"Petrodollars and Nuclear Weapons Proliferation:

[McKenzie]

Understanding the Planned Assault on Iran".

I posted this a few minutes ago in a reply to a thread on the potential attack on Iran in the context of the forthcoming Bourse. The article has been posted on DU before but it's worth posting it again given the rhetoric coming out of BushCo of late.

Opinions are divided on the economic effect of the Bourse on dollar hegemony. Read and make up your own minds. And consider the content if the rhetoric gets stronger as the launch of the Bourse approaches.

<snip>

There is currently some debate over the extent to which U.S. war preparations against Iran are motivated by concern for the continued hegemony of the petrodollar (see Nunan). I find the analyses of William Clark and Krassimir Petrov persuasive.

Clark notes that an important obstacle to any major shift in the oil marketing system has been “the lack of a euro-denominated oil pricing standard, or oil ‘marker’ as it is referred to in the industry.” (The current “oil markers,” in relation to which other internationally traded oil is priced, are Norway Brent crude, West Texas Intermediate crude , and United Arab Emirates Dubai crude—all of them U.S. dollar denominated.) In his opinion, “it is logical to assume the proposed Iranian bourse will usher in a fourth crude oil marker—denominated in the euro currency,” and will thus “remove the main technical obstacle for a broad-based petro-euro system for international oil trades.” This will have the effect of introducing “petrodollar versus petroeuro currency hedging, and fundamentally new dynamics to the biggest market in the world—global oil and gas trades. In essence, the US will no longer be able to effortlessly expand credit via US Treasury bills, and the US$’s demand/liquidity value will fall” (Clark, 28 Jan. 2006).

An even partial loss of the U.S. dollar’s position as the dominant reserve currency for global energy trading would, as Petrov suggests, lead to a sharp decline in its value and an ensuing acceleration of inflation and upward pressure on interest rates, with unpleasant consequences. “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 <…>, or alternatively, to take the Weimar way out by inflating, <…> drown the financial system in liquidity <…> and hyperinflating the economy.”

Any attempt, on the other hand, to preserve what Mike Whitney calls the “perfect pyramid-scheme” of America’s currency monopoly (Whitney, 23 Jan. 2006) by means of military aggression against Iran is likely to result in equal or greater disruptions to the world economy. American military aggression, which might conceivably include attempts to occupy Iran’s oil-producing Khuzestan province and the coastline along the Straits of Hormuz (see Pilger), will not just have appalling consequences for civilians throughout the region; it may also place American forces into situations still more closely analogous than the present stage of Iraqi resistance to the situation produced in Lebanon by Israel’s invasion of that country—which ended in 2000 with Israel’s first military defeat (see Salama and Ruster).

</snip>

http://www.scoop.co.nz/stories/HL0602/S00157.htm