The current reasons for US antagonism towards Iran extend well beyond its publicly stated concerns regarding Iran’s nuclear intentions. In mid-2003 Iran broke from tradition and began accepting euros as payment for its oil exports from its European and Asian customers. This move threatens international demand for and the liquidity value of the US dollar.

Saddam Hussein attempted a similar bold step back in 2000. But after toppling his regime the Bush Administration quietly reconverted Iraq’s oil transaction currency back to the US dollar – which had the rather adverse effect of wiping out 13 per cent of Iraq’s oil export profits (due to the euro’s higher valuation over the dollar in mid-2003).

Now Iran is about to compound its ‘offence’. In 2006 Iran intends to set up an oil exchange (or bourse) that would facilitate global trading of oil between industrialized and developing countries, most likely pricing sales in the euro, or ‘petroeuro.’ At the moment, the vast majority of the world’s oil is traded on the New York NYMEX (Mercantile Exchange) and the London IPE (International Petroleum Exchange), both of which are operated by an Atlanta-based US conglomerate. These oil exchanges transact US dollars.

Without a doubt, a successful Iranian oil bourse will create a shift away from US dollars and towards euros in the oil market. The drop in demand for petrodollars would cause the value of the dollar to plummet further, undermining the position of the US as the global economic leader. Ultimately it will also force the US to change significantly its current tax, debt, trade, and energy policies, all of which are severely unbalanced.

But present international developments mean that any US retaliation against Iran will also carry significant consequences. On 28 October 2004, Iran and China signed a huge oil and gas trade agreement valued at between $70 and $100 billion. China currently receives 13 per cent of its oil imports from Iran, and with this deal the Chinese Government effectively drew a ‘line in the sand’ around Iran. China is a major exporter to the US, and its resulting trade surplus means that it has become the world’s second largest holder of US currency reserves (Japan is the largest holder with $800 billion, while China holds over $650 billion).

US intervention in Iran – including any aerial attack on suspected nuclear facilities – would put pressure on the Chinese to abandon their support of the dollar. If really upset by an attack on their principal oil export partner, they could afford to show their displeasure by suddenly unloading perhaps $300 billion of their surplus US dollars. The immediate effect would create a global dollar crisis, if not a dollar crash, which would be likely to force Russia and OPEC to abandon the dollar for a monopoly ‘petroeuro’.

It is conceivable that such US aggression towards Iran could provoke other industrialized nations to abandon the dollar in droves. Indeed, Russia and Venezuela have already expressed interest in moving towards a petroeuro system for oil transactions. A desperate punitive collective switch to petroeuros would ultimately render the US Navy in a similar state to the once-mighty Soviet fleet – rusting in port due to a collapsed economy.

William Clark is the author of the recently published book Petrodollar Warfare: Oil, Iraq and the Future of the Dollar (New Society Publishers, British Colombia, 2005).

This article is from the November 2005 issue of New Internationalist.

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