De-dollarization of trade in response to a liquidity squeeze.
By Colin Chilcoat, Oilprice.com:
The
clock is ticking on the Iranian nuclear deal, but it may all be for naught. A
meddling Congress aside, Iran appears to lack faith in US President Barack
Obama’s ability to ease long-standing sanctions and is cutting what ties it
can. According
to Iran’s Tasnim News Agency, Iran no longer uses the US dollar in trade
with foreign countries. Instead, Iran employs other currencies like the
Chinese yuan, euro, Turkish lira, and Russian ruble, explained Deputy Head of
the Central Bank of Iran Gholamali Kamyab.
In
November, Iran and six world powers – the United States, Great Britain,
China, France, Germany, and Russia – agreed
on a six-month preemptive deal to restrict Iran’s nuclear program. Per the
terms of the arrangement – which entered into effect on January 20th – Iran
will limit its uranium enrichment to peaceful levels and reduce its stockpile
of already enriched uranium. Of course, a long-term agreement has yet to be
made, though Obama has pledged
a peaceful solution – and more sanctions if Iran fails to cooperate.
For its
part, the United States Congress does not plan to extend Iran the benefit of
the doubt and prefers the threat of those sanctions now. The bipartisan duo
of Republican Mark Kirk and Democrat Robert Menendez have authored
a bill that would impose several escalating rounds of sanctions on Iran’s
economy if they fail to agree to a long-term plan or break the stipulations
of the current six-month deal. The bill is likely to hit the Senate floor in
late February or early March, but may prove unnecessary if the talks stall
sooner – and stall sooner they likely will.
Related: Europe And Iran: The Nuclear Dispute And
The Syrian Crisis
You
see, 2014’s relative warming to the West has done little to mask Iran’s
ambitions in the Middle East: the political upheaval in Yemen at the hands of
Shia Houthi rebels has officials in the US and Saudi Arabia crying
foul; a recent Israeli drone strike exposed,
perhaps unwittingly, Iranian involvement in the hotly contested Golan
Heights; and Iran’s support of the Assad regime continues to undermine the
US’ position in Syria. While hampered by low oil prices, it’s a foreign
policy agenda that is unlikely to change regardless of any nuclear ruling.
Change is key here, and it’s not coming from Congress or Israeli Prime
Minister Benjamin Netanyahu either. Such is the frivolity of this multi-party
relationship.
Iran’s
de-dollarization – which was not entirely unexpected – isn’t a world changer,
but it’s certainly not the showing of faith that Obama would like to see as
the negotiations enter their most critical stage. Still, the decision is more
indicative of Iran’s dire straits (read: liquidity) than any collapse of the
US financial system – even if it harkens
to a larger movement to dethrone the dollar as the global reserve currency.
Since
the economic sanctions entered into effect, Iranian oil production has fallen
more than 30 percent to just 2.7 million barrels per day. Their voice has
gone unheard among OPEC peers and Oil Minister Bijan Zanganeh believes
OPEC production will remain steady in 2015 – a decision that has created
sizeable tension with regional powers Saudi Arabia and Kuwait. Government
spending is another issue however, as estimates suggest the Iranian
budget breaks even only at prices above $130 per barrel. Several government
projects will have to be halted
once Iran’s calendar year begins on March 21.
Marginal
help is on the way via Russia, who is developing an oil-for-goods
program in addition to its work expanding
nuclear power in Iran. But, off the dollar and a step backward, Iran appears
to be hedging against a more cooperative future with the West. By Colin Chilcoat, Oilprice.com
For US
corporations, financial engineering can only accomplish so much. Read… Hounded
by Evil Dollar & Collapsed Commodity Prices, Corporate America Clamors
for Total Currency War
|