The Guardian 25 January, 2006

US has a lot at stake in Iran

In 2000, the then President of Iraq Saddam Hussein demanded that payments for Iraqi oil be made in Euros. It was not taken seriously at first but when it became clear that Iraq would not budge, political pressure was applied to make Hussein change his mind. Other countries, notably Iran were also considering payment in other currencies, rather than the US dollar. The danger to the dollar was something the United States could not envisage. A punitive action was set in motion. As the events that followed showed, the US’s occupation and continuing military campaign in Iraq has nothing to do with weapons of mass destruction, spreading democracy or defending human rights. And while the seizure of oil fields and the strategic positioning of its forces in Iraq for its Middle East agenda are important to the US, there is another issue that outweighs these. It is the defence of the US dollar and ultimately the US economy from collapse if the dollar were to lose its dominant position.

The war and subsequent occupation were meant to show the world that anybody who dared to demand payment in currencies other than the US dollar would be severely punished.

Two months after the United Stated invaded Iraq, the Oil for Food program was terminated, the Iraqi Euro accounts were switched back to dollars. Once again oil was sold for US dollars.

Now in 2006, Iran has come up with a weapon that can destroy the financial system of the USA. It is the Iranian Oil Bourse which is due to open in March this year. If it does open it will be based on a euro-oil-trading mechanism that implies payment for oil in Euro.

In economic terms it will present a much more serious threat to the economy of the USA than Iraq’s switch to the euro ever had.

The Europeans will be willing to pay with their own currency, they will not have to buy and hold dollars to secure their payment for oil. The Chinese and the Japanese will be especially eager to adopt the new exchange — it would allow them to drastically cut their huge dollar reserves and diversify with the Euro. This would give them some protection against the depreciation of the dollar.

Russia also has an economic interest in adopting the Euro. The bulk of its trade is with European countries, China, Japan and oil-exporting countries.

The Arab oil-exporting countries will be interested in diversifying into the Euro. Their trade is also mainly with European countries and they will be looking for stability and avoidance of currency risk.

It is against this background that the developing situation around Iran should be analysed.

The present hysterical anti-Iranian campaign is exactly the type of the "softening up" of public opinion that took place before the attack on Iraq.

With Iraq it was weapons of mass destruction. With Iran, it is nuclear weapons, possibly in the hands of terrorists — or something along those lines.

It is practically the same script.

On this occasion the stakes may be much higher, with the risk of nuclear weapons being used and possibly even a wider Middle East war if Israel is brought in. It cannot be stressed enough that every possible step should be taken to avoid what may turn into a nuclear nightmare — and all this to save the dollar.

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