At OPEC's recent summit in Riyadh, both Iran and Venezuela argued for OPEC's severing the historic link between crude oil and the U.S. dollar. "They get our oil and give us a worthless piece of paper," Iranian President Mahmoud Ahmadinejad complained. Venezuelan President Hugo Chavez concurred stating that "the empire of the dollar has to end."

Both leaders lost their battle at OPEC and the summit's declaration made no mention of such an initiative. Not to be deterred, Iran announced that it would no longer be selling oil for dollars.

Today, Tehran's Voice of the Islamic Republic of Iran radio declared, "Deputy Head of National Iranian Oil Company [NIOC] for foreign affairs has said that Iran has stopped selling its oil in dollars. He said: Iran is not dependent on dollar for selling its oil." According to the report, Iran is now selling 80% of its oil for Euros and the remainder for Yen. Moreover, it noted that the deputy head of National Iranian Oil Company "predicted that the dollar will lose its value day by day."

Although Iran's share of the world oil market is relatively modest, its move remains consistent with a diplomatic offensive aimed at eroding American influence. Moreover, it establishes a precedent that others might well be tempted to consider should the U.S. fail to address the fundamental factors behind the slide in its currency and that erosion in value persist or accelerate. Just yesterday, China became the latest nation to express concern about the dollar's decline.

For now, Iran's move is yet another step aimed at advancing its geopolitical agenda. It is a measure that will likely backfire if the dollar can remain a store of value. If not, though, that is where things could get more worrisome.

Cascadian,

Unfortunately, Iran has been very shrewd in its political moves. It has brutally exploited U.S. difficulties in Iraq while gaining what might be the dominant outside influence over Iraq's affairs, leveraged growing difficulties in the U.S.-Russia bilateral relationship, worked to position itself as a reliable energy supplier for China's increasing appetite for energy resources, and taken advantage of the combination of fallout from neoconservative excess and domestic political differences in the U.S. Indeed, with respect to the domestic political differences in the U.S., pro-Khamenei newspaper Keyhan editorialized that the U.S. is now suffering from an "extremely weak state of the whole infrastructure of the American administration, which like a malignant cancer, is quickly destroying the body of this monster of the modern period." As a result, the newspaper labeled the U.S. a "toothless viper." Such cockiness is growing in pro-Khamenei publications and may well reflect the thinking of Iran's senior leadership. If so, Iran is not likely to be very responsive to diplomatic efforts to curb its nuclear activities, especially as it nears its overall objectives.

Back to the dollar, Iran's decision to take advantage of the present weakness in the U.S. dollar and fundamentals that point to a continuation of its decline is par for the course. In fact, in my view, it would have been surprising, if not shocking, had Iran not attempted to politicize the OPEC summit and take shots at the declining dollar. Iran is prepared to make an all-out push against any actual or perceived weaknesses it can find in a bid to advance its nuclear objectives and later achieve its hegemonic ambitions in the Middle East.

At present, the U.S. lacks the strategic dimension to foreign affairs that let's say a Henry Kissinger brought. Its foreign policy moves have often been reactive and uncoordinated when proactive and internationally-coordinated moves would be far more effective. Whomever is elected President in 2008 would do well to choose a "heavyweight" to provide foreign policy leadership.

Finally, Iran recognizes that the U.S. lacks a credible energy policy and that this might well be the United States's Achilles Heel. It has calculated that the U.S. is not likely to impose the crippling sanctions that would lead to Iran's oil production being taken off the world market. At the same time, to add insult to injury, Iran's ally, Venezuelan President Hugo Chavez gave an additional twist to the proverbial screw in his stating that Venezuela eventually hopes to supply none of its oil to the U.S. Far from being an idle threat, it should be noted that Venezuela is gradually shifting its oil exports to China and, if Chavez is true to his rhetoric, Venezuela might well seek to accelerate that trend over the next 12-24 months.

I strongly agree with your pointing out the volume of those markets, Oldreliable67.

That difference between the crude oil and foreign exchange markets is, in part, almost certainly the reason why Mr. Ahmadinejad and Mr. Chavez tried to talk down the dollar and encourage OPEC to make a broad-based shift to delink crude oil and the dollar. They were playing to market psychology. Iran's move to stop selling oil for dollars is merely cosmetic in the larger scheme of things. It has some symbolic value, but little more.

More worrisome are the fundamentals responsible for the weakening dollar and the markets' expectations for additional imminent Federal Reserve interest rate cuts. In my opinion, the decision reached at the December Federal Reserve meeting will be important. If the Fed cuts rates again, the dollar will almost certainly drop below $1.50 per Euro. If the Fed holds the line (as I hope it will), the dollar might experience a short-term rally. Ultimately, U.S. trade and fiscal imbalances will need to correct if the dollar is to experience a more sustainable recovery in its foreign exchange value.

Originally Posted by donsutherland1 Finally, Iran recognizes that the U.S. lacks a credible energy policy and that this might well be the United States's Achilles Heel. It has calculated that the U.S. is not likely to impose the crippling sanctions that would lead to Iran's oil production being taken off the world market. At the same time, to add insult to injury, Iran's ally, Venezuelan President Hugo Chavez gave an additional twist to the proverbial screw in his stating that Venezuela eventually hopes to supply none of its oil to the U.S. Far from being an idle threat, it should be noted that Venezuela is gradually shifting its oil exports to China and, if Chavez is true to his rhetoric, Venezuela might well seek to accelerate that trend over the next 12-24 months.

Originally Posted by Gladiator "The falling U.S. dollar has also prompted a number of oil exporting countries - notably Venezuela, Russia, Iran, Libya, Indonesia and Malaysia -- to join a Euros-for-oil club. This will only lead to a further devaluation of the U.S. dollar against the Euro." Home / Headlines / Falling U.S. Dollar is bad news - Especially for the poor - Media Monitors Network (MMN)