It’s not the nukes, not even the oil…

It’s about the money.

The announcement that the Iranian government will convert its foreign dollar holdings to euros might be the first step down the slope that results in oil sold internationally in euros. In isolation, the announcement is not major, as oil is still sold through the New York or London bourses in US dollars, therefore, the Iranian government will be converting payments received directly into euros.

The implied threat, however, and one that Washington definitely is taking seriously, is that Iran may try to introduce a third international oil bourse, one that operates in euros. Such a move would threaten the strength of the US dollar at a time when the US national debt is at historic (histrionic?) levels and could have serious economic implications. I’ve discussed some of the reasons why this could be so here, and I believe that the US is more worried about the stability of the value of the dollar than they are concerned with regional stability in the Middle East. The two are linked, but they are not in lock-step.

The oil is important because it gives the Iranians economic independence and leverage. The nukes are important because it puts an exlamation point on every statement everyone makes about the place. However, the power that oil has over the value of the US dollar, and the number of countries that might want to buy and sell it using euros, is the real clincher.

I think it is guarenteed that we will see the tension between the West and Iran ratchet up in the coming days and weeks as a result of this announcement.

3 thoughts on “It’s not the nukes, not even the oil…

  1. Iran threatened to go Euro about 18 months ago. Then the neocons go all hot and bothered about alleged “nookular” facilities.. Just a coincidence? Think not!


  2. i think iran converting to euro’s isn’t as bad as some might think or desire. to have some oil traded on a euro instead of the u.s. dollar; ulitmately takes away some power from the u.s.; …. oh i’m sure it will come with consequences if it does trade in the euro … !


  3. Iran converting to the euro is not in and of itself bad – that’s why I wrote “In isolation, the announcement is not major”, but Iran offering oil in euros, which would require another venue through which to sell it (a bourse) might well be, provided there are any takers. I can think of a handful of OPEC countries, Venezuala springs first to mind, that might redirect their reserves to such a bourse, provided there is someone there willing to buy it. That is not guaranteed. Anyone buying oil in euros would have to know, and I’m sure Condi will tell them if they don’t, that the US is going to look rather strongly at those buying oil in euros and more importantly, converting their foreign holdings to euros. That’s where the real danger to the American dollar – in the holdings. It would not take too many countries unloading American dollars to send the US, and our, economies into a hard spin.

    The trick is that some of the larger economies – China and Japan for example, also hold huge chunks of US debt. They would not like to see that debt diminish in value any more than we’d benefit from a crash in the US economy. Those countries hold important levers – they might be able to keep other nations away from buying oil in an Iranian bourse, and I suspect that resistance from the Chinese and other nations in the Sanghai Cooperation Organization is why Ahmadinejad hasn’t pulled the trigger yet.

    Will Iran do it – I don’t know. I do know that if they were to do it, they would not want to risk an oil boycott from their larger customers – no country can sustain that for any length of time. However, converting their assets over to euros sends a message that they might be interested in making some side deals for oil outside of the current London/New York systems, and those deals will now be conducted using euros. Ahmadinejad now can sit and wait to see if anyone comes calling while still enjoying access to the current export system without penalty.

    It’s an interesting strategic move.


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