Imagine this scenario: A developing nation decides to selectively share its precious natural resource, selling only to “friendly” countries and not “hostile” ones. Now imagine this is oil we’re talking about and the nation in question is the Islamic Republic of Iran…
Early news reports on Wednesday claimed that Iran pre-empted European Union sanctions by turning off the oil spigot to six member-states: the Netherlands, Spain, Italy, France, Greece and Portugal.
The reports were premature. According to a highly-placed source in the country, Iran will only stop its oil supply to these nations if they fail to adopt new trading conditions: 1) signing 3 to 5-year contracts to import Iranian oil, with all agreements concluded prior to March 21, and 2) payment for the oil will no longer be accepted within 60-day cycles, as in the past, and must instead be honored immediately.
Negotiations are currently underway with all six nations. Iran, says the source, expects to cut oil supplies to at least two nations based on their current positions. These are likely to be Holland and France.
Meanwhile, the other four EU member-states are in dire financial straits. They are knee-deep in the kind of fiscal crisis that has no hope of resolution unless they exit the union and go back to banana republic basics. Yet, they found the time to sanction Iran over some convoluted American-Israeli theory that the Islamic Republic may one day decide to build a nuclear weapon. I am sure arm-twisting was involved – the kind that involves dollars for votes.
But I digress. This blog is really about ideas. And not just ideas, but really ridiculous ideas.
New World Order Jump-Started by Iran?
Alternative sources of oil will be found in a jiffy for these beleaguered EU economies. But this isn’t so much about a few barrels of the stuff that fuels the world’s engines. This is about the idea that a singular action taken amidst the political and economic re-set about to take place globally, can propel us in a whole new direction overnight.
The past few years have shown that there is no global financial leadership capable of pulling us back from the abyss. The US national debt hovers around the $15.3 Trillion mark. Its GDP in 2011 was just under $15 Trillion. You do the math – there is no fixing that one. The only next-big-thing coming out of that dead end will be the complete transformation of the current global economic order.
But how will that take place without leadership and clear direction? I’m betting hard that It will not come from the top, nor will it be directed. The new global economic order will be organic, regional and quite sudden.
What do I mean? Imagine: Iran stops selling oil to the EU; China tells the US to take a hike on currency values; India starts trading in large quantities of rupees; Russia’s central bank becomes a depot for holding dollars that don’t need to pass through New York; the creation of a global payment messaging system competing with SWIFT. Now imagine that a combination of actions – triggered only by an attempt to circumvent some really very silly sanctions – can suddenly unleash some unexpected possibilities that were beyond the realm of imagination a mere few years ago.
Imagine the emergence, say, of regional economic hubs, powered by the currencies of the local hegemonic powers, where bartering natural resources, goods and services becomes as commonplace as transactions involving currency transfers. Because of the frailty inherent in dealing with these new local currencies and a bartering system, nations tend to trade most with those closest to them in geography and culture. Shocking? Maybe not. Sometimes it just takes a need for change…and a handy tipping point.
“This is not the time to fan the flames,” someone should have told the United States. “You and your pals are sitting in a jalopy tottering on the cliff’s edge – why risk making moves now?” they should have warned. “Be a little less arrogant,” would have been sage advice.
But Washington is absolutely, irrevocably, dangerously fixated on showing Iran who’s boss, and spends a good part of every day trying to tighten the screws around the Islamic Republic. For the most part, the US’s pursuit of this dubious objective has instead stripped it of the vital political tools it once wielded. No more UN Security Council resolutions, no more unscrutinized military adventures. The only thing left is the nefarious tentacles of the United States Department of Treasury and its financial weapons. “The new tools of imperialism,” as once US-friendly central banker in the Mideast bluntly put it to me.
I only hear shrill desperation when politicos now parrot the “sanctions are biting” line. Here’s a juicy tidbit for those rolling their eyes right now: Goldman Sachs – America’s premier investment bank and Wall-Street God – has identified the Islamic Republic as one of the “Next 11” growth drivers of the global economy after the BRIC (Brazil, Russia, India, China) nations. BRIC was a term coined by Goldman Sachs, if you recall, and boy, were they right about that one.
Thirty years of “biting” sanctions and sanctions “with teeth” have achieved the following: “Strong or improving growth conditions,” said Goldman Sachs just last year, “combined with favorable demographics, form the foundation of the N-11 growth story.” The investment bank, furthermore, estimates “a measurable increase in the N-11’s share of global GDP, from roughly 12% in the current decade to 17% in 2040-2049.”
It’s a bad global economy we are facing right now, but Goldman Sachs’ charts illustrate that Iran is still one of five nations in the N-11 pot whose “productivity and sustainability of growth” is above average.
Shrugging off Dollar Dominance
A British investment research firm wrote in January: “Sanctions on the Central Bank of Iran effectively restricts Iranian oil sales to barter contracts or to state-to-state agreements utilizing non-G8 currencies…It represents a major irritation to the Iranians, rather than a chokehold.”
The authors specify the Chinese Yuan as the non-G8 currency, but in the past few days that scenario has busted open with the addition of the Indian Rupee into the mix.
The new trade deal inked between Iran and India ensures Rupee payment for 45% of Iranian oil imports, with the balance remaining in Indian banks to pay for exports to the Islamic Republic. This achieves two important things that are an unintended consequence of US sanctions: firstly, it eliminates the Dollar as the trading currency (note that oil prices have traditionally been priced in US Dollars); secondly, it significantly accelerates economic integration between Iran and one of the four largest emerging economies in the world. Read more…
The Banking Cartel is Alive and Well