The first of decade the new millennium was one of the most tumultuous periods in the history of human civilization. It witnessed formation of asset bubbles, corporate governance crisis, sub-prime crisis culminating in a global credit crunch, oil price shocks and wars.
While a lot of unprejudiced and candid thought has been dedicated to the matters related to the corporate governance and credit crises, however, the rhetoric has been astonishingly opaque apropos the military misadventures of the Western powers in the decade gone by.
After the costly and economically devastating wars of Afghanistan and Iraq, a line of thought emerged almost as a consensus that the Western powers would be more inward-looking and less expressive in their policy of military intervention in the troubled spots of the world. The common consensus that war fatigue experienced by the Western coalition after the long war in Iraq and the yet to be concluded war in Afghanistan would, at best, dampen military conquests was proven surprisingly wrong at the end of 2011.
The theatre of war shifted to Libya. A spate of pro-democratic protests, termed Arab Spring, in a number of Arabic states – Tunisia, Egypt, Bahrain, Libya and Syria – gathered momentum for military intervention in Middle East and North Africa (MENA). Among all the countries mentioned, Libya and Syria have caught the attention of the United States (US) and the North Atlantic Treaty Organization’s (NATO) military commanders.
The primary reason behind the acknowledgement of US and NATO of the cry for democracy of the Libyan and Syrian people, in contrast to the Cold War propping up of authoritarian regimes in the region by both the superpowers,
(Source: Global Consumption and Supply Of Oil To US, National Public Radio Business)
of course, still remains US and European oil imports and the dependence of the global economy on them even though military intervention for economic reasons is legally unjustified under US, EU and international legal regimes: MENA had not attacked either the United States or European Union (EU). The United Nations (UN) has no authority to intervene militarily except to keep peace.
A more convenient and cost-effective oil transit route into Mediterranean by installing a pro-western regime in Syria and thwarting Iranian plans of trading oil on Iranian soil and in non-US dollar currency are the two conventionally primary reasons for western intervention in Damascus and Tehran. The objectives of human rights and the concern for democracy appear to have outlived their usefulness to outsiders who want America and Europe to find more creative ways of invading countries that pose a serious threat to their commercial and economic interests.
Baba Amr Is No Benghazi
Unlike in Libya, where opposition armed gangs in Benghazi fought alongside the Western powers and other foreign mercenaries, Baba Amr in Syria is a different ball-game altogether. The Syrian army is much stronger and has the backing of Russia and China. Moreover, the Russian naval presence in Tartur, a deep water Syrian port would keep NATO and US navy and marines out of the equation. Hence, the focus of the recently concluded meeting of “Friends of Syria” in Tunis, pronounced as “Enemies of Assad” (by the Syrian ruling government) which discussed at length the possibility of arming unverified gangs of opposition groups with dubious credentials.
The fact that a bunch of armed gangs which are primarily foreign mercenaries are anointed as the exponents of democratic values has startled many observers since the use of Blackwater in the Iraq war by the Pentagon. Confirmed reports of around 1,000 Al-Qaeda operatives siding with the foreign mercenaries to fight against the Syrian army makes the outlook of the struggle of Syrian people for democracy grave and dangerous.
According to the report The Syria Crisis: Assessing Foreign Intervention by Stratfor, Syria has a competitive air-defense system, thus nullifying any possibility of a Western military occupation of Damascus. The report further states that Syria spent $264 million to strengthen its air-defense system in 2009-2010 in response to Israeli Operation Orchard, a 2007 Israeli air force operation that bombed a Syrian nuclear reactor.
According to a latest estimate of United Nations (UN) around 7000 people have lost their lives in pro-democratic protests in the last one year owing primarily to Syrian military crackdown. As happened in Libya, the Western powers are gathering international consensus on the best approach to be adopted against Bashar al-Assad. However, what would be the driving force behind a possible military intervention in Syria which has a miniscule share of global oil reserves? The reason here is perhaps the oil transit routes rather than oil per se.
Pro-democratic protests in Egypt had paved the way for toppling Hosni Mubarak (a staunch ally of Israel and the West). Understandably, owing to the hardline approach of the minority Muslim Brotherhood against Jews and Christians, the risks to the oil transit route of Suez Canal from a possible blockade cannot be ruled out. On the other hand, years of economic sanctions on Tehran might culminate in a possible blockade of Straits of Hormuz, which transits more than 17 million barrels of oil per day.
The recent rise in oil prices was a result of Tehran’s caveat of shutting the straits for transit to counter rising Western pressure to de-nuke the Farsi state. Bracketing together is the much less talked about threat of Somali pirates who have expanded their activities from the Red Sea to the Indian Ocean, thus further making traditional oil transit routes dangerously unsafe.
An insightful piece written by Ronnie Blewer for Asia Times says that Syria has the potential of presenting a compelling solution to the oil transit problem. A Pentagon study conducted in 2003 unearthed the Mosul-Haifa Oil pipeline, which was used extensively by the British to transport oil from Iraq to the Mediterranean. However, the pipeline was shutdown in 1948 after the creation of the Jewish state of Israel.
If the Mosul-Haifa pipeline is adequately secured and re-opened it would be a key transit route crossing through Israel, Syria or Lebanon to the Mediterranean, thus creating enormous value to Western oil companies and consumers, and to the people of the region with whom the regimes must share their oil wealth equitably – the principal cause of the pro-democracy movements in MENA which are now also in the American interest after the Cold War ended in 1989.
Basher al-Assad’s regime must first stop violence and move to a multi-party democracy in exchange for talks facilitated by US and EU with Israel to end Israel’s occupation of Golan Heights.
Iran Mercantile Exchange
Iran has always been strategically important in the war-books of Western powers. Its geographical location, in the heart of Central Asia, makes the region Tehran’s strategic “arc of influence” from Iran to Iraq and extending through Syria and Lebanon, besides Tehran’s proximity and lucrative accessibility to the South Asian economies. In addition, its gigantic oil reserves of approximately 9-12% of future world supply through 2050, make Iran a natural fit for the strategic interests of the West in the region.
The latest source of irritation for the West and Israel is the much talked about Iranian nuclear program because of chronic regional extremist rhetoric about wiping Israel off the map. Bush administration often wondered aloud why Iran needs a nuclear program when the clerical regime sits on among the largest global oil reserves in a world of the rapidly depleting resource.
International Atomic Energy Agency (IAEA) and US intelligence agencies have conceded that the nuclear programme undertaken by Iran is solely to meet the domestic power requirements, given Iran’s lack of technology to extract oil since the 1979 end of diplomatic relations with the United States, unlike Saudi Arabia.
Some international observers are not confident about Iran’s capability to enrich uranium ore to weapons grade necessary to create an atomic bomb. Further, the recent alleged Mossad-backed assassinations of a key Iranian nuclear scientist and lack of support from international experts would mean Iran would independently struggle, presuming no Russian or Chinese help, to enrich uranium to the level necessary to create a nuclear weapon and the accompanying delivery mechanism, a risk in itself.
Israel, however, seems to be unconvinced with the information and is pressing international agencies for increasingly tougher sanctions on the Iranian economy and the government, a counterproductive policy given the historic opportunities for rapprochement after 1979 because of mutual geopolitical interest in resource sharing.
The stricter US and EU economic sanctions on any US and EU company, bank, or trading company transacting with Iran subject them to penalties and are increasingly economically isolating Iran. These sanctions have begun to cripple its economy. The Iranian rial (IRR) has taken a solid beating and inflation is running above 20%, a possible cause of destabilization as is being experienced by the clerical regime which has been in place since the Khomenei Revolution of 1979.
Another twist in the story is Tehran’s plan to allow trading of oil in the Kish Island in non-US Dollar currencies on the Iran Mercantile Exchange. The Iran Mercantile Exchange, which was inaugurated last July, is owned 70% by a consortium of banks and financial institutions such as Bank Keshavarzi, Mellat bank, and Meli bank and the remaining 30% is owned by individuals.
The Iranian authorities chose Kish Island over Tehran because Kish Island is a free trade zone. The National Iranian Oil Company supplied 600,000 barrels of heavy crude oil on the Iran Mercantile Exchange’s Iran Oil Bourse on its first day of trading. Ironically, the first trading began with the contracts priced in US dollars at around $115/b with $1 of premium. However, as the contract was bereft of a discount there were no buyers.
Trading has been sluggish in comparison to the volume and liquidity offered by the New York Mercantile Exchange (NYMEX) and ICE in London. Nevertheless, there exist a number of optimists in the Iranian circles who believe the Iranian Mercantile Exchange initiative has considerable potential. According to Mehr News, a local news agency, the Iran Mercantile Exchange has the capability of generating revenues of $7.2bn over a period of 24 years.
The Iran Mercantile Exchange is likely to re-commence trading of oil in the next Iranian year, as expressed by Ahmed Ghalehbani, Managing Director of Iran National Oil Company, on the Iran Mercantile Exchange website at the beginning of 2012. The deputy of the Iranian oil ministry confirmed the approval sought to allocate a separate budget for supply of crude oil to the exchange for the first time in the sanctions crippled country’s history.
Shaping Of Petro-Rubles In St Petersburg
In 2005, Russian officials sowed the seeds of a made-in-Russia oil trading exchange that would not necessarily rival the likes of NYMEX or ICE but help them in pricing oil in local currency and assisting better price discovery. In 2007, St Petersburg, which due to its expertise in sale of oil and natural gas, bagged the tender by out-competing nine other bidders to float an oil exchange that would trade and price Russian Export Brent Crude Oil (REBCO) in (petro) Rubles. Hence, under the auspices of Vladimir Putin the St Petersburg International Mercantile Exchange was born with intent of trading and settling oil in rubles. During a speech to Federal Assembly in 2006 in Moscow, Putin in no uncertain terms made the intent of launching a dedicated exchange for trading and settling of petrochemical products:
“[t]he actual convertibility of the Russian ruble greatly depends on its attractiveness as a saving or a settlement source. And here is much to do ahead. In particular, Russian currency has to become much more universal for the international settlement of payments and has to consequently widen the boundaries of its sphere of influence. For this purpose it is essential to establish the exchange trading of oil, gas and other commodities on the territory of Russian Federation. I mean trading in rubles. We trade our commodities worldwide. Why don’t we do it here?”
Unsurprisingly the oil exchange move was soon followed by the leading Russian oil companies with Gazprom, Rosneft and Lukoil, all publicizing their ambitions of selling ruble-denominated contracts. Russian competency in making St Petersburg International Mercantile Exchange a force to reckon should not be undermined as its REBCO grade is already listed on NYMEX and interestingly one of its leading exchanges Moscow Intercurrency Exchange (MICEX) is listed among the top ten exchanges globally in terms of volumes.
In a sort of ground-breaking development, according to Iran Mercantile Exchange web circular, the Managing Director and CEO of Iran Mercantile Exchange, Dr Hossein Panahian, extended an open offer for a possible sharing of trading platforms of both Russia’s and Iran’s exchanges for oil trading. An excerpt from the web circular is as follows:
“In order to smooth the participation of the Russian Federation in the Kish Oil Bourse of Iran and the public offer of the crude inventories of the Russia’s oil sector in the international trading floor of Kish and launching the trades of Iranian crudes in St. Petersburg Oil Exchange talks have been made between the Iranian Oil Ministry and the Russian officials.”
Dr Hossein Panahian further added:
“Of course further talks shall be underway earnestly, after official launching of the petroleum exchange, with Russia and other regional states for further development and expansion of the market.”
It is imperative for global observers to construe that both Tehran and Moscow perceive the developments in light of giving greater utterance to their ambitions of raising the profile of their currencies and cracking a century old monopoly in oil trading. As a matter of fact, the development is an anecdote of public-private partnership wherein public and private players interact in an emerging open market environment aspiring to be bereft of state-controlled measures which often hinder the price discovery mechanism.
It is a known fact that globally commodities are priced, traded and settled in US dollars. However, the move by Tehran to allow trading of Iranian oil on the Iran Mercantile Exchange in non-US dollar currencies is quite courageous though such a shift has been expected in the global oil markets, including by Saudi Arabia – a US ally, for sometime. It certainly possesses symbolic importance as this might serve as a much needed trigger for those countries who aspire to live in a multi-polar world not dominated by the United States (Russia and China being the prominent ones) to initiate their own plans and execute with adequate international cooperation and mutual support.
There is also every possibility of the Organization of Petroleum Exporting Countries (OPEC), of which Iran is a member, studying the move meticulously to add their own flavor to the matter. Nigeria, which recently went vocal about adding yuan as one of the reserve currencies might also be influenced by a possible Chinese assistance. This development has humongous advantages for China as it could possibly start gulping down even greater quantities of oil in its domestic currency relative to the dollar.
The present geopolitical developments attach an even greater value to Iranian policy of trading oil in a basket of non-US dollar currencies namely the rise of yuan (or the renminbi) as a trading and settlement currency in much of the developing and some developed countries, increasing number of non-US dollar currency swap deals in the developing countries and Russian push into the Central Asian countries and the Middle East perhaps owing to the aggressive American missile defense system in central Europe, a push which could soon diminish for other reasons.
End Of Oil-Dollar Nexus By 2018?
It was July 2003 when the then Prime Minister of Malaysia, Mahathir Mohamad expressed his idea of settling oil trade with Iran in Gold Dinar, a currency that ceased to exist after the end of Ottoman Empire in 1924. The intent behind the idea was to cement unity and brotherhood between the Muslim nations globally as before its collapse the currency united the Muslim nations while subsequently fostering trade and prosperity.
In a whistle-blowing development in 2009 Robert Fisk, a long time English journalist, wrote for a British daily, The Independent, about a plan conceived by Cooperation Council For The Arab States Of The Gulf (GCC), China, Russia and France of settling oil in the euro, yen, yuan, gold and a unified currency of the GCC members. Importantly, the participating countries aspired to annihilate dollar’s oil pricing hegemony by 2018, a development which would, in fact, be welcomed by the United States of America because of what author Michael Oren called the transgressions of power, faith and fantasy.
Historically speaking, any ambitious plan of settling oil trading in currencies other than US dollar has attracted acrimonious response from Washington DC. It is not a surprise that the now defunct regimes of Muammar Gaddafi and Saddam Hussein once pondered over settling oil revenues in non-US dollar currencies. Today both the countries are under American control due to western military interventions. Will Syria and Iran be the next victims of the western propaganda, as Libya had feared (these pages had anticipated and supported Arab Spring)?
A frank assessment of the developments since the onset of made-in-America sub-prime crisis, however, would infer that the global economic weight is gradually shifting to the east and from the G7 to the G20.
The rise of bilateral currency swaps between key emerging market countries and their growing exasperation with America’s gigantic debt level, especially in light of worse indebtedness elsewhere, reflects, quite appropriately, their disbelief in the safe-haven appeal of the US dollar. Subsequent efforts undertaken by countries like India and China, for instance, to buy their Iranian oil imports in gold and a non-US dollar currency and the urge to improve the profile of the domestic currencies of Brazil, Russia, India and China (BRIC) signal an emerging environment where key economies would aggressively sell and market the eventual decoupling of not only oil pricing but world trade from the US Dollar, with the dollar making way for a new global currency anchor administered by the International Monetary Fund.