Iran Is Cutting Dollar Reserves

As I have indicated before the run up to an attack on Iran has a familiar ring. Several reasons have been proposed, and I have already suggested that the whole administration policy may have been affected by "peak oil". I don't know what to think of that argument. But here is another, and it seems to me more compelling: Iran wants its receipts for oil to be paid in currencies other than dollars. That decision was announced on March 27, and in July Bloomberg indicated that Japan would comply by paying in yen. The same sources suggest that other buyers are thinking about paying in yen or euros.

What would that mean for the dollar? For over 70 years oil has been priced in dollars, so even though the dollar is supposed to be floating it is in fact closely linked to the world's most critical commodity. If not gold, then oil: which makes it truly a "hard" currency. If it turns out that oil begins to be priced in other currencies, might that weaken the dollar? Without being an expert, I would suppose so. In fact, I wonder if a case might be made that such a change would represent a fundamental "attack" on the dollar.

So, is that the reason the Bush administration wants to attack Iran? Could there be another message in the attack? -- Like, don't mess with the dollar. Could this be a warning to other oil producing countries tempted to make such a change?

Is this a reach? I don't know, but I know that there have to be better reasons for attacking Iran now than the ones being given us.
RLC

Bloomberg
Iran Is Cutting Dollar Reserves, Central Bank Says
By Stephanie Phang and Soraya Permatasari

"Iran is cutting its U.S. dollar reserves to lessthan 20 percent of total foreign currency holdings, and will buy moreeuros and yen as tensions with the U.S. increase, Central Bank GovernorEbrahim Sheibany said."
"The UN asked nations and international lenders such as the World Bank to stop giving grants, loans and other financial aid to Iran, except for humanitarian or development purposes. The U.S. on Jan. 9 blocked Bank Sepah, the state-owned Iranian bank, from accessing the American financial system, accusing it of aiding Iran's weapons programs."
"Iran exports 60 percent of its crude to Asia, 32 percent to Europe and 8percent to Africa. It is the world's fourth-largest oil exporter and the second-largest producer among the Organization of Petroleum Exporting Countries."

Bloomberg
By Megumi Yamanaka

"Iran asked Japanese refiners to switch to the yen to pay for all crude oil purchases, after Iran's central bank said it is reducing holdings of the U.S. dollar. Iran wants yen-based transactions 'for any/all of your forthcoming Iranian crude oil liftings,'' according to a letter sent to Japanese refiners that was signed by Ali A. Arshi, general manager of crude oil marketing and exports in Tehran at the National Iranian Oil Co."
"The request is for all shipments 'effective immediately,' according to the letter, dated July 10 and obtained by Bloomberg News."
"The yen rose on speculation for an increase in demand for the currency,the result of Japan's annual 1.24 trillion yen ($10.1 billion) of oil imports from Iran. Central bankers in Venezuela, Indonesia and the United Arab Emirates have said they will invest less of their reserves in dollar assets because of the weakening currency."
"Iran asked the refiners to use the yen exchange rate quoted at the Bank of Tokyo Mitsubishi UFJ on the date oil cargoes are loaded. The use of yen-based letters of credit for oil 'has finally been approved' by the Iranian central bank and the NIOC, according to the letter, titled 'New payment mechanism for Iranian Crude Oil Cargoes.'Japan imported 1.59 million kiloliters of Iranian crude oil in May, the least since June 2006, according to government data.Only Saudi Arabia and the United Arab Emirates are larger oil suppliers to Japan than Iran."