The world became a far more dangerous place last night after reports surfaced of a gold-for-oil deal between Iran and its second biggest oil exporting market, India.
According to an Israeli-based news website, New Delhi has agreed to purchase Iranian oil in gold while Tehran’s second largest export market, China, is poised to do the same. By cutting out Wall Street and The City of London, the gold-for-oil deal allows New Delhi (and Beijing if it follows suit) to ensure a steady flow of energy while circumventing US and EU sanctions punishing financial institutions that do business with Tehran. The biggest beneficiary of this new oil pricing model though is undoubtedly Iran. Not only does it make a laughing stock out of US-led sanctions; it has the power to severely curtail America’s death grip on the global economy.
Forget sabre rattling in the Strait of Hormuz; gold-for-oil poses the greatest threat to America’s influence on the world stage. The lynchpin of US power isn’t its massive military. It’s the dollar’s role as global reserve currency; a position it owes to a 1973 decision by OPEC to only accept dollars for oil. Every country which depends on oil (i.e. every industrialized nation on the planet) must keep dollar reserves both to secure their energy needs (the engine of economic growth) and defend against speculative attacks on their home currencies. This ‘dollar hegemony’ comes with serious perks, like paying cut-rate prices to borrow money on global debt markets despite running up a 15 trillion dollar national debt.
Now, imagine the fallout if the US dollar were de-linked from oil…
The blow to America’s economy would make the current recession seem like a paper cut. The US would have no choice but to get its fiscal house in order (a wrenchingly painful process it has thus far lacked the political will to undertake), reduce its trade deficit, ramp up its gutted manufacturing sector and pay a much higher rate of interest on the loans it takes out (US government debt).
It begs the question: how far would America go to defend the dollar’s role as the world’s reserve currency? Back in 2000, Baghdad decided to only accept Euros for Iraqi oil. While I don’t think this was the impetus for the 2003 US-led invasion, the reinstatement of petro-dollars post-Saddam must have been a welcome outcome. Some observers have suggested that Gadhafi’s plan to ditch the dollar in favour of gold-backed dinars for Libyan oil led to his downfall. Again, I don’t see this as the main incentive for NATO’s Libya campaign, but it must have made allying with a bunch of hard-boiled jihadists a bit easier to swallow.
If Iran is indeed accepting gold for oil that would mean Ahmadinejad is now taking a swipe at the dollar. I wonder how it will all work out…
Bob Shepherd 
You never hear this kind of detail on Sky News or the BBC. I agree that the protection of the dollar was not likely to be the primary reason to instigate the actions such as in Libya or Iraq, but it’s one hell of a common thread running under each of these events. No doubt whatever the US decide to do, the morons leading this country will be right behind them begging for scraps and putting more of our brave boys and girls in harms way.
The US signed a 10 year agreement beyond 2012 and they have increased the Indian involvement. The Indians have built a road from Afghanistan to an Iranian port area and the Paks believe we are circumventing their country as they try to screw us with the excuse we killed some Paks. They exploit their countrymen and leave them in poverty to this is not a real issue for them. Getting billions from us by raising the nuclear flagi is their issue. Iran has aid from China. No surprise. India, with real regional interests, is trading in their own currency and this to appease the U.S. The boycott was always known by the US/EU as having less than an impact because of the relationships in the regioin with India and china. That was not the point I believe. I believe that isolating Iran and calling them part of the axis of evil when they did not have a weapon but only a boogieman caused the current level of R&D in Iran. It is now an issue that Afghanistan has over $1 trillion in minerals and that is a rather vague identification. Lithium was mentioned (from which trititum can be made via irradiation of targets for instance) — so Iran is already onboard with interest. India is onboard. Russia already knew about this and they had survey maps. Pakistan is screaming about being surrounded. And the Indians are ready to play even a stronger role on the Afghan border in 2014. Do you really think that the military and the U. S. Government has no role in any of these events? Do you think that any of these events might change the role of brave Americans or are we all going to be scared because the Democracy of India, a nuclear power take a role of leadership against the blackmail of Paksitan and bring Iran into the fold? A risk? Maybe. But certaily no one was worried about giving Pakistan nuclear technology int he 1980’s and no administration but this one has been willing to push back!
What is the point of overwhelming military power, if not to use it? Usually I’m all for the liberal point of view and have long hated the hypocrisy of “the West”, but as the global financial crisis drags on and on, as China continues to keep it’s currency artificially low, and all out financial warfare is now becoming apparent – and all the more likely. I see my way of life, and the future of my children, at threat. My humanism is starting to fade. As it becomes increasingly us versus them, west v east, perhaps it’s time to choose. I say it’s always been about resources, whether diamonds, gold or silver, whether land or the timber growing on it, water or oil, it’s always about the resources. Perhaps it’s time for citizens in the west to wake up to the real cost of those resources – and be honest enough to accept that we have to fight for them. I’ve done military service in South Africa, under a system I never believed in, but I’m sure as hell happy enough to believe in the fight for my childrens future!
I agree with those comments about the petro dollar not being the reason for the military action in Iraq and Libya but certainly helped.
I always thought the war with the emerging powers would be fought with economics and not weapons but its starting to look more likley the latter.
Anyway im sure us brits will be mugged into it some how and we will come off worse again.
Also Bob do you have any ideas on what might happen with the Falklands and the oil situation there?
Thanks for your comments,
We can’t fight another Falklands War, we no longer have the Tri Service military resources. In addition, I don’t believe we would get the backing from the US that we had back in 1982. The Americans can’t afford to loose association with the South American countries from an economic perspective. The Falkland Islanders are pawns in the whole affair. I’d like to see both the Argentinian and British governments behave like mature adults and learn to share what they want from the group of Islands and it’s waters.
B.S.
Thanks for the reply Bob. I dont think sharing is on either of their minds though. Shame realy as there could be some great opotunities for both.
Great Analysis Bob!
Personally, I can’t see Obama going into Iran on any serious scale, but I wouldn’t be surprised if some token military gesture is made in the run up the US elections, just so Obama isn’t seen as weak on Iran.
Britain would do well to stay well out of it though, because if we compromise ourselves militarily any further by trying to get our armed forces to do even more with even less, we may as well remove the ‘Great’ from Great Britain.
Out of curiosity, as a Scotsman and former British Serviceman, what are your thoughts on Scottish independence?
Regards,
Rob
Hi Rob,
Thanks for this.
I don’t understand enough to have a strong view on Scottish Independence at present, but I will by 2014. The only thing I can add today is that it wouldn’t be a bad thing to get completely away from a Westminster Government who is clearly in the pocket of other individuals whether they be bankers, big corporations or the US and Israeli Governments. I would like to see Scotland led by a governing body with Scotland and it’s people as the number one priority. If this only happens through Independence then so be it.
Take good care Rob.
B.S.
Fair one Bob.
By the way, I own and have read all three of your books, they’re great reads and I sincerely hope you continue to produce more. Please keep up the good work!
Best Regards,
Rob
Thanks very much Rob,
Very pleased that you’ve enjoyed them…..there will be more.
Take good care and very best regards.
B.S.
Thanks again for another interesting read Bob.
I think this is going to be interesting to see how it all plays out over the next few months.
I’ve left the U.S. out of fear of the declining economy and have moved to Asia. The power of the dollar in the Philippines has dropped almost ten percent since I arrived last year. Since my visit to China the RMB is now 6 to a dollar rather than 7. Seeing the power of business within China convinced me that America could not possibly compete. Even grandfathers there studiously watch economic changes on the internet.
Great to me you today at Bishopsgarth Bob, fantastic talk. A no bull straight from the heart presentation. Really enjoy the books
Cheers mate
Keep smiling
Martin