In mid January, we warned that you might wish to “circle the date March 20, 2006” on your calendars in red. (This past week, June Crude Oil futures hit all-time highs!) That is when Iran, the world’s fourth biggest exporter of crude oil, planned to reportedly launch their new oil exchange, competing with both London’s IPE and New York’s NYMEX, both of which are owned by U.S. corporations. They also planned to be invoicing oil trades in euros not dollars. Petrol for euros is an echo of the 1970s petrodollars, but this time it would be petro-euros. Depending on the trading volume for Iran’s proposed oil exchange, this oil exchange might begin to spell serious trouble for the entire U.S. financial system. Iran’s oil and natural gas assets are estimated to be worth about $3 trillion.
Some of the pretty ‘out there’ reports have began circulating, throughout 2005, about how it’s the “end of the world as we know it.” A few of the more serious reports suggested the current Iranian uranium enrichment dispute may be a prelude to an invasion of Iran, whether by Israel or the U.S. Top U.S. politicians are not ruling out a military strike against Iran. Both Iran’s Economy Minister, Davoud Danesh-Jafari, and Iran’s current president, Mahmoud Ahmadinejad, have both taunted the U.S. and others about uranium enrichment.
With someone as irascible and impetuous at Iran’s helm, as is the current president, , quite any of his wild notions could quickly become a shocking reality. For example, a few months ago, the Iranian president referred to the Jewish holocaust during WW II as a myth, setting off a global condemnation. Shortly thereafter, Iran announced it was convening a scientific conference to evaluate any evidence supporting the mythical holocaust. Unfortunately, all of this Iranian drama may just be Act One with two or three more to follow. What happens if Iran’s brash actions move the world’s reserve currency from dollars to euros?
The road from dollar to euro may just be another transitory move. As the gold standard fell to the oil standard, the U.S. dollar began replacing gold in the 1970s as the “world’s reserve currency.” For the past thirty years, it’s been earth’s most sought-after currency, as any seasoned tourist knows. And as travelers have come to realize, the dollar’s dominance has weakened over the past few years. Today, the russia ukraine news euro is more desirable in many countries where the dollar was once King. As late as a few years ago, Canadians joked about their one-dollar Loonie as the Canadian peso. Not true today. More than a few experts believe the C$ will someday soon trade on par with the USD. Iran’s launch of their Oil Bourse may be the proverbial straw that breaks the camel’s back. What they may now lack, an oil marker found on New York’s Mercantile Exchange and London’s International Petroleum Exchange (IPE), such as West Texas Intermediate, Norway Brent, or UAE Dubai. William Clark, author of Petrodollar Warfare (New Society Publishers, 2005), argued Iran’s new oil exchange would “usher in a fourth crude oil marker.”
If invoicing oil in euros gains momentum, what’s to stop other commodities, such as gold or natural gas, from being priced in euros? If the dollar continues its long-term decline, plunging below its late 2004 nadir, then how little confidence will resource-rich countries have in the fiat dollar? At least one serious expert believes it might make perfectly good sense to price a number of these commodities in Canadian or Australian dollars instead of U.S. dollars.
We talked to Wyoming legislator, former International Atomic Energy Agency consultant and president of Strathmore Minerals (TSX: STM; Other OTC: STHJF) David Miller believes, “A switch out of U.S. dollars would just accelerate the current rise in the price of uranium in terms of U.S. dollars for American utilities, the world’s largest consumers of uranium.” What if Cameco (NYSE: CCJ) decided to price uranium in Canadian dollars? “Cameco’s long-term contracts are coming up for renewals,” explained Miller. “It might make economic sense for Cameco to sell uranium in Canadian dollars, and it’s something they should consider. If the dollar falls hard, it would decrease Cameco’s revenue stream if prices and contracts remain in U.S. dollars.” Miller added, “A lower U.S. dollar would also make U.S.-produced uranium more attractively priced.” A uranium price, which has soared by more than 500 percent, has yet to seriously shake up the mindset of U.S. utilities, even in the context of a rapidly growing uranium supply deficit.
Another worry might now be registering on their radar screens: uranium imports from three of the world largest uranium producers may not be available later this decade. Russia’s hints at expanding their nuclear industry by about 300 percent, as reported by the Moscow Times in an article entitled “Putin Revives Nuclear Alliance” on January 13th, could impact the current supply of uranium to U.S. utilities from Kazakhstan. According to the U.S. Energy Information Administration, Kazakhstan supplied more than 4 million pounds of uranium to U.S. utilities in 2004, nearly 10 percent of all foreign uranium purchased.