Iran is threatening the US dollar’s supremacy. How could Iran possibly threaten the dollar? Simply by not using it in oil transactions. If US foreign policy since the turn of the century is any indication, it is not a question of if the US will instigate a regime change in Iran, but when.
If you’re familiar with the history of the petrodollar, you know that in the early 1970s, President Nixon negotiated an agreement with the OPEC nations to sell their oil exclusively for US dollars; not gold nor any other currency, dollars. The OPEC nations were granted access to US treasury bonds in which to put their excess dollar reserves. In return, the US agreed to provide OPEC arms and military protection. This arrangement is known today as the petrodollar arrangement. It has and continues to benefit the US in a few significant ways. First, all petroleum importing nations need dollars to purchase their oil. Thus, global demand for the US dollar is virtually guaranteed and artificially inflated. A stronger dollar grants the US greater purchasing power abroad. Additionally, all of those US treasuries being sold provide the US easy access to cheap credit. This essentially means that the US is able to purchase oil at a huge discount, practically free, using green pieces of paper that it prints feverishly. Pretty sweet deal, right?
It was pretty sweet up until the point when global demand for the dollar began to slip. When global demand for the dollar slips far enough, the US can expect massive increases in inflation, interest rates, and unemployment as all those excess dollars come flooding back. The middle class will be decimated and the stock and bond markets will come tumbling down, as repeatedly predicted by Ron Paul. Consider the growth of the monetary base since 2008.
There have been a few cases in which threats to this arrangement have cropped up. In 2000, Saddam Hussein began selling oil for competing currencies. A few years later, after Iraq had been “liberated,” Iraqi oil was placed immediately back on the US dollar. Libya, Venezuela, Iran, and others have all challenged the dollar’s place as the global reserve currency in one way or another. As chairman of the African Union, Gaddafi proposed a single African currency. Colonel Gaddafi was killed following a US led intervention in Libya. President Chavez of Venezuela made a deal with Russia to sell oil for euros. Chavez survived a coup attempt which was suspected of being instigated by the US. Curiously, IMF Director Dominique Strauss-Kahn called for a new world currency. Three months later he resigned his position amid allegations of sexual assault; allegations which were subsequently proven false.
Which brings us to Iran. In 2007 Iran stopped selling oil for dollars. The Iran situation has been handled somewhat reservedly, most likely due to Iran’s ties with Russia, China, and Turkey. Nonetheless, for the better part of a decade since, the US has imposed sanctions upon and made accusations of nuclear weapons development against Iran. All of this comes despite reports in which all 16 US intelligence agencies agree that Iran gave up their nuclear arms program years ago. Now that the US has reached an agreement with Iran, I can’t help but wonder how the deal will fit in to the petrodollar puzzle. Will the IAEA inspectors report that Iran is stonewalling nuclear inspectors, as they’ve done recently, thus providing Washington the justification to invade and install a new, US-friendly regime? The US certainly has the motivation. Time will tell if coming events will present the US with the opportunity to do something more about Iran’s threat to the dollar.