As the global nuclear watchdog put Iran on notice for ‘not complying with the international nuclear arms control treaty,’ new questions have come to fore. With India voting for the US-sponsored resolution and Pakistan abstaining, suspicion about the widely discussed Iran-Pakistan-India pipeline has deepened further. The US policy of “either with us or them” seems to have worked. The carrot and stick policy has succeeded — both ends up. The nuclear carrot definitely came with a price tag!
On the other hand, Iran is also playing its cards somewhat sensibly. Despite not repeating anything openly at this juncture, one thing is evident. In case the nuclear issue heats up further and gets to a stage of no return, Iran may use its wild card — of stopping oil supplies from its wells. Although it may have serious ramification for Iran itself, nonetheless, it could turn upside down the global energy balance and with oil may surpassing new heights, the world could be pushed into recessionary phase of the magnitude not seen before. At a juncture, when the oil demand-supply is balanced precariously, the world could hardly absorb a shock of this scale and Tehran apparently knows it pretty well. It is aware of the limitations of the West in this regard and hence a sort of brinksmanship is definitely on. It could be an issue of who winks earlier.
While the issue is heating up, Iran also apparently has played another master stroke almost without much fanfare. It announced the setting up of a euro-based Iranian Oil Bourse (IOB) to start operating from 2006 autumn. Iran is also reportedly about to begin pricing its oil in euros. Until now oil, the most important commodity being traded in the world today is mostly priced in US dollars. This new oil bourse would thus compete with the London and New York, dollar denominated oil exchanges. Interestingly both the oil exchanges are US owned. The IOB will reportedly trade in crude, petrochemicals and other commodities in euros.
Since most of the oil consuming countries are required to pay for their oil in US dollars, they tend to keep their foreign reserves in US dollars. This helps the US overcome its immense debt and finance its huge trade deficit. In order to keep its economy afloat and its consumption-oriented life style sustainable, the US economy is dependent on the resultant high demand for its currency.
The IOB will provide the oil consumers a choice to buy a barrel of oil for $60 a barrel on the NYMEX and London’s IPE or purchase a barrel of oil for 45 euros to 50 euros on the Iranian bourse. This could accelerate the already existing global trend of shifting foreign currency reserves from dollars to euros. Oil in most of the Gulf Arab countries is priced in dollars. At times of a weak dollar, there have been calls from economists in the region to price their oil in a basket of currencies so as to compensate for the falling dollar.
The Gulf Arab economic managers by and large have so far resisted the move, especially in time when the oil prices are riding new heights. However, the Iranian move could have catastrophic implications for the US economy and Washington, and others may also be tempted to look at this route. When viewed from previous history, Washington may not be ready to tolerate it.
Many see that by announcing the decision to establish the euro based IOB, Iran may be playing with fire. By taking a decision that could mark the beginning of the end of the super state status of the US, Tehran may be staking too much and may be attracting the wrath of the world’s only super power. Washington is also aware that Tehran is no Kabul or even Baghdad and the game is far from over. We are definitely entering the red zone now!
