EUR/USD is 7% Backed by Gold What Backs the US Dollar?

Per Bob Chapman of The International Forecaster in a recent interview with The Gold Report, the EUR/USD was originally backed by 15% gold but that has since dropped down to 7%.  For whatever reason the realization that the Euro actually had some gold backing astonished me.  In fact it is the only fiat currency which is gold backed.  Does this make the Euro more sound structurally than the US dollar?  This made me wonder, what the heck is the US dollar backed by?  Oil, in essence, since oil is forced to be transacted in US dollars.  A deal was concocted in 1973 by which Saudi Arabia, the world's largest oil producer, agreed to trade their oil exclusively in US dollars in exchange for protection from its enemies and the right to purchase US arms.  As a result, OPEC as a whole did the same thing and started trading their oil exclusively in dollar denominated terms.  The phenomenon by which oil dollars are repatriated to the US in the form of investment (often US Treasury Bills) or purchase of goods and services is called petrodollar recycling, which does lend intrinsic value to the dollar.  Many theorize that the attack on Iraq was not only a ploy to gain control over the oil resources in that region but also to protect the reserve currency status of the US dollar, as Saddam Hussein had started trading his oil for Euros in protest of sanctions.  Iran has as of February 2008 opened its own oil exchange (Iranian Oil Bourse) where petrochemical products and crude oil are traded in many different currencies except the US dollar. [2]  Recently there was speculation that Israel (bitter enemies with Iran) might attack Iran before it got its first nuclear power plant online but luckily this did not happen.  In fact a  group of seasoned senior intelligence officers (Veteran Intelligence Professionals for Sanity) anticipated there might be a strike and signed a petition to persuade President Obama to discourage any such action by Israel beforehands. [1]  However, it makes sense from the neoconservative bent of maintaining US hegemony for Iran to be on the hit list for an invasion (both to control its third largest oil reserves in the world and discourage non-dollar based oil trading).  In fact at least one Iranian commander who believes that they are in still in danger of being attacked by the US in the near future. [3]



It occurs to me that as currency traders we can not afford to ignore the implications of unseemly oil related politics.

1. If Iran is attacked for whatever underlying reason, the US dollar will see a massive flight to safety, the stock market will crash and oil will spike up big, as well as gold.
2. If OPEC as a whole, or more and more countries start to trade oil or other commodities in other currencies other than the US dollar, the dollar will sell off.
3. A recent report by a German military think tank leaked to the Internet predicts peak oil in 2010 with the effects to be felt 15 to 30 years later. [4]  Granted, the peak oil predictors in the past have had terrible timing and have not been right yet. The implication is higher oil prices and an economic downturn.

Sources:
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1. VIPS Sends Memo to Obama Warning that Israel May Bomb Iran "As Early as Next Month" Tyler Durden, ZeroHedge
2. Iranian Oil Bourse Starts Trading, Sans Dollar Contracts The Prudent Investor, SeekingAlpha
3. Iran on Verge of US-Led War PressTV (First Iranian international news network)
4. German Military Braces for Scarcity after 'Peak Oil' John Collins Rudolf, New York Times Green Blog