Tuesday, May 13, 2008

Iranian Oil

for those who aren't aware, Iran is the second largest oil exporter in Opec and have the third largest proven reserves in the World.

For a long time oil, like all other commodities has been traded in dollars - the defacto World reserve currency.

On April 30th Iran announced that it would be no longer trading it's oil in dollars and would instead switch to Euros and Yen. Now what I find interesting about this story is that it has virtually ignored by the western media. CBS news was the only source I was able to find for it in the US and I have yet to find any major UK media outlet covering the story.

Why is this important? Because this is a BIG story. Iran has been slowly reducing it's reliance on the dollar for a few years, mainly due to the sanctions imposed by Washington. However, ignoring the nations status as a 'bad guy' in the eyes of the west, their move is a sound one.

The dollar value has collapsed in the last couple of years and what happens when the World reserve currency collapses? Prices go up dramatically. It's no coincidence that the dollar is currently at it's lower level in history while commodity prices are hitting record highs. The two are interlinked as all commodities are priced in dollars. Granted oil and gas price rises are also related to global production plateauing and increased consumption but hopefully you get my drift.

Oil prices go up... so everything else goes up because transport costs go up. If oil was priced in Euros the recent increases would be much lower. Sure Irans move is also political, but it makes sense. Stabilise the price of oil and you go some way to stabilising rampant inflation.

So I ask again, why this story has been buried by the World media? Well one advantage to having the reserve currency is that as a nation you are able to borrow far more money than anyone else. The US national debt is currently just below $10 Trillion! Need more money to pay for more Cruise Missiles? No problem, just go into more debt as dollars are the reserve currency and everyone uses them. So what happens if everyone follows Irans lead? Let's just say that $10 Trillion is not something you want hanging around your neck.

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