Iran's Oil Bourse: A Threat to the U.S. Economy?

While Iran's nuclear program has become a major focus of the international media, there are many who strongly believe that the program is only a cover for the U.S. government's true motive in a possible attack against Iran.

What some analysts posit is the real concern for the United States is Iran's plan to open its own oil exchange - the Iranian Oil Bourse (IOB) - with the alleged goal of becoming the dominant center of the Middle East's oil trade.

What makes the IOB the subject of such interest by the American government? According to rumors, which first vaulted the issue into the spotlight, the financial exchange in the aforementioned bourse will trade for oil in euros instead of the U.S. dollar. The dollar has long been the dominant currency for international oil trade.

A Threat to the U.S. Economy?

The debate over the ultimate financial impact of trading oil in euros rather than dollars is a complex one, but according to some experts such a move could lead to a huge drop in value for the American currency, potentially putting the U.S. economy in its greatest crisis since the depression era of the 1930s.

The IOB has been on Iran's domestic agenda for quite some time and different dates have informally been announced for its opening, all which have been quietly disavowed as the deadline neared.

March 20, the most recent rumored date, was the first day of the Persian calendar year. The Iranian Oil Ministry's public relations department has denied that the date corresponded to the opening of the bourse, and has mostly remained silent about the existence of such a program.

Of course, the effectiveness of the IOB will depend on whether the big international oil trading companies decide to accept deals in euros or not. However, the potential financial impact on the U.S. economy remains more than just idle speculation.

"The weapon of oil in the hands of Iran's regime is more dangerous than any other weapon," said a recently published article in Italy's Panorama newsmagazine.

Iran's Deputy Oil Minister Mohammad Javad Assemipour, director of the IOB program, told Panorama that the oil trading center, due to open in a few months, will turn Iran into a major oil exchange point.

"Iran's oil exchange with the region's countries and also some of the East Asia states will take place in euros instead of U.S. dollars," said Assemipour.

Some of the major oil-producing countries such as Venezuela (which has boosted its economic ties to Iran) and a few of the larger oil consuming countries, most notably China and India, have already announced their support for the IOB. China and India, along with Russia, are powers that have at various times backed Iran's right to establish its own nuclear program.

There is speculation that the IOB represents Iran's plan to escape any possible future economic sanctions spearheaded by the U.S. However, some postulate that the plan could also endanger the continued existence of Iran's regime. William Clark, an American security expert, predicted that if Iran threatened the hegemony of the U.S. dollar in the international oil market, the White House would immediately order a military attack against it.

Some Insist Impact will be Negligible

A number of economists believe that establishing the bourse will prove to be an impossible task for Iran.

"More than 68 percent of the global international oil exchange is in U.S. dollars, and by abandoning dollars Iran will put its own economy in greater danger," said an unnamed Iranian professor of Economics in Paris.

Other experts believe that even if the IOB commences operations, there is not much harm it can do to the U.S. economy.

"Given the fact that Iran's share of the international oil market is somewhere around 5 percent, I do not believe that it can really absorb enough customers around the globe," said Russian economist Natalia Arlova.

"And Iran's unstable political system is another obstacle. Let us not forget that one of the biggest characteristics of the international oil trade centers is stability. Apart from that, the reason the U.S. dollar has been the dominant currency in the oil trade is the huge share America has in the global economy. I do not think that only Iran's ambition to replace the dollar with the euro will be enough. There are much bigger factors."

However the IOB, to be located in the free trade zone of Iran's Kish Island on the Persian Gulf, remains a potential destabilizing factor for the U.S. economy. This, according to some strategic analysts, is a probable motive for the rumored U.S. attack against the country.

Experts point to the fact that the Iraq invasion in 2002 took place after Saddam Hussein refused to accept dollars as a payment medium for its oil exports and Oil For Food program, choosing euros instead. After discovering no weapons of mass destruction in Iraq, speculations have been raised that the main cause for the invasion was the White House's fear of the possible financial repercussions of Saddam Hussein's plan to substitute dollars for euros.

Maybe it was that fateful decision by the former Iraqi president which was the last straw for the White House before it sent U.S. soldiers marching into Baghdad.

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Tax Day

Research director of the National Priorities Project, Anita Dancs said today: "With the cost of the Iraq war at $315 billion through fiscal year 2006, taxpayers should reflect this tax day on where their money is going. That's enough money to have built 18,000 elementary schools across the country and paid more than 900,000 teachers to have taught in them as long as the war has lasted. If we break that down to the taxpayer cost of just one city, say Houston, Texas, we are talking about $2.2 billion. If that money were spent locally instead of on the war, every graduating high school student in Houston could have a four-year college scholarship, Houston could double the number police officers, and there would still be hundreds of millions of dollars left for port security, parks, highways and public works projects.

"With tax day approaching, Americans should realize that for every income tax dollar they pay, 29 cents has gone to the military and only 4 cents for education and just one penny for all of our natural resources and the environment. Is this a sound investment in our country's future?"

Dancs noted that the National Priorities Project's web page "offers the local-taxpayer cost of the Iraq war along with examples of the magnitude of the amount (e. g. trade-offs) for your city, town, county or state. We also provide a breakdown of the median-income family's tax payment for every state and for 200 towns, cities and counties across the country."