research program, which the West suspects is aimed at producing weapons. U.S. and EU officials say Iran must reverse these steps for there to be more talks.

Iran, which is trying to avoid U.N. censure or sanctions, says its nuclear program is entirely peaceful.

Talk of shifting foreign assets indicates Iran is taking the sanctions threat seriously, with bitter memories of its U.S. assets being frozen after the 1979 Islamic revolution. Those funds are still in dispute.

But imposing sanctions is complicated, said an international financing expert. "There are a lot of regimes in the world that lack the power or capacity to freeze assets, even if they have the political will to do so," said the expert, who spoke on condition of anonymity because of the issue's sensitivity.

Aside from potential Asian havens, Iran might be able to find shelters elsewhere. Tehran is allied with the Hizbollah guerrilla group in Lebanon, which controls some banks, making that country another possible destination for Iranian funds, said Victor Comras, a former U.S. State Department official who analyzes terrorism financing and money-laundering.

But Iran would still need to keep many of its assets as official reserves, which could be easily identified for sanctions, if it hoped to maintain credibility in trade financing essential to its economy, Comras added.

In addition, Swiss banks would welcome Iranian money, a leading financial industry representative in Geneva said.

Flexing its oil muscle, Iran proposed slashing a million barrels a day from OPEC production, saying the market was oversupplied. However, OPEC is considered unlikely to cut production at a month-end meeting. Most traders are more concerned about a shortage of spare capacity and an array of geopolitical risks.

Iran is the world's fourth biggest oil exporter. Oil revenue, 80 percent of its export earnings, is expected to exceed $40 billion in the year to March 2006.

[Fredfredson]

Iran moves foreign reserves out of Europe

LINK

JAN. 20 1:25 P.M. ET Iran's decision Friday to transfer its foreign currency reserves out of Europe ahead of possible U.N. sanctions could affect as much as US$50 billion in deposits, analysts estimated, and helped send oil prices above US$68 a barrel.

But economists said the impact on the global economy would be muted, with the figure not large in comparison to other countries' reserves and uncertainty about where the money would be moved and whether it would be shifted from dollars and euros to other currencies.

"The banking system in Europe is sufficiently well developed and stable enough that even a wholesale withdrawal of reserves within wide bands of uncertainty wouldn't likely cause severe problems," said Mark Austin, a currency analyst with HSBC in London.


Iran, under increasing international pressure over its nuclear program -- and mindful of the freezing of its U.S. assets after the 1979 seizure of the American Embassy in Tehran -- said it had begun transferring its reserves from European banks to an undisclosed location.

"We transfer the foreign exchange reserves to wherever we deem fit," Iran Central Bank Governor Sheibani was quoted by the semiofficial Iranian Students News Agency as saying. "We have begun transferring. We are doing that."

Sheibani would not say how much money was involved. Iran, which has insisted its nuclear program is aimed at generating electricity and not weapons, does not publish its foreign currency reserve figures.

Three analysts who did not want to be identified because the delicate nature of the information estimated that the figure was between US$40 billion and US$50 billion, while a fourth said it was more likely to be between US$25 billion to US$30 billion.

The range puts Iran's holding on about a par with the US$54 billion that Algeria holds, and is far below the holdings of countries such as China, which had US$818.9 billion at the end of December.

The Bank for International Settlements says data indicates Iran had US$23.5 billion in the international bank system at the end of June 2005. That total represented a 10 percent increase compared to six months earlier, according to the Basel, Switzerland-based BIS.

Steve Barrow, a fixed income strategist at Bear Stearns in London, said the latest IMF data indicated that Iran holds around US$35 billion-US$40 billion in overseas assets.

"But the problem really for the market is knowing where it might be. Obviously, the authorities have spoken about repatriating and taking money out of Europe, which probably suggests they have always been wary of holding assets in the U.S.," Barrow said.

"But just because you invest with European banks doesn't mean you can't hold U.S. assets. Just as with any other central bank or monetary authority, you don't find out what proportion of foreign currencies they hold."

Several large European banks, including Germany's Deutsche Bank and France's BNP Paribas, declined to comment.

Swiss officials were tightlipped over whether Iran's move might include the country, which is not part of the European Union, or if it meant more Iranian money might be on the way.

Iranian assets in Swiss banks at the end of 2004 totaled 1.4 billion Swiss francs (then-US$1.2 billion; then-euro900 million), a 25 percent decrease compared to the year earlier, according to statistics from the Swiss National Bank.

Peter Westin, chief economist for Moscow investment bank MDM Bank, said that Iran's good relations with Moscow made it a possible destination for Iran's foreign currency reserves. "In that sense Russia is a good option," he said.

Spokesmen for the Russian Central bank were not available Friday evening and no one answered phones at Vnesheconombank, Russia's state-owned foreign banking arm.

Currency analysts said it was difficult to gauge how the move affect the European banking sector or if it would lead to a domino effect with other Middle Eastern countries doing the same in a bid to undermine countries deemed hostile to the Middle East.

In the jittery oil market, however, traders pushed the price of light sweet crude for February delivery up US$1.32 to US$68.15 in New York trading. On the ICE Futures exchange in London, March Brent rose US$1.01 to US$66.24 a barrel.

Earlier this week, Iranian Economy Minister Davoud Danesh-Jafari warned that any sanctions from the West could, by disturbing Iran's political and economic situation, raise oil prices "beyond levels the West expects," the English-language Tehran Times reported.

Stuart Eizenstat, who helped negotiate sanctions against Iran after the 1979 hostage crisis, said the Iranian currency action could weaken European resolve to ensure that Iran does not acquire nuclear weapons.

"It's one less instrument of leverage," Eizenstat told the AP, adding that Iran's principal area of leverage over the Europeans are the 5.5 million barrels of oil that it produces each day, much of it for export.

"People are afraid of a boycott of oil," Eizenstat said. He added that some in Europe fear they would be "cutting their own throats" if a sanctions regime include a ban on Iranian oil imports.

Iran's decision caused few ripples in currency trading Friday, with most traders saying the news had already been factored into the market.

Barrow said it would be an issue for markets if up to US$35 billion to US$40 billion in overseas assets was returned quickly to Iran, "but we probably won't know until after we see the markets move."

------

AP Business Writers Jane Wardell in London, Alex Nicholson in Moscow and Laurence Frost in Paris contributed to this report.

[Fredfredson]

This is an interesting article.


Response
Iran's energy needs will not be met by oil alone

The international pressure over our nuclear plants is unfair and unjustified, says Hamid Babaei

Friday January 20, 2006
The Guardian

http://www.guardian.co.uk/iran/story/0,,1690806,00.html

The news reporting on Iran has been to a large extent misleading because it portrays the country as a menace that must be urgently dealt with. The basis of much of these claims is Iran's peaceful nuclear program. It seems this issue will dominate the media coverage in weeks to come - with the strategy apparently being to deprive a nation proud of its great scientific achievements from research-based activities. What are the real motives behind this orchestrated move to demonise the Islamic Republic?

Article continues
The move by Iran is crystal clear: under the non proliferation treaty (NPT) it is allowed to exercise its rights. As the Guardian leader article suggested: "Diplomacy is the right way to respond" (Tangling with Tehran, January 12, The Guardian). We also believe that diplomatic action has not completely been put to the test.

Instead of resorting to exaggeration about the issue and relying on unfounded stories to name one party as guilty, it would be much more useful to review impartially the existing facts and figures. Unlike exonerated parties who pose a real threat to the world's stability by bluntly ignoring article 6 of the NPT obliging them to phase out their nuclear arsenals, Iran has signed the treaty and has time and again renounced the pursuit of any nuclear weapons programme.

We have even signed the additional protocol which provides the International Atomic Energy Authority inspectors with the authority to carry out on-the-spot and intrusive inspections. Moreover, the IAEA cameras haven't hesitated to monitor any movement, whether animate or inanimate, in Iranian nuclear sites. In addition there are the 1,400 person-hours of inspection of the sites by the authority, which is another indication of Tehran's transparency in its nuclear activities. This evidence rules out any baseless accusations about Iran's "intentions". But what else is needed and what can be added to this menu so that the west's double-standards approach comes to an end?

After two and a half years of voluntary suspension and confidence-building measures, our plans are now just nuclear research and have nothing to do with enrichment, the details of which are to be discussed with Russia in Moscow on February 17.

It has been said that Iran, as a major oil-producing country, should not change its energy mix in favour of clean and renewable sources, as recommended by the Kyoto protocol. But we will definitely need nuclear power plants to meet our future energy needs. Our domestic oil consumption stands at just under 1.7m barrels a day. Based on our annual growth rate, it is predicted that our energy consumption will increase by 7-12% each year for the next 10 years. So this precious source of energy will be exhausted in the foreseeable future.

It is not right, by any civilised norms, to impose imperial-style ideas on a sovereign state - and especially on a country which has historically been a stabilising and civilising force in the highly sensitive Persian Gulf region.

· Hamid Babaei is first secretary at the embassy of the Islamic Republic of Iran, in London

h_babaei@iran-embassy.org.uk

[Fredfredson]

Confusion over Iran 'assets move'

http://news.bbc.co.uk/2/hi/business/4634890.stm

Natanz nuclear facility in Iran
Iran has broken the seals on three nuclear facilities

There is confusion over whether Iran is moving foreign exchange reserves from Europe to avoid possible sanctions, after conflicting remarks by officials.

The deputy head of Iran's central bank has said that Iran has no plans at the moment to shift its money.

But Iranian news agencies reported on Friday that the bank head had said the state had started to withdraw assets, amid a row over its nuclear programme.

Iran denies US and European claims that it is seeking to build nuclear weapons.

The UN's atomic agency is due to meet on 2 February to discuss whether to refer Iran to the United Nations Security Council.

The council has the power to impose international trade or diplomatic sanctions.

Revolution freeze

The Iranian students news agency (Isna) reported on Friday that Iran's central bank governor Ebrahim Sheibani had revealed that the country had started to shift assets from Europe.


IRAN'S NUCLEAR STANDOFF
Sept 2002: Work begins on Iran's first reactor at Bushehr
Dec 2002: Satellites reveal Arak and Natanz sites, triggering IAEA inspections
Nov 2003: Iran suspends uranium enrichment and allows tougher inspections
June 2004: IAEA rebukes Iran for not fully co-operating
Nov 2004: Iran suspends enrichment under deal with EU
Aug 2005: Iran rejects EU plan and re-opens Isfahan plant
Jan 2006: Iran re-opens Natanz facility

In depth: Nuclear fuel cycle
Profile: UN Security Council

It was not immediately clear where the funds were going, although reports suggested assets could be heading to Asia.

However, the deputy head of the bank has told the official news agency Irna that Iran has no plan at the moment to move money from Europe to Asia.

"At the moment, Iran does not have any schedule to transfer its foreign exchange accounts to the named countries," Mohammad-Jafar Mojarad said.

Earlier, the economics minister denied reports that key individuals linked to the regime had started to remove billions of dollars of private capital from Europe.

The BBC's Frances Harrison in Tehran says many Iranians believe it would be prudent to take action to avoid a repeat of 1979, when the US froze Iranian assets in response to Iran's Islamic revolution.

It is difficult to estimate the amount of assets that Iran has abroad. Some sources have put the total value of Iran's foreign assets at somewhere between $30bn and $50bn.

Russian solution?

Correspondents say a possible solution to the Iranian nuclear dispute may have emerged, after Russia said Iran has expressed interest in a proposal to enrich uranium on Russian territory.

The head of Russia's atomic energy agency told President Vladimir Putin that Iran was ready for detailed discussions about the idea.

The highly sensitive process of enriching uranium lies at the heart of the row between the West and Iran.

Low level enriched uranium is used as fuel in nuclear power stations, but uranium enriched to higher levels can be used in nuclear weapons.

Western countries are afraid that oil-rich Iran is secretly pursuing nuclear weapons and that allowing it to master the enrichment process will inevitably lead to weapons acquisition.

Tehran says it wants the technology for energy purposes alone.

[Neko]

I'm no economist, but I reckon that mercantilist theory is going to make a big come back pretty soon. Everything's cyclical and all that...

*Buys gold*

[Quarken]

Strange ideas about the Iranian oil bourse

The internet can be a good source of information about issues that aren't adequately covered by the mainstream media. It can also be a font of considerable kookiness.

Tyler Cowen as well as several Econbrowser readers have called attention to Iranian intentions of creating an exchange in which oil would be traded for euros rather than dollars. Krassimir Petrov's excited account gives a flavor of what you can find out there:

"one of the Federal Reserve's nightmares may begin to unfold in the spring of 2006, when it appears that international buyers will have a choice of buying a barrel of oil for 60 dollars on the NYMEX and IPE-- or purchase a barrel of oil for 45-50 euros via the Iranian Bourse. This assumes the euro maintains its current 20-25% appreciated value relative to the dollar-- and assumes that some sort of US "intervention" is not launched against Iran. The upcoming bourse will introduce petrodollar versus petroeuro currency hedging, and fundamentally new dynamics to the biggest market in the world-- global oil and gas trades. In essence, the U.S. will no longer be able to effortlessly expand credit via U.S. Treasury bills, and the dollar's demand/liquidity value will fall."

How exactly will that have any effect at all on the Federal Reserve or the demand for dollars? Petrov explains:

"The economic essence of this [post Bretton Woods] arrangement was that the dollar was now backed by oil. As long as that was the case, the world had to accumulate increasing amounts of dollars, because they needed those dollars to buy oil. As long as the dollar was the only acceptable payment for oil, its dominance in the world was assured, and the American Empire could continue to tax the rest of the world. If, for any reason, the dollar lost its oil backing, the American Empire would cease to exist. Thus, Imperial survival dictated that oil be sold only for dollars."

Elias Akleh sees this oil bourse, rather than nuclear bombs, as the thing that Bush fears most about Iran, while Soj writing at Daily Kos finds a conspiratorial connection between all this and the Federal Reserve's intention to discontinue publication of the monetary aggregate M3.

Where shall I begin? Well, for starters, you don't need to acquire any U.S. assets in order to purchase a barrel of oil that is priced in dollars. You could pay with eurodollars, which are dollar-denominated accounts that could be issued by any bank anywhere in the world.

And even if the oil were purchased with dollars drawn on a U.S. bank, there is no reason at all that the seller needs to retain the proceeds in that form. Those selling oil could convert those dollars back to euros or Japanese yen or whatever their hearts desired, and likewise could convert euros obtained through sales on an Iranian bourse back into dollars, if they wished. What ultimately determines the demand for dollars is not the unit of account for the transaction, but rather the desired asset holdings of those who are accumulating the wealth.

You could buy gold right now in New York for dollars or in London for pounds. Which one is cheaper? Guess what-- you'll pay exactly the same price either place once you make the currency conversion at the current exchange rate. The same will surely hold for crude oil.

And the notion that the U.S. dollar is currently "backed by oil" is so nonsensical that it is difficult even to fathom what that phrase is intended to convey. When we say that under a gold standard, the dollar is backed by gold, I know exactly what that means-- it means you can surrender dollars at any time to obtain a fixed amount of gold promised by the government. But if you surrender dollars on any given day in January 2006, how much oil are you going to get back? It varies literally by the minute, and the rate at which dollars get exchanged for oil has nothing to do with the promises made by any government and everything to do with market fluctuations in supply and demand.

Which is also my explanation for the prevalence of these theories on the internet-- there is a demand for a deeply conspiratorial interpretation of world events, and always someone willing to supply such.

[Francois Cellier]

From SwissInfo

UBS quits Iran
swissinfo January 22, 2006 3:03 PM


Switzerland's largest bank, UBS, has confirmed that it is ceasing all operations in Iran.

UBS corroborated the report in the German-language newspaper, SonntagsZeitung, stressing, however, that the decision's implementation had already begun in autumn 2005.

All existing business with Iranian customers – barring those in exile – would be wound down, although it was unclear how long this process would take.

Company spokesman Serge Steiner added that the measure was a result of an internal risk assessment, which took into account that Iran was tagged as one of the countries belonging to the so-called axis of evil.

In the end, it was also a question of revenue and expense, said Steiner, and that the burden of regulatory compliance in countries like Iran was simply too heavy.

However, he insisted that it had nothing to do with the current crisis that has erupted over Iran's recent resumption of its nuclear programme in the face of international opposition.


Others

Switzerland's second largest bank, Credit Suisse, admitted that it too was watching the situation in Iran very closely.

Meanwhile, Iran has denied that it is shifting its foreign currency reserves out of Europe in a pre-emptive move ahead of possible United-Nations sanctions over its nuclear programme.

The UN's International Atomic Energy Agency is due to meet in February to discuss whether Teheran should be referred to the UN Security Council.

The latter has the power to impose international sanctions.

[Francois Cellier]

From the Khaleej Times

Iran cuts gas supply to Turkey
(Reuters)
21 January 2006


ANKARA — Iran cut the flow of natural gas to Turkey a few days ago to 5 million cubic metres a day from the 26 million cubic metres set out in a contract, a Turkish Energy Ministry official said yesterday.

The official told Reuters Turkey had asked Iran to stick to the terms of the contract and officials met late on Thursday to consider strategies. He said there had been hitches because of the cold weather, as there were every year, and said measures had been taken so that industry in particular would not be affected.

[potter]

Just so I have this straight, all this is happening because Iran wants to ramp up it's nuclear power program, but the west "suspects" Iran only wants to ramp up for nuclear weapons production, so the west starts making threatening noises, so now Iran is going into defense position?

Does the west have the same kind of evidence it had when it attacked Iraq?

[gurutoo]

potter, is there any reason not to believe that Iran intends to develop nukes? Evidence or no, Iran is feverishly working on nukes. Why?

Their most hated enemy Israel already has them. IMO

[potter]

Originally Posted by gurutoo

potter, is there any reason not to believe that Iran intends to develop nukes? Evidence or no, Iran is feverishly working on nukes. Why?

Their most hated enemy Israel already has them. IMO

They have repeatedly stated they are developing the nuclear capabilities for energy, not weapons.

Are we just stirring shit up again where there was no shit before? Do we have solid evidence they are indeed going to make nuclear weapons?

It's our own policies that are turning Iran more militant. Two declared enemies have nuclear weapons, both have stated their willingness to USE them specifically on Iran, even if they are going for the nukes can you blame them? There is NOTHING the US military industrial complex wants more than a protracted cold war.....

IMO, we seem to be just stirring up more shit....

[gurutoo]

Well, their(Iran's) president did say that "Israel should be "wiped" from the face of the earth". Nukes could certainly help in that end...