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| Proletarian issue 12 (June 2006) |
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| Iran bourse and the fall of the greenback |
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| The connection being drawn between Ahmadinejad's plan to set up an oil exchange that trades only in euros and the US's drive towards war against Iran may be too simplistic, but with or without a push from Iran, the US economy is in crisis and heading for disaster. |
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A number of commentators have posited that the real reason Bush and Blair are contemplating an invasion of Iran is because Iran is setting up a bourse (stock exchange) on the Persian Gulf island of Kish in which oil will be traded in euros. From July this year, Iran will abandon dollar payments for its oil and natural gas exports and insist on payment in euros.
While the Iranian bourse is certainly likely to make an important contribution to the flight from the dollar, it is not simply to prevent Iran opening a bourse or trading in euros that is making the US administration think seriously about how it can bring about regime change in Iran. Primarily, the US is motivated by the fact that its oil corporations, in order to maintain the orderly flow of massive profits from their dealings in that commodity, need compliant regimes in the countries where oil is found. At the same time, other multinational corporations need to maintain or increase their market share for the sale of other products and services to these countries, as well as opportunities for export of capital, in order to maintain their profits.
The interests of these imperialist concerns run directly counter to the interests of the masses of people living in the oil-exporting countries, who need both a better price for their oil and protection of their local industries from imperialist competition in order to provide employment and opportunities for the local population. Compliant regimes in the oil-producing countries, such as that of the former Shah of Iran, soon find that the unemployment and poverty caused in their countries as a result of imperialist looting gives rise to popular discontent and that they can only hold the people in check by means of vicious repression, which in turn further fuels the discontent. The Iranian regime would face the same ignominious end as the Shah if it did not find a way of satisfying the basic needs of the Iranian people. Therefore it really has no long-term choice but to stand up to imperialism.
Even before the election of the current president of Iran, Ahmadinejad, the clerical regime in Iran was unpopular with US imperialism, which had branded it a part of the infamous ‘axis of evil’, mainly because the Iranian revolution of 1979, notwithstanding its petty-bourgeois clerical leadership, was in essence anti-imperialist. As such, it incurred the wrath and hostility of imperialism, especially US imperialism, which never reconciled itself to the events of 1979 and has done everything to blockade Iran economically and militarily with the aim of overthrowing the Iranian regime and replacing it with one compliant to US dictates.
While regime change in Iran has been a policy aim of the US ever since 1979, particularly in view of Iran's support for Syria, radical Palestinian groups like Hamas and Islamic Jihad, and Hizbollah in Lebanon, this policy has lately been ratcheted up in view of the US's disastrous invasion and occupation of Iraq. Confronted with an unwinnable war in Iraq, suffering daily casualties at the hands of the Iraqi resistance, US imperialism blames this misfortune of its own making on the Iranian regime and the latter's allegedly baneful influence on the shias of Iraq. Like the gambler's last throw, US imperialism feels that invading Iran, or at least threatening it with invasion, might just rescue its predatory venture in Iraq from shipwreck. But in this it is mistaken. The Iranian people, through the election of Ahmadinejad have given notice that they will not be bullied or coerced into compliance.
Having said that, there is no doubt that the decision of the Iranian government that its oil should be traded in euros rather than dollars is part of the process of shaking off the tentacles of imperialism. From a purely commercial point of view, it is an obvious step to take, as the dollar has been falling, losing a third of its value since 2002, while the euro has been gaining. By the time the government of Iran comes to spend the dollars it has been paid, they have dropped in purchasing power. Obviously they would prefer to trade in a harder currency, and the euro seems the obvious alternative.
Failing US economy
The Iranians are not, however, the only ones who have reached this conclusion. Up until now, the dollar has had the world monopoly as far as payment of oil was concerned. No other currency was accepted by anybody (except that the Iranians have for some time been accepting euros from European and ACU countries1). This forced every country to have dollar reserves to meet the need to pay for oil imports, plus many countries would convert a substantial portion of their reserves to dollars because the dollar was seen as a currency less likely to devalue than the local one. As a result, "The US currency accounts for more than two thirds of all central bank reserves worldwide. This reserve status means that the dollar is constantly in demand, whatever the underlying strength of the world economy." ('The threat to a fistful of petrodollars' by Liam Halligan, Daily Telegraph, 23 April 2006)
As is well known, however, the US economy is not in good shape, and the costs of the wars in Iraq and Afghanistan, to say nothing of maintaining the military power and weapons research programmes that enable them to impose their demands by fear on the greater part of the globe, are a terrible drain on the US’s resources. Hence the 'twin deficits' that are slowly causing investors to look elsewhere than to the dollar, namely, the $800bn US trade deficit and the $600bn government deficit. In addition the national debt stands at $8.4tr.
It is sometimes argued that the trade deficit can be overlooked because "the US trade deficit has been consistently denounced as 'unsustainable’ since 1980, yet it has been sustained since then without any trouble and without impeding America's world-beating [probably no pun intended] economic performance or diminishing the dollar's long-term value at all". ('The US economy looks clever, even if the new Fed chief is too clever by half' by Anatole Kaletsky , The Times, 18 May 2006)
Maybe it is for the reasons Anatole Kaletsky has given that the bubble has not burst so far, but bubbles always do burst sooner or later. And it must be remembered that, since 1980, at no time until now has US imperialism found itself bogged down in an expensive, unwinnable and interminable war, which is sapping its resources, while some of the countries it superexploits are taking advantage of the US's military overextension to reduce (to some extent at least) the amount of tribute they pay to US imperialism. As a result, all in all, things do not look good for the greenback.
Already several countries have taken steps to reduce their dollar holdings. For example, Sweden has cut its dollar holdings from 37 percent of central bank reserves to 20 percent, with the euro's share rising to 50 percent. Countries such as Japan, which holds $800bn of US assets, China, which holds some $600bn’s worth (having reduced its dollar share from 83 percent to 68 percent between 2001 and 2002), South Korea and Taiwan, which hold some $200bn's worth each, and Hong Kong and India (which hold some $150bn's worth each, India having reduced its dollar share from 68 percent to 43 percent between 2001 and 2002) are rethinking their position. Central banks in some Gulf states have also lately discussed shifting to the euro. The whole issue of paying for oil in dollars is, as a consequence, coming under fire from a number of quarters.
The Russian president, Vladimir Putin, on 10 May in a State of the Nation speech to the Russian parliament, announced that Russia was planning with effect from 1 July this year to make the rouble "internationally convertible" in order to enable the rouble to be used to pay for oil and natural gas. Given that Russia represents 15.2 percent of the world's export trade in oil and 25.8 percent of the world's gas exports, this would be an greater blow for the dollar than even Iran's decision to charge in euros, since Iran commands only 5.8 percent of exports and does not have any significant gas exports as yet.
Simply from the point of view of trade logistics, it makes more sense for OPEC oil to be paid for in euros rather than dollars, because the EU imports more of OPEC's oil than the US does, and the EU accounts for 45 percent of imports into the Middle East (2002 data).
Effect of the decline in the dollar
Assuming that, as seems probable, there is a precipitous abandonment of dollar holdings by those anxious to avoid being left with devalued currency after everybody else has deserted it, or even that there is a slower departure occasioned by the fact that the dollar is no longer needed for most oil purchases, the dollar's fall is likely to trigger economic turmoil and recession in the imperialist countries, and it is the proletariat who will be expected to pay the price.
To the extent that capital is invested in dollars, its value will be seriously diminished, threatening the ability of its owners to maintain the production process, leading to business closures and unemployment.
To the extent that the euro rises in value against the dollar, it will make the exports of countries that use the euro relatively uncompetitive in world markets, leading to loss of sales, falling profits, and again the closure of businesses and unemployment.
The London International Petroleum Exchange, which is owned by US concerns, will decline in importance as trade in dollars diminishes, leading to losses of City jobs.
The US, to try and shore up the dollar, will have to offer higher rates of interest. This will have an adverse effect on the housing market, with house prices falling in the US, a reduction in the value of people's equity and a reduction in their spending power as they pay more by way of interest on their existing mortgages, all leading to a severe downturn in consumer demand in the US, falling prices, falling profits, business closures and job losses.
There will, of course, be compensations – such is the nature of capitalism. The US debt, denominated as it is in dollars, will fall as the dollar falls in value. Equally, those countries paying stratospheric IMF and World Bank loans and interest in dollars may find the repayments less burdensome, depending on whether or not their own currency falls with the dollar or rises with the euro. US exports will become more competitive, which could lead to some regeneration of US industry, and so on and so forth.
What has to be remembered, however, is that, during the course of the readjustments that the falling dollar will demand, although there will be some winners, there will also be millions of losers whose living will be blighted for many years through no fault of their own. That is the price that has to be paid for tolerating the continued reign of capitalism worldwide. And, of course, everybody lives under the constant threat that our imperialist masters will try to get out of economic disaster by resorting to war – war that will consume thousands of lives of ordinary people and could even threaten our planet itself.
Socialism has suffered setbacks, but it is truly the only way forward; the only possible road to survival and real progress for the masses of people all over the world.
> No to imperialist intervention in Iran - December 2005
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