Just thought this was an interesting article by economist Gary North. It references a little publicized announcement that iran is planning to move away from pricing oil in dollars. How siginificant could this be? Well, according to the article it could lead to a more dramatic shift in foreign reserve currency holdings. Its also interesting to know more about how the Saudis pay for their US protection, through selling oil only in dollars. Here's a quote:
Quote:
The quid pro quo for the dollar's sole acceptability in Saudi Arabia and the other Sunni members of OPEC is protection. As long as the United States keeps the State of Israel on a tight leash beyond its own borders, the Saudis need fear only the Shi'ites.
This is why there has been no hue and cry from the Saudis regarding the second American invasion of Iraq. This is why there is silence regarding the two carrier task forces in the Gulf, with the third leaving San Diego today to join the other two.
IRAN BREAKS THE STRANGLEHOLD
With Iran now selling oil only for other currencies, it has offered a challenge to the other OPEC exporters. They can get out of the petrodollar trap by switching to the euro. Iran is about to set the precedent. Iraq did, but it was invaded. Then the old arrangement was reimposed by the Americans: oil for dollars only.
By telling other oil exporters that it's a good idea to do business in other currencies, Iran threatens to cause a shift in central bank holdings. If the euro continues to rise, central banks are better off by buying euros. At the margin, they will make money. But the dollar will fall: reduced demand for dollars. The downside of this is two-fold: (1) a falling dollar means fewer exports to America; (2) a falling market price of their existing holdings of T-bills. This will hurt Japan and China the most.
This threat to U.S. foreign policy is great. The threat to the domestic economy is worse. The dollar has been subsidized by OPEC nations for 35 years.
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Iran’s Pre-Emptive Strike by Gary North
here a direct link to iran's announement that it plans to stop pricing in dollars:
Iran planning to stop using U.S. dollar to price oil, central bank governor says - International Herald Tribune
04-04-2007
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