Source: Casey Research
Date: January 25, 2012 7:46pm GMT
by: Marin Katusa, Chief Energy Investment Strategist
The official line from the United States and the European Union is
that Tehran must be punished for continuing its efforts to develop a
nuclear weapon. The punishment: sanctions on Iran's oil exports, which
are meant to isolate Iran and depress the value of its currency to such a
point that the country crumbles.
But that line doesn't make
sense, and the sanctions will not achieve their goals. Iran is far from
isolated and its friends – like India – will stand by the oil-producing
nation until the US either backs down or acknowledges the real matter at
hand. That matter is the American dollar and its role as the global
reserve currency.
The short version of the story is that a 1970s
deal cemented the US dollar as the only currency to buy and sell crude
oil, and from that monopoly on the all-important oil trade the US dollar
slowly but surely became the reserve currency for global trades in most
commodities and goods. Massive demand for US dollars ensued, pushing
the dollar's value up, up, and away. In addition, countries stored their
excess US dollars savings in US Treasuries, giving the US government a
vast pool of credit from which to draw.
...
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