End of the petro-dollar? Is Tehran about to deploy an economic weapon potentially more deadly than a nuclear bomb?(IRAN)(Cover Story)

If Iran is years away from developing a nuclear weapon, why is Washington girding for war within a matter of months, or weeks? Some economic analysts believe that the real weapon of mass destruction Tehran is preparing to deploy is not a nuclear bomb, but rather the proposed Iranian Oil Bourse (IOB), which is scheduled to open in March.

The IOB, writes Dr. Krassimir Petrov of the American University in Bulgaria, will be a petroleum commodity market "based on a euro-oil-trading mechanism that naturally implies payment for oil in euro," rather than in dollars. This would constitute a direct challenge to the "petrodollar" economy that has existed since the mid-1970s.

In 1971, notes Dr. Petrov, the Nixon administration severed the last remaining link between the dollar and gold. From that point, "the United States had to force the world to continue to accept ever-depreciating dollars in exchange for economic goods and to have the world hold more and more of those depreciating dollars. It had to give the world an economic reason to hold them, and that reason was oil." The link between the dollar and oil, Petrov asserts, resulted from "an iron-clad arrangement with Saudi Arabia to support the House of Saud in exchange for accepting only US Dollars for its oil."

F. William Engdahl, author of A Century of War: Anglo-American Politics and the New World Order, describes the U.S.-Saudi pact in detail:

    By their firm agreement with    Saudi Arabia, as the  largest OPEC    oil producer.... Washington guaranteed    that the  world's largest    commodity, oil, essential for    every  nation's economy, the basis    of all transport and much of the  industrial economy.... could only    be purchased in world markets in  dollars. The deal [was] fixed in    June 1974 by Secretary of State  Henry Kissinger, establishing the    US-Saudi Arabian Joint Commission  on Economic Cooperation.    The US Treasury and the New    York Federal  Reserve would    "allow" the Saudi central bank,    SAMA, to  buy US Treasury bonds    with Saudi petrodollars. In 1975,    OPEC  officially agreed to sell its oil    only for dollars. A secret US  military    agreement to arm Saudi Arabia was    the quid pro quo.  

"The economic essence of this arrangement," points out Dr. Petrov, "was that the dollar was now backed by oil." The emergence of an alternative petroleum market setting the price in a different currency, such as the euro, would cause a rapid flight from the greenback. Should the IOB go into operation, Petrov predicts, "it will eagerly be embraced by major economic powers and will precipitate the demise of the dollar."

Petrov, Engdahl, and other analysts point out that in 2000, Saddam Hussein began to demand euros, rather than dollars, for his oil exports; once Saddam was deposed, Iraq's oil exports were once again sold in dollars. This illustrates that the war in Iraq "was not about Saddam's nuclear capabilities, about defending human rights, about spreading democracy or even about seizing oil fields; it was about defending the ...