You are here
Bundesbank sounds a bit snippy over suggestion that it should sell gold
By Emilie Rutledge
AlJazeera.Net
Thursday, November 3, 2005
http://english.aljazeera.net/NR/exeres/C1C0C9B3-DDA9-42E2-AE9C-
B7CDBA08A6E9.htm
Iran's decision to set up an oil and associated derivatives market
next year has generated a great deal of interest.
This is primarily because of Iran's reported intention to invoice
energy contracts in euros rather than dollars.
The contention that this could unseat the dollar's dominance as the
de-facto currency for oil transactions may be overstated, but this
has not stopped many commentators from linking America's current
political disquiet with Iran to the proposed Iranian Oil Bourse
(IOB).
The proposal to set up the IOB was first put forward in Iran's Third
Development Plan (2000-2005). Mohammad Javad Assemipour, who heads
the project, has said that the exchange will strive to make Iran the
main hub for oil deals in the region and that it should be
operational by March 2006.
Geographically Iran is ideally located as it is in close proximity
to major oil importers such as China, Europe, and India.
It is unlikely, in the short term at least, that large numbers of
energy traders will decamp and set up shop in Iran -- a country that
happens to be categorised as a member of the "axis of evil" by the
president of the world's largest oil-importing country, the United
States.
But over time, Iran could take some business away from the two
incumbent energy exchanges, the International Petroleum Exchange and
the New York Mercantile Exchange, which both invoice sales solely in
dollars.
If successful, the IOB will provide Iran with concrete economic
benefits, especially if it invoices at least some of its energy
contracts in euros.
Iran has around 126 billion barrels of proven oil reserves, about 10
percent of the world's total, and has the world's second largest
proven natural gas reserves.
From an economic perspective, invoicing oil in euros would be
logical for Iran as trade with the euro zone countries accounts for
45 percent of its total trade. More than a third of Iran's oil
exports are destined for Europe, while oil exports to the United
States are non-existent.
The IOB could create a new euro-denominated crude oil marker, which
in turn would enable Gulf Cooperation Council nations to sell some
of their oil for euros. The bourse should lead to greater levels of
foreign direct investment in Iran's hydrocarbon sector, and if it
facilitates futures trading, it will give regional investors an
alternative to investing in their somewhat overvalued stock markets.
Euro-zone countries alone account for almost a third of Iran's
imports and currently Iran must exchange dollars earned from
hydrocarbon exports into euros, which involves exchange rate risk
and transaction costs.
The decline in the dollar against the euro since 2002 -- some 26
percent to date -- has substantially reduced Iran's purchasing power
against its main importing partner.
If the decline continues, more states will increase the percentage
of euros vis--vis the dollar they hold in reserve and in turn this
will increase calls both in Iran and the GCC to invoice at least
some of their oil exports in euros.
A move away from the dollar and a strengthening of the euro would
further benefit Iran since, according to a member of Iran's
Parliament Development Commission, Mohammad Abasspour, more than
half of the country's assets in the Forex Reserve Fund are now
euros.
It is primarily the United States that stands to lose out from any
move away from the petrodollar status quo; it is the world's largest
importer of oil, and a move away from invoicing oil in dollars to
euros will undoubtedly have a negative effect on its economy.
Fewer nations would be willing to hold the dollar in reserve, which
would cause a significant devaluation and result in the loss
seigniorage revenues. In addition, U.S. energy-related companies
stand to lose out as they will be unable to participate in the
bourse due to the longstanding American trade embargo on Iran.
In the 1970s, not long after the collapse of the gold standard, the
U.S. agreed with Saudi Arabia that OPEC oil should be traded in
dollars, in effect replacing the gold standard with the oil
standard.
Since then consecutive U.S. governments have been able to print
dollar bills and treasury bonds in order to paper over huge current
account and budgetary deficits. Last year's U.S. current account
deficit was $646 billion.
Needless to say, the current petrodollar system greatly benefits the
U.S.; it enables it to effectively control the world oil market as
the dollar has become the fiat currency for international trade.
In terms of its own oil imports, the U.S. can print dollar bills
without exporting commodities or manufactured goods, as these can be
paid for by issuing yet more dollars and T-bills.
George Perkovich of the Washington based Carnegie Endowment for
International Peace has argued that Iran's decision to consider
invoicing oil sales in euros is "part of a very intelligent strategy
to go on the offense in every way possible and mobilise other actors
against the U.S."
This viewpoint however, ignores Iran's economic motives. Just
because the decision, if eventually taken, displeases the U.S. does
not mean that the rationale is purely political.
In light of such sentiments and the U.S.'s current insistence that
Iran be referred to the United Nations Security Council, Iran must
consider and weigh carefully the economic benefits against the
potential political costs.
Although it is a matter of conjecture, some observers consider
Iran's threat to the petrodollar system so great that it could
provoke a U.S. military attack on Iran, most likely under the cover
of a preemptive attack on its nuclear facilities, much like the
cover of weapons of mass destruction that America used against Iraq.
In November 2000 Iraq began selling its oil in euros. Its "oil for
food" account at the U.N. was also transferred into euros and later
it converted its $10 billion U.N.-held reserve fund into euros.
At the time of the switch many analysts were surprised and saw it as
nothing more than a political statement, which in essence it may
have been, but the euro has gained roughly 17 percent over the
dollar between then and the 2003 U.S. invasion of Iraq. Perhaps
unsurprisingly, since the U.S.-led occupation of Iraq its oil sales
are once again being invoiced in dollars.
The best policy choice for Iran would be to proceed with the IOB as
planned, as the economic advantages of such a bourse are clear. But
to mitigate against the potentially greater political "threat"
should provide customers with flexibility.
It would make it much harder for America to object to the new
bourse, overtly or covertly, if Iran allows customers to decide for
themselves which currency to use when purchasing oil. Such an
approach would facilitate euro purchases without explicitly ruling
out the dollar.
-----------
Emilie Rutledge is a Britisheconomist working at the Gulf Research
Center in Dubai.
----------------------------------------------------
To subscribe to GATA's dispatches, send an e-mail to:
gata-subscribe@yahoogroups.com
To unsubscribe, send an e-mail to:
gata-unsubscribe@yahoogroups.com
----------------------------------------------------
RECOMMENDED INTERNET SITES
FOR DAILY MONITORING OF GOLD
AND PRECIOUS METALS
NEWS AND ANALYSIS
Free sites:
http://www.cbs.marketwatch.com
http://www.usagold.com/amk/usagoldmarketupdate.html
http://www.capitalupdates.com/
http://www.silver-investor.com
http://www.thebulliondesk.com/
http://www.goldismoney.info/index.html
http://www.minersmanual.com/minernews.html
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.investmentrarities.com
http://www.kereport.com
(Korelin Business Report -- audio)
http://www.plata.com.mx/plata/home.htm
(In Spanish)
http://www.plata.com.mx/plata/plata/english.htm
(In English)
http://www.resourceinvestor.com
http://www.goldpennystocks.com/
Subscription sites:
http://www.lemetropolecafe.com/
http://www.interventionalanalysis.com
http://www.investmentindicators.com/
Eagle Ranch discussion site:
http://os2eagle.net/checksum.htm
Ted Butler silver commentary archive:
http://www.investmentrarities.com/
----------------------------------------------------
COIN AND PRECIOUS METALS DEALERS
WHO HAVE SUPPORTED GATA
AND BEEN RECOMMENDED
BY OUR MEMBERS
Blanchard & Co. Inc.
909 Poydras St., Suite 1900
New Orleans, Louisiana 70112
888-413-4653
http://www.blanchardonline.com
Centennial Precious Metals
Box 460009
Denver, Colorado 80246-0009
1-800-869-5115
http://www.USAGOLD.com
Michael Kosares, Proprietor
cpm@usagold.com
Colorado Gold
222 South 5th St.
Montrose, Colorado 81401
http://www.ColoradoGold.com
Don Stott, Proprietor
1-888-786-8822
Gold@gwe.net
El Dorado Discount Gold
Box 11296
Glendale, Arizona 85316
http://www.eldoradogold.net
Harvey Gordin, President
Office: 623-434-3322
Mobile: 602-228-8203
harvey@eldoradogold.net
Gold & Silver Investments Ltd.
Mespil House
37 Adelaide Rd
Dublin 2
Ireland
+353 1 2315260/6
Fax: +353 1 2315202
http://www.goldinvestments.org
info@gold.ie
Investment Rarities Inc.
7850 Metro Parkway
Minneapolis, Minnesota 55425
http://www.gloomdoom.com
Greg Westgaard, Sales Manager
1-800-328-1860, Ext. 8889
gwestgaard@investmentrarities.com
Kitco
178 West Service Road
Champlain, N.Y. 12919
Toll Free:1-877-775-4826
Fax: 518-298-3457
and
620 Cathcart, Suite 900
Montreal, Quebec H3B 1M1
Canada
Toll-free:1-800-363-7053
Fax: 514-875-6484
http://www.kitco.com
Lee Certified Coins
P.O. Box 1045
454 Daniel Webster Highway
Merrimack, New Hampshire 03054
http://www.certifiedcoins.com
Ed Lee, Proprietor
1-800-835-6000
leecoins@aol.com
Lone Star Silver Exchange
1702 S. Highway 121
Suite 607-111
Lewisville, Texas 75067
214-632-8869
http://www.discountsilverclub.com
Miles Franklin Ltd.
3015 Ottawa Ave. South
St. Louis Park, Minn. 55416
1-800-822-8080 / 952-929-1129
fax: 952-925-0143
http://www.milesfranklin.com
Contacts: David Schectman,
Andy Schectman, and Bob Sichel
Missouri Coin Co.
11742 Manchester Road
St. Louis, MO 63131-4614
info@mocoin.com
314-965-9797
1-800-280-9797
http://www.mocoin.com
Resource Consultants Inc.
6139 South Rural Road
Suite 103
Tempe, Arizona 85283-2929
Pat Gorman, Proprietor
1-800-494-4149, 480-820-5877
Metalguys@aol.com
http://www.buysilvernow.com
Swiss America Trading Corp.
15018 North Tatum Blvd.
Phoenix, Arizona 85032
http://www.swissamerica.com
Dr. Fred I. Goldstein, Senior Broker
1-800-BUY-COIN
FiGoldstein@swissamerica.com
The Moneychanger
Box 178
Westpoint, Tennessee 38486
http://www.the-moneychanger.com
Franklin Sanders
1-888-218-9226, 931-766-6066
----------------------------------------------------
HOW TO HELP GATA
If you benefit from GATA's dispatches, please
consider making a financial contribution to
GATA. We welcome contributions as follows.
By check:
Gold Anti-Trust Action Committee Inc.
c/o Chris Powell, Secretary/Treasurer
7 Villa Louisa Road
Manchester, CT 06043-7541
USA
By credit card (MasterCard, Visa, and
Discover) over the Internet:
http://www.gata.org/creditcard.html
By GoldMoney:
http://www.GoldMoney.com
Gold Anti-Trust Action Committee Inc.
Holding number 50-08-58-L
Donors of $1,000 or more will, upon request,
be sent a print of Alain Despert's colorful
painting symbolizing our cause, titled GATA.
Donors of $200 or more will receive copies
of "The ABCs of Gold Investing" by Michael
Kosares, proprietor of Centennial Precious
Metals in Denver, Colorado, and "The Coming
Collapse of the Dollar" by James Turk and
John Rubino.
GATA is a civil rights and educational
organization under the U.S. Internal Revenue
Code and contributions to it are tax-deductible
in the United States.
