Vacationing as I am on Maui at the moment, I’m not going to spend much beach time worrying about Iran taking a step toward selling oil in euros rather than dollars.
But when I read about this in the Honolulu Advertiser today, I couldn’t help remembering how Willamette University economics professor emeritus Russ Beaton has told Laurel and me that the Iraq war was fought, in large part, to prevent OPEC from moving to a euro-based oil sales/trading system.
Russ is a progressive friend of ours. He’s forgotten more about economics than I’ll ever know, and I don’t pretend to begin to understand the intricacies of foreign exchange and currency markets like he does. I do know, though, that prior to 2003 Iraq started to sell oil in euros. Look what happened to that country.
The Advertiser article said:
But if one day the world’s largest oil producers allowed—or worse, demanded—euros for their barrels, “it would be the financial equivalent of a nuclear strike,” said A.G. Edwards commodities analyst Bill O’Grady.
“If OPEC decided they decided they didn’t want dollars anymore,” he added, “it would signal an end to American hegemony by signaling an end to the dollar as the sole reserve currency.”
End to American hegemony? To the Bush administration those could be fighting words.
It’s strange to think that Iran could do more damage to the United States by leading OPEC to embrace the euro than by building a nuclear weapon. Apparently this is true, though. Hazel Henderson discusses why in an interesting essay, “Iraq, the Dollar, and the Euro."
Bush likes to talk about how strong the U.S. economy is. Actually, it’s resting on the shaky sand of massive trade and budget deficits, supported only by a massive infusion of foreign dollar-denominated capital. Take that support away and our financial sand castle starts to vanish.