Iran's real weapon

Martin Walker of UPI has picked up on the story of the proposed Iranian oil bourse that will trade energy in euros, rather than the dollar. Kind of a ho hum story, right? Of course not, says Walker:

This sounds like a minor change, and possibly even a useful one, broadening the choice among traders and consumers in the kind of way that Adam Smith, the 18th century father of modern capitalism, would have recommended.

Not so. This could be a far more profoundly punishing blow to American interests than Iran's ability to manufacture a crude atom bomb that would have little credibility until it became small and stable and reliable enough to be delivered on some putative target.

The relationship between the oil price and dollar is intimate and important, and very useful to the dollar's highly profitable status as the world's reserve currency. The prospect of a rival bourse and futures market opens the intriguing possibility, beyond hedging the future oil price, of profitable arbitrage between the euro and the dollar.

And if oil and gas are to be denominated in more than just one currency, why not open the trade to others? Why not denominate the price of a barrel of oil in Japanese Yen, or in Chinese yuan, the currency of the world's second biggest oil importer?

Why not, in short, end the monopoly rule of the almighty dollar?

Such a move would not be welcomed in Washington, which swiftly moved after the fall of Baghdad in 2003 to reverse Saddam Hussein's impudent decision to start selling Iraqi oil for euros, rather than dollars. After all, the great benefit of running the world's reserve currency means that if all else fails, the United States Treasury can just print more and more of the stuff and pay for its oil imports that way.

UPI is typically derided for being a "Moonie" outlet, but it does contain a pretty solid roster of reporters and covers a good number of important stories, like this one, that tend to be marginalized in the rest of the dominant media. I think -- although I could be wrong -- it's the first major American media outlet to run a story on the bourse.