There's a lot of discussion and angst over how the Iranian Oil Bourse will trigger the economic apocalyse destroying the USA and the world as we know it.
For a couple of reasons, this is much ado about very little IMO.
more below:
First, can anyone provide a link to any detailed, recent information detailing how this oil bourse will work? All I can find is endless circular stories echoing in the media repeating the same water thin gruel that it's coming and it's going to be bad. We're only 5 days away from March -- where is the damn thing?
Near as I can tell, the IOB is still a gleam in the Iranian Oil/Finance ministy's eye. I can't find any information as to what will trade, what quantities, delivery mechanisms, etc etc. Barring real info, this IOB is just a boogeyman being used to scare folks already overwrought re Peak Oil (a reality) and the Kunstleresque end times (decidely still hotly debated).
The world's oil trading community is not going to risk entry in a new bourse without understanding the details. Without their liquidity, there is no game. Singapore used to have a fuel oil futures market. It died a slow death due to lack of interest from all involved. If the IOB gets off the ground is there any great reason it won't just die off as well? It's not like the NYMEX, IPE and more importantly industry price reports like Platts, Argus, OPIS etc don't work pretty well at establishing a relatively fair market.
With no middlemen traders/speculators, when the real sellers want to sell fixed price on a futures exchange there are no buyers and vice versa. You cannot make a market with just the governments of Iran, India, and China. Iran might as well just sell fixed price on a monthly negotiation and move on or sell for bartered goods. And somehow I just don't see Saudi/UAE/Kuwait jumping on board an Iranian train anyway. With only 1 seller (Iran) where's the market? Sounds more like a roach motel.
Many of these circular IOB stories lead back to this article in EnergyBulletin by Krasimir Petrov of the American University in Bulgaria (hardly the LSE or U of Chicago ).
http://www.energybulletin.net/...
First, the author is a gold bug which in my experience is roughly the same as being a card carrying Libertarian -- borderline lunacy. I know it's an ad hominem attack but keep in mind that the price of gold was over $850 in the 1980, $500 in 1987 and is just $550 now. Goldbugs have been peddling the buy gold mantra while something between half and 2/3's of your investment would have been eaten away by inflation. Kinda hard not to be skeptical of a gold bug's advice.
also from the Energy Bulletin
On the issue of resource depletion we will unapologetically be favouring geological pessimism over economic theory based optimism
Kinda telegraphs the bias. It's not a serious peer reviewed journal. More like a blog. Be a little skeptical.
The Petrov article leads one to a very long essay by William R. Clark:
http://www.ratical.org/...
Who is William R. Clark?
"William R. Clark is manager of performance improvement at Johns Hopkins University School of Medicine" according to one source and who's "resume is too extensive to repeat here" by another (never a good sign as ink/electrons are cheap). Again, not exactly a top drawer economic or oil market pedigree. Hardly the stuff that would lead one to accept a prediction of disaster based on a hand waving argument without a great deal of skepticism.
Perhaps these gentlemen are genius' undiscovered, but the odds are poor. Looks more like ID "scientists" who had an issue long before they had a hypothesis.
Moreover, Mr. Clark's essay points to the real issue. Will the rest of the world continue to prop up the dollar by buying our debt while the US runs an enormous budget deficit and trade deficit? Switching oil pricing away from dollars would merely be a symptom of loss of confidence that the US citizens can repay the debt burden we already bear and continue to run up. An Oil pricing shift will not cause a currency collapse but merely recognize that one is happening already. Soros et al will be way ahead of OPEC on trashing the USD.
A second point is that OPEC need hardly switch from dollars to stick it to us if the dollar devalues. All they have to do is withhold supply until the dollar price gives them what they want in terms of world buying power. They've done it before
See
http://www.eia.doe.gov/...
Check out note #2 -- "OPEC raises prices as the dollar falls."
They aren't stupid. If the dollar becomes toilet paper, they'll raise prices to maintain purchasing power. In the 1970's, when we had to let the dollar float freely and it went south, OPEC just raised prices.
From 1983 to 2000, OPEC was in heavy surplus and was more afraid of trashing the market (and their own economies) than choking off the world's economy. Now that they are producing at max, I just don't see GWB's good buddies in the Saud, Jabbar, and UAE families doing us a favor by eating any significant dollar depreciation. They don't need to and we have no friends left in that part of the world among the common folks.
Thirdly, OPEC can't really afford to trash the US economy.
Check out pts 20 and 32. The last time oil spiked, in a short 5 years OPEC production halved! Non OPEC production ramped up (see pts 17 and 28), US production ramped up (price controls came off+ANS) and world demand sagged. OPEC still remembers how ugly it can get for them if they make the golden goose sick. And sick we were in that era.
The US is the buyer of first and last resort for much of the rest of the world. If we stop buying Chinese goods, their economy goes straight in the toilet, right along with their oil import demand. We also consume 25% of the world's petroleum production. Our imports are equal to something like 50% of OPEC production or 30% of OPEC + non OPEC exports. If we go down the tubes, we won't be alone...
This is not intended to be taken as economic optimism. GWB is leading us over an economic cliff as Bonddad has diaried many times. I just don't see this rumored IOB as being any special trigger accelerating our slide into the s--t. And a bit tin foilish to boot.