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Thursday, January 12, 2006 

US's Secret War Being Fought on Wall Street?

(FT.com) The oil revenues of the Organization of the Petroleum Exporting Countries, the cartel that controls 40 per cent of the world’s oil supplies, will increase by 10 per cent to a record $522bn this year, the US Department of Energy forecasts.

Opec’s increased wealth, driven by continuing high oil prices and an increase this year in the group’s production, should help keep interest rates low if members of the group continue to spend their increasing wealth in the US bond market, economists said.

But what if they don’t? What if the OPEC nations, or just one or two of them decide to start taking in Euros for oil sales to Europe like Iran has?

(Al Jazeera) Iran's decision to set up an oil and associated derivatives market next year has generated a great deal of interest.
This is primarily because of Iran's reported intention to invoice energy contracts in euros rather than dollars.

The contention that this could unseat the dollar's dominance as the de facto currency for oil transactions may be overstated, but this has not stopped many commentators from linking America's current political disquiet with Iran to the proposed Iranian Oil Bourse (IOB).

What if China (and other Asian countries) stops basing its monetary value off the dollar and quits buying up US debt?

(Business Week) If investors needed a wake-up call about how heavily the global financial system relies on the actions of Asia's central banks, they received a nasty one on Nov. 26. A widely reported remark by People's Bank of China Policy Board member Yu Yongding that Beijing planned to trim its purchase of U.S. Treasuries quickly sent the dollar to four-year lows vs. the euro and the yen.

It look[ed] like a false alarm. Beijing quickly moved to quell the fears by declaring that Yu had been misquoted. […]Look closely at U.S. data, however […]They show that Asian central banks, with the exception of Japan, already have been weaning themselves off dollar assets for the better part of the year -- without triggering a spike in inflation or U.S. rates. Taiwan and South Korea have increased their dollar holdings only modestly, those of Thailand and Singapore have stayed virtually flat, and Hong Kong's Treasury holdings have dropped by $5 billion. As a result, the Singapore dollar is up 4% this year against the greenback while the Korean won has leapt 14%. "Everybody has been scaling back, and the whole exercise has been pretty benign,"

And what if Iran keeps pushing the nuclear issue?

(Sky News) Iran has finished removing the seals placed by UN inspectors at a nuclear fuel research site.The development has been strongly condemned by Foreign Secretary Jack Straw. He said Britain would call an emergency meeting of the IAEA, the United Nations' nuclear watchdog, to discuss what steps to take.

This already means that:

NEW YORK (Reuters) - Oil struck a three-month high on Wednesday on concerns Iran's nuclear ambitions could draw international sanctions that disrupt crude flows from the world's fourth biggest exporter. U.S. crude futures hit $64.80 a barrel, the highest since early October, before settling up 57 cents at $63.94. London Brent crude ended at $62.17, up 25 cents.

Falling Dollar, rising oil prices, aggressive Asian economies, Iran going nuclear… The ancient Chinese curse “May you live in interesting times” has come true for our generation.

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