First Oil, Then Blood

The Times Of London tells us today that Iran has asked Japan to pay for its oil in yen instead of dollars. And, as also noted in the story…

Three big oil producing nations — Iran, Venezuela and Russia — have all been moving much of their foreign currency reserves from dollars to euros in recent months.

The latest move can only add to the long term pressure on the dollar, already hit by worries about the US economy based on the crisis in the sub-prime mortgage market.

And yes, the Dow continues to move in ostensibly a positive direction, and the Labor Department continues to manufacture statistics in a way that creates the mirage of economic growth (why on earth should we trust anything produced by Elaine Chao who, by the way, is the only originally appointed member of Dubya’s cabinet still serving in that position as of Rummy’s departure?).

But “the reckoning,” in whatever form or shape it may take, is coming, and this post explains why, particularly this excerpt…

Oil consuming countries have no choice but use the American Dollar to purchase their oil, since the Dollar has been so far the global standard monetary fund for oil exchange.

This necessitates these countries to keep the Dollar in their central banks as their reserve fund, thus strengthening the American economy.

But if Iran – followed by the other oil-producing countries – offered to accept the Euro as another choice for oil exchange the American economy would suffer a real crisis.

…

Many countries had studied the conversion from the ever weakening petrodollar to the gradually strengthening petroeuro system.

The de-valuation of the Dollar was caused by the American economy shying away from manufacturing local products – except those of the military - by outsourcing the American jobs to the cheaper third world countries and depending only on the general service sector, and by the huge cost of two major wars that are still going on.

The post by Dr. Elias Akleh doesn’t take into consideration something noted in the Times story, notably the turmoil of the sub-prime mortgage market that could drive down stock prices in that market sector, possibly leading to as many as five million foreclosures as well as the fact that spending would be slowed even more since consumers would focus on debt payment instead.

And the Akleh post also offers this cautionary note…

In its economical war Iran is treading the same path Saddam Hussein had started when he, in 2000, converted all his reserve from the Dollar to the Euro, and demanded payments in Euro for Iraqi oil.

Many economists then mocked Saddam because he had lost a lot of money in this conversion. Yet they were very surprised when he recuperated his losses within less than a year period due to the valuation of the Euro.

And we know what happened after that, don’t we?