"The Last 1800 Days ? HOOROO !" <sgdecember2...@yahoo.ca> wrote in messagenews:090d923f-bc24-4d40-afb3-120f93c4e5fd@d27g2000prf.googlegroups.com...http://www.wsws.org/articles/2007/dec2007/irn3-d03.shtml

Iran: Why does Dumbo invoke the threat of World War III?

Part 3: Globalization, Iran, and the dollar crisis

By Alex Lantier

3 December 2007

This is the final article in a three-part series. Part one was posted
on November 30. Part two was posted on December 1.

The important role of oil in US Middle East policy--and particularly in
the campaign of war and occupation launched by the Bush administration--
is widely acknowledged, though it is ignored by the corporate media.
Less often discussed is the role of the oil trade in propping up the
US dollar, and thus helping to maintain the increasingly tense and
unstable relations between the world's main trading blocs.

These tensions find their most finished expression in the US trade
deficit and the crisis of US industry. Since the economic crisis and
oil shock of the 1970s, the US has gone from the world's largest
industrial power to its largest debtor and importer. According to
European Union (EU) statistics, in 2006 the US posted a trade deficit
with all its major trading partners: 100 billion euros with the EU, 61
billion euros with Canada, 53 billion euros with Mexico, 73 billion
euros with Japan, and 200 billion euros with China. Yearly capital
inflows into the US of more than US$600 billion were needed to finance
this deficit, as the rest of the world paid the US to buy the products
it made.

In particular, the East Asian countries--China, Japan, and Korea--have
amassed huge dollar reserves by lending money to the US to purchase
their products. China's dollar holdings alone are at least US$1.2
trillion, and total East Asian dollar holdings are estimated at more
than US$2 trillion.

The material reality underlying this phenomenon in the US (and, to a
lesser extent, in Japan and high-wage countries of Europe) has been
wave upon wave of plant closures and layoffs, wage and benefit
concessions by trade unions, and the shifting of much of the working
class towards low-paying service jobs. As anyone who has shopped at a
US discount store like Wal-Mart or Target knows, the living standards
of the US population are dependent on the availability of cheap
foreign manufactured goods.

The US bourgeoisie has continued to realize huge profits on such
goods, however, by pocketing the difference between the low prices it
pays to foreign manufacturers in the cheap-labor countries and the
prices paid by the American masses. The survival of the downsizing of
America's industrial base has thus relied in large part on forcing
foreign exporters to accept low prices for--and even lend money for the
purchase of--their goods.

The US bourgeoisie has also partially relied on the implicit military
threat posed by its strategic position in the Middle East. Simply put,
every exporting country negotiating prices with US retailers must keep
in mind that the US can threaten it with an oil blockade (if it
imports oil) or with military attack (if it is near the Middle East).
As has already been pointed out, Beijing's foreign policy in the
Indian Ocean and Southeast Asia shows the central importance of this
preoccupation in the minds of leading Chinese state officials.

However, financial concerns also play an important role in encouraging
other countries to hold dollars. Most of industry's basic raw materials
--oil, gas, metals, grain--are traded in markets that denominate their
sales in dollars. This gives other countries a powerful incentive to
accept US dollars in return for their products, even when they do not
intend to purchase US goods: they will use these dollars to purchase
raw materials on world markets.

The crisis of the US economy--notably the bursting of the sub-prime
mortgage bubble and the rapid fall of the US dollar versus other major
currencies--places a question mark over the viability of the strategy
of exporting on credit to the US. The plunge of the dollar against
other currencies means that their dollar holdings generate losses when
converted back into those currencies, and there is increasingly the
possibility of a major credit crisis in the US.

Increasingly, the fall of the dollar is also encouraging exporters--
notably oil-producing countries--to consider selling their commodities
in different currencies, such as the euro.

Such a shift would further decrease the incentive to sell goods and
provide credit to the US economy: US dollars would no longer be needed
to purchase essential raw materials on world markets. Absent the need
to sell on credit to the US, the maintenance of current trading
patterns would represent a very costly political decision to supply
the US market with goods and financial backing.

Though the risk of a flight from the dollar in world currency and
commodity markets is currently described as small by most bourgeois
financial journalists, it is of utmost concern to the US bourgeoisie
and is actively discussed in the US foreign policy establishment.

In 2002, during a Capitol Hill Conference Series on US Middle East
Policy, former US ambassador to Saudi Arabia Chas. Freeman said: "It
seems to me that one of the major things that the Saudis have
historically done...is to insist that oil continue to be priced in
dollars. Therefore, the United States Treasury can print money and buy
oil, which is an advantage that no other country has. With the
emergence of other currencies and with strain in the relationship
[between Saudi Arabia and the US], I wonder whether there will not be
again, as there have been in the past, people in Saudi Arabia who
raise the question of why they should be so kind to the United
States."

Referring to the massive inflows of capital financing the US trade
deficit, Freeman added: "I think the issue is the US balance-of-
payments deficit."

Iran ditches the US dollar

Washington's policy of embargo against Iran and war and occupation in
Afghanistan and Iraq has destabilized this already tense situation and
strengthened tendencies pushing toward the abandonment of the US
dollar by the Middle East oil trade. Iran, which has no legal trade
with the US, and upon which US financial authorities are trying to
impose a total blockade of financial transactions, is perhaps the
Middle Eastern power with the least reason to hold dollars.

Unsurprisingly, the Iranian state has progressively shifted its oil
sales at the Iranian Oil Bourse out of US dollars and into other
currencies, notably euros and Japanese yen. This event has gone
surprisingly unreported in the US corporate media.

According to a March 2007 report in the Scotsman, China's Zhuhai
Zhenrong Corporation began paying euros for Iranian oil deliveries in
late 2006. In September 2007, Japan's Nippon Oil agreed to purchase
oil in yen. In October 2007, AFP quoted Mohammad-Ali Khatibi, deputy
head of the National Iranian Oil Company, as confirming Iran's switch
out of the US dollar.

Khatibi said: "Iran is selling about 85 percent of its oil in the non-
dollar currencies. Currently, about 65 percent of the oil sale income
is in euros and 20 percent in yen." He also suggested that the
remaining 15 percent of Iranian oil sales could soon be denominated in
dirhams, the currency of the United Arab Emirates--a major Iranian
trading partner.

The UPI press service interviewed PFC Energy analyst David Kirsch, who
noted that for Iran, "a key motivation is the US informal sanctions
that the Treasury, and [US Treasury] Undersecretary [for Terrorism and
Financial Intelligence] Stuart Levey in particular, put on banks not
to do financial transactions with Iran."

Kirsch also implied that, should Iran be allowed to continue its
currency policy unmolested, it might end up leading a shift of the
Persian Gulf oil industry out of dollar-denominated oil sales. He
said: "There is also another key issue that you are seeing, not just
in Iran, but in other oil producers, especially Gulf oil producers, is
given the depreciation of the dollar, it is better to hold their
reserves at least in euros, it is a better store of wealth. Some of
the other Gulf producers will accept payment in euros."

The geopolitics of the dollar and the euro

In the current tense international situation, the possibility that the
euro might supplant, at least partially, the US dollar as the main
currency of world trade is becoming tangible. The dollar's role in
international markets--from its plunge against other currencies to the
explosion of (dollar) prices of global commodities and raw materials--
resembles nothing more than worldwide theft benefiting the American
bourgeoisie.

The rapid fall of the dollar risks pricing the European bourgeoisie
out of world markets, as its goods are undercut by US competitors,
whose costs are counted in cheaper dollars. It also cuts down the
value of dollar-denominated profits realized abroad by European
corporations, once brought back to Europe and converted into euros.

This was perhaps most prominently discussed by French President
Nicolas Sarkozy during his latest trip to Washington, D.C. Noting that
every cent that the euro rises against the dollar costs Franco-German
airplane maker Airbus 100 million euros in profits, Sarkozy warned
that "monetary disorder risks growing into economic war." He refrained
from adding that Airbus's difficulties profited its only competitor,
US-based Boeing.

For oil sellers like Iran, Russia, and the Persian Gulf kingdoms, most
of whose trade is realized with Europe and Asia, the fall of the
dollar against the euro (and to a lesser extent versus the Asian
currencies) cuts into the purchasing power of their oil earnings,
unless they are denominated in other currencies.

The Asian bourgeoisies, for whom the US is a key export market, are
caught between surging prices for oil and raw materials on dollar-
denominated markets, and the low ...

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