Not Only Will the US Not Attack Iran, It Looks Like the Biggest Thaw in US/Iranian Relations Since 1979 is Suddenly and Inexplicably Underway
48 Hours That Changed the World – Oil Bourse Disappears; US-Iran OK Bi-Lateral Talks
Michael C. Ruppert
© Copyright 2006, From The Wilderness Publications, www.fromthewilderness.com. All Rights Reserved. This story may NOT be posted on any Internet web site without express written permission. Contact email@example.com. May be circulated, distributed or transmitted for non-profit purposes only.
March 27, 2006 1330 PST (FTW) - ASHLAND -March 20 and 21st, 2006 may prove to be historic days. The Iranian Oil Bourse set to open on March 20th, selling oil in Euros, was quietly “delayed,” instantly reducing the number of mounting international threats to dollar viability. The only press story we could find anywhere on the delay made it sound like Iran had never planned to open a bourse in the first place, despite about two-dozen stories from around the world last year describing its pending debut. The next day Iran’s Supreme Leader Ayatollah Khamenei agreed to bi-lateral talks with the US over Iraq, opening the way for the first US-Iranian “state-level” talks since the fall of the Shah of Iran. The moves come at a time when it seems the belligerent rhetoric from both sides couldn’t be more intense.
It is difficult to offer hard conclusions here, but there are a few significant tea leaves to read and some details of these developments that are worth looking at. In looking for a hypothetical construct that encompasses these enormous sea changes, the only two issues I have found thus far that make sense are the imminent onset of Peak Oil’s first serious symptoms and the super-fragility of global financial markets. While these may or may not prove to be correct, analysis using them to construct a working hypothesis does yield good dividends.
First let’s look at one other unusual story that appeared just before these two bombshells hit; It has some things in common with them.
On March 16th the Japanese news service Nikkei reported in a very small story that Japan was about to slash its oil imports from Iran in anticipation of US/Iranian hostilities or an “embargo.” That story said that Japan would switch (as if that were an easy thing to do) to Saudi Arabia to make up for the 16% of Iranian imports it planned to cut in 2006. Japan gets about 14% of its total (6 million barrel per day) oil supply from Iran. Maybe the Japanese translation suffered a bit but the Nikkei story said that Japan was worried about an oil embargo against Iran.
Huh? Iran sells oil. It can’t be embargoed. Nikkei might have meant “boycott” but that’s an equally ludicrous notion. On this planet today there will never be an oil boycott against any seller. Any marginal spare capacity is gobbled up instantly in super-tight oil markets and there’s no place else for the world to go to replace Iranian oil. Saudi Arabia has yet to make good on two-year-old promises to expand production from under 10 to 11 million barrels per day (Mbpd). Iran is producing 4 Mbpd so a conflict or serious interruption of supply from Iran is unthinkable. Saudi Arabia—almost universally held as the only producer even claiming to have spare capacity—could never make up that difference.
Every major producing nation except Saudi Arabia has already entered decline in terms of conventional oil production.
According to the Oil & Gas Journal, Saudi Arabia averaged around 9.4 Mbpd of production throughout 2005. Rough calculations show that Japan’s proposed 2006 substitution of 16% of the oil it gets from Iran would equal only around 150,000 barrels per day. That would represent less than two per cent of Saudi Arabia’s current daily output. Surely Saudi Arabia could do that much for Japan. Or could it? But then the question becomes which nations would voluntarily give up 150,000 bpd?
If pressed, of course, those nations would go to Iran to get what they didn’t get from Saudi Arabia. That’s a no-brainer. Otherwise the world would see large price spikes because there’s no elasticity in the global supply stream. In 2005 we saw price spikes of three-to-five dollars a barrel a day when a single refinery in the US shut down for just a few days—and that was before Katrina and Rita.
In the escalating game of chicken with Iran, the Japanese announcement might have signaled to other nations that price spikes were coming even without open conflict. Iran’s loss of one customer wouldn’t even cause it to blink. There are plenty more out there waiting in line, most notably China and India.
While there may not be a connection between the Japanese announcement on the 15th and the sudden lessening of tensions on the 21st, all three events share one thing in common. What should have been headline stories, widely circulated, were all released in (as far as America and Iran are concerned) backwater outlets and they received no play anywhere else. They all involved the US and Iran. The timing of these events and the way they were announced dictates that we leave them on the table pending further investigation.
THE DISAPPEARING BOURSE AND A NOTE TO WILLIAM ENGDAHL
The story about Iran’s International Oil Exchange (IOX), better known as the bourse, needs to be repeated here in totality. It was released by the Russian news agency, Novosti.
Iran denies reports it will open euro oil exchange
19:15 | 20/ 03/ 2006
TEHRAN, March 20 (RIA Novosti) - Iran denied Monday media reports that it was to open a euro-based oil exchange.
"We have no information on opening an oil exchange in the free economic zone on Kish Island [southern Iran]," a spokesman for the Iranian Oil Ministry told RIA Novosti.
He said the ministry would have had been informed if the exchange had opened.
The spokesman said the exact date of the oil exchange opening on Kish Island was still unknown.
Some media reported Monday that oil would be traded exclusively in the European currency at the Iranian exchange.
Experts said the transition to euro from dollar in payments for oil could cause a default of the U.S. currency. All oil deals are currently made in dollars, allowing Washington to maintain permanent demand for the national currency.
Then the next day comes the following story. The source was the Chinese news service Xinhua.
March 21, 2006
Qatar to establish Middle East's first international energy bourse
Qatar will establish an international energy bourse, first of its kind in the Middle East region, the Qatar News Agency reported Tuesday.
Gulf Energy, a global consortium of energy consultants and investors, signed Tuesday with the Qatar Financial Center Regulatory Authority (QFCRA) a memorandum of understanding on the establishment of the bourse, said the report.
The bourse is expected to be established as part of the Energy City project in Qatar, which is the first project to be carried out by the Gulf Energy.
According to the signed document, the QFCRA will be responsible for preparing the necessary procedures for organizational activities of the bourse, which will be specialized in the energy industry trade.
Qatari Minister of Economy and Commerce Sheikh Mohammed bin Ahmad bin Jassem Al-Thani was quoted as saying that the bourse is considered an important step with the country's plan to become one of the largest liquefied gas exporter by 2010.
Qatar also seeks to be a leading producer and exporter of oil products in order to meet the demands of the energy products and provide financial services that would go in line with the high international standards, the minister added.
Gulf Energy said the project would "raise the global stakes of Middle East's energy sector, reshape the dynamics of its oil and gas business and expand its role in the management of resources."
What’s key to note is that the first story was released by a Russian wire and the second by a Chinese wire. We can assume then that whatever is going on, Russia and China are part of the deal. Although the story about Qatar didn’t say it—Qatar is home to the US Central Command headquarters—there’s little doubt that the Qatari bourse would/will be denominated in dollars.
Recently, journalist and author William Engdahl has written several pieces arguing that Iran’s oil bourse was neither a threat to the dollar or a casus belli between the two countries. In making his arguments, he asserted that many folks like me who deemed the bourse a threat believed that by itself the IOX would suddenly collapse the dollar by triggering a massive run which would commence almost with the bourse’s opening bell. That is not correct and his arguments miss the point I was trying to make.
But first let me thank Mr. Engdahl for correctly pointing out that a massive global shift to Euro-based oil pricing was impossible (for the time being) because European bond markets were nowhere near large enough to support a widespread global shift in reserve currency holdings. That’s an important factor to watch but it does not, in my opinion, perfectly reflect the threat posed by the IOX. What if only a small shift in the global currency regime is enough to upset the global monetary applecart?
Rather than looking at the IOX as an anvil suddenly landing on the dollar’s back, it should be looked at as a last straw. It is my assessment that Iran’s oil bourse needed only a little activity to trigger a massive global shift away from dollars without widespread European bond support to sound the death knell for dollar hegemony.
A little crack in the dam is sometimes all that is needed to guarantee (or even cause) the dam’s ultimate failure.
The key here is liquidity and the service of hundreds of trillions of dollars of derivatives held by major US banks like JP Morgan Chase and Citigroup. More moves—even in the smallest increments—away from the dollar might well trigger an immediate liquidity crisis that would start in the US and then collapse the entire global economy in short order. Derivatives are already under massive pressure and only a fresh supply of (stable) dollars can keep them from imploding.
That’s one of the big motivators, I think, behind the Fed’s decision to stop publishing M3 money-supply data this month.
It is clear to FTW that the US markets (especially the Dow and NASDAQ) are in a final pump-and-dump phase before a massive selloff and crash. We have republished recent stories suggesting that the Plunge Protection Team (PPT) is putting on its track shoes in preparation for another intervention a la 1987 and 2002. Of course, we are less than optimistic that the PPT’s actions will prevent a major collapse for one reason above all else: Peak Oil. Declining energy dictates declining economies.
So, with regard to both oil and the dollar, we discern that it’s not big shocks we need to be concerned about, but little ones. Those little shocks might be all that are required to bring the entire global system down.
Now let’s look at Iran’s “volte facé.”
TALKING TO THE GREAT SATAN
Not since the overthrow of the Shah of Iran in 1979 has Iran agreed to talk at a state level with the United States. The US has taken a corresponding position since then as well. At a time when media-pumped, hostile rhetoric has reached new levels, and when conservative think tanks are frantically shoveling propaganda about how the US might attack Iran over its alleged nuclear-weapons research, a March 21st announcement by Iran’s Supreme Leader (with full authority over foreign affairs) the Ayatollah Khamenei has agreed to bi-lateral talks with the US over Iraq.
That development is a serious inconsistency (embarrassment) for all those screaming that an attack on Iran is imminent. It is also an embarrassment for the hard-line Ahmadinejad regime in Tehran.
CNN reported (original story by the AP) on March 21st:
TEHRAN, Iran (AP) -- Supreme leader Ayatollah Ali Khamenei said Tuesday that he approves of proposed talks between U.S. and Iranian officials on Iraq, but warned that the United States must not try to "bully" Iran.
It was the first confirmation that Khamenei, who holds final say on all state matters in Iran, is in favor of the talks. His comments appeared aimed at calming criticism by hard-liners over a major shift in policy by the regime, which long shunned high-level contacts with a country Tehran brands "the Great Satan."
Khamenei spoke hours after U.S. President George W. Bush said he favors the talks. Bush said American officials would show Iran "what's right or wrong in their activities inside of Iraq."
Khamenei said that "if the Iranian officials can make the U.S. understand some issues about Iraq, there is no problem with the negotiations."
"But if the talks mean opening a venue for bullying and imposition by the deceitful party [the Americans], then it will be forbidden," he said in a nationally televised speech in the holy Shiite city of Mashhad in northeastern Iran.
Both the United States and Iran have said the talks will focus solely on stabilizing Iraq and not deal with the heated issue of Iran's nuclear program. No time or place has yet been set for talks, though the U.S. ambassador to Iraq, Zalmay Khalilzad, who is to head the U.S. side, has proposed holding them in Baghdad.
Last week, a top Iranian official -- Ali Larijani, the secretary of the Supreme National Security Council -- announced that Tehran was willing to enter talks with the United States…
On March 23, The Indian Express, in examining these developments observed that they were “sending a somewhat mixed message to the international community.” No kidding!
Mixed messages can be like lit matches to gasoline in places like Iran. With its population whipped to a frenzy as the result of the months-long escalation of tensions (largely framed along religious lines), Khamenei had to know that such a sea change would risk criticism at home. The Iranian press has shown a clear slant towards spinning public reaction in the desired direction.
Khamenei addressed these potential land mines immediately. In a story from Iran’s Irib news agency on March 21 it was reported that:
Ayatollah Khamenei pointed to the impudent, distorted and improper attitude of American officials on the subject [of negotiation], adding that American officials both in and out of Iraq have repeatedly called on Iran to negotiate, and that these requests had fallen on deaf ears. However, as the calls were recently repeated once more, Iranian officials reconsidered the possibility that negotiation over Iraq might be effective for defusing the tragic insecurity there, and have agreed to transfer their views to the United States…
Referring to rumors from U.S. officials that Iran wants to negotiate with America on various issues, Ayatollah Khamenei said: "Recent behavior by American officials demonstrates their domineering tendencies, and that a negotiation is the same as summoning Iranian officials. We say to them that you are damned wrong if you think you are summoning Iranian officials."
Ayatollah Khamenei asserted that negotiations over Iraq are permissible, provided that the relevant officials can impress on the Americans Iran's views on the issue. But if this is meant to provide a venue for the deceitful Americans to continue their bullying, further negotiations with them on the Iraqi situation will be prohibited, just like they are on other issues.
A WORKING HYPOTHESIS
As I observed in Crossing the Rubicon: The Decline of the American Empire at the End of the Age of Oil, an investigator’s path from complete mystery to understanding is marked by the assemblage of facts and the construction of working hypotheses which are then constantly tested and refined in light of new facts until a degree of certainty is reached. The reason why an investigator formulates a working hypothesis in the first place is because it illuminates a path in the search for more evidence.
What can we conclude from these major but barely-noticed events?
Several things are given. First, both the US and Iran have adopted bellicose positions over decades and especially over the last year. Neither government can appear to be soft with the constituencies both have worked hard to inflame. Both America and Iran need their enemies. On the international front, neither can be viewed as waffling, lest both financial and military confidence, and trust from allies wane.
It is also inconceivable that other major powers like Japan, Russia and China would not have had input (if not outright influence) in these decisions. They hold the most dollars. Clearly, with the release of the bourse stories by Russia and China, their governments were in the loop and agreements were likely reached that these exclusive stories would not trigger massive media responses in either Iran or the US. It seems that all of the European press has also committed a sin of omission by not reporting these developments. I find it hard to believe that they would not have also noticed the shift.
Further, since the IOX was to have been (will be) Euro-denominated, the European Central Bank (ECB) had to have been watching (if not participating in) developments closely. The same is true for the world’s ultimate monetary policeman, the Bank of International Settlements in Geneva. So Europe is strangely silent too.
Europe and Iran may still be planning for the bourse. Recently Syria switched its oil pricing from dollars to euros. And on March 24th, an announcement (posted elsewhere on this site) showed that the United Arab Emirates and Saudi Arabia had just decided to convert 10% of their dollar holdings to Euros. This, incrementally, is how you prepare for a dollar collapse which, as we’ve written before, is inevitable. At the right moment it will be encouraged by US leaders including the Fed at the expense of American citizens. By dumping dollars slowly the biggest holders have time to get out before they become worthless. It is clear that now is not the right moment.
Let me add one more piece before attempting to sum this up.
It is becoming clearer on a daily basis that Saudi Arabia is approaching an imminent collapse of its major fields like Ghawar. Matt Simmons’ work in Twilight in the Desert is being vindicated with every passing second. On March 24, professor and author Michael Klare published a new article suggesting in very concise terms that a Saudi production collapse is much closer than most experts admit. So, therefore, for both oil and the dollar, it is not a body blow that is feared, it is merely a slight bump. And were the bump to arrive it would be the entire planet that went down the tubes as the dominoes stated falling.
Peter Dale Scott once described the Vietnam War as sort of an ongoing crap game where players who were getting large payouts always stopped everything to protect the game. It is the game itself that is of ultimate importance. Players might come and go. Players might shoot each other. But the moment the entire game is threatened, all players will form a solid front to protect it from outsiders seeking to shut it down or change it, or from their own greedy actions. The “game” is self-policing.
So it is with global economic and energy paradigms. As much as enemies may dislike each other, both the US and Iran can see the risks involved of a confrontation. Lose-lose. Zero-Sum. Not only for the US and Iran, but for Russia and China as well. A global economic collapse is just as dangerous for all parties as a nuclear exchange.
Several years ago I wrote a story describing Mobil Oil’s bribery of Kazakh government officials which also involved an illegal oil swap through Iran. The swap had been made by an executive tied to Mobil which moved Caspian oil through an Iranian pipeline to Italy. Once in Italy, that oil was swapped for other oil which later reached the American markets. That swap was a felony criminal violation of sanctions imposed against Iran after the 1979 revolution. What it clearly showed was that energy needs, and the requirement to keep the game going trump all other concerns.
In Paris in 2003 I remarked to Ali Morteza Samsam Bakhtiari, a senior advisor to the National Iranian Oil Company, that I thought relations between the US and Iran might normalize within five years. That would be because a short pipeline connecting Kazakhstan and the Caspian to Iran’s already existing network of pipelines would be a quick, necessary step to bypass construction of long, vulnerable, and expensive pipelines routes around Iran and too close to Russia and the instability in Chechnya, the Caucasus and the Balkans. Such a plug-in option would, in an age of ever-diminishing supplies, allow the US and the west to actually compete with China for even the limited amounts of heavy-sour Caspian oil that might come to be remembered as the last edible crumbs of global economic abundance.
It’s very clear that all major world powers are scrambling to hold the whole planet together; a planet now more worried about bee stings than alligator bites.
If the US and Iran do wind up gradually normalizing or improving relations to the point of lifted sanctions over the next few years, remember where you heard it first.
Energy trumps everything, and on at least one small front, this is a sign that not all sanity and reason has left the world’s ruling councils. But until we change the way money works, all that has been done is to slow down a train headed for a brick wall at the bottom of the long, steep, downward slope of Peak Oil.
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