Radical Noesis - Thinking outside the box

Oil prices, and gold, are rising under the escalating between Challenges between Iran and the U.S./U.N. On February 4, 2006 the IAEA forwarded a draft statement on the failure of inspections to the UN Board of Governors. This is the first step in possible ratcheting up of sanctions against Iran.

In both the State of the Union address, and in succeeding speeches, Bush has "spoken" to the people of Iran:

From the Bush's Nashville speech

Last night I spoke to the people of Iran -- spoke first to the government of Iran and said, the world will continue to come together in unity to say you can't have nuclear weapons. But I also spoke to the people, because I believe that everybody desires to be free, and I just wanted to assure them that someday that they will be able to have a choice in their government, and the United States looks forward to a friendship with a free and democratic Iran.

Liberty is universal. But it's important also to understand that freedom and liberty yield the peace we all want. One reason to be active in the world is to spread peace. If the United States were to withdraw, we'd miss an opportunity to make this world a more peaceful place for generations to come.

The amazing conundrum - John McCain - is aiding the rhetoric to war by spouting "military action must remain on the table" when it comes to Iran (Cockburn, 2/05/06) Increasingly, it seems that no matter where you turn, the message is "Confrontation is in the Cards" for Iran. China and Russia are trying to drag their feet without seeming out of synch with the US.

David Sanger of the NY Times frames the escalation as a "race against time". However, Sange argues the race is to stop Iran from entering the nuclear club, as the scope of the A. Q. Khan nuclear market was vaster than expected. While I am sure that Iran's feared nuclear ambitions play a role, I believe the real concern is quite different.

Why would both oil and gold prices be inflated by the possibility of a US armed conflict with Iran? Could it purely be concerns about weaponized uranium in Iran's hands? Possibly, but there are much more proximate issues. Those reasons are Iran's oil and gas production, and Iran's decision to set up a competing oil stock exchange based on the euro.

This alternate energy exchange poses a larger threat than who gets Iran's oil and gas. The plan is set to be instituted in March 2006 - a very good reason for the US flurry of activity and rhetoric. Iran is playing the game with the "nuclear" rhetoric, but the real hope is that there is enough vested interest in euro-petro to hold off percipitous action by either the UN or the US. While those interests might hold back the bulk of the UN Security Council, it definitely threatens to accelerate US action.

Currently the world operates on the petro-dollar. Since the U.S. prints that currency, then the value of the dollar is intertwined in this critical resource. It keeps the world invested in the US dollar because the dollar collapse would dramatically effect oil and energy markets. However, if a petro-euro flies, it both strengthens the euro and offers a somewhat more attractive currency base. Iran's threat of setting up an alternate exchange based on the euro is even a bigger threat than Hussein selling Iraq's oil for euros (what is likely the final straw that lead to the US invasion of Iraq).

Of course, Iran is no small contributor to the world's oil and gas supply (oil production is 15% of the OPEC total and roughly 3,979,000 bbl/day). Tom Doggett argues that the "World can't afford to lose Iran's oil." Indeed, in a time where supply is barely keeping pace with demand, removing 3,979,000 barrels a day from the mix is a huge deal. It is particularly a big deal for China who has become Iran's largest oil and gas customer.

So Iran's euro-based oil exchange is set to launch in March. The rush is on for the US to stop that from happening - not just delay it. Sanctions might delay the exchange's launch, but would not stop it. On the other hand, the exchange might be the cost of loosening sanctions on Iran's nuclear development. However, the US wants it all - the removal of a competing exchange, and control over Iran's nuclear power.

The rhetoric is hot and heavy, but rhetoric will not generate public support for US military action against Iran. That raises the spectre of a fabricated reason that will sell. That might be a Iran sponsored "terrorist" attack against US facilities, or what seems more likely to me - an attack against US troops in Iraq which is pinned on Iran directly. That would certainly be construed as an "act of war." The US (and world) public is too jaded to go with the fabricated reasons for invading Iraq, to be suckered again so soon. Therefore, the match will likely be an unequivocal attack. Of course, I don't think that Iran will be that accommodating. They seem to be betting on the vested interests of China, Russia, France, India, and Japan to serve as a protection from the US.

The consequences of US aggression against Iraq could be catastrophic in so many ways. Given the alliances and interests that are in place, the rising influence of China and its energy alliances (including with South American nations), and an already aroused Muslim population, we could be looking at a world war. This war would certainly be a resource war for energy, and the stakes for the US and the world are high indeed.

So the thing to watch in the coming days is not the rhetoric about Iran's nuclear aspirations, or the threat the current "regime" poses, but the status and success of implementing a competing exchange system.