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The Iran-Western Deal: Targeting the Yuan


The agreement signed with the biggest enemy of the United States since the fall of the Soviet Union, once identified as a member of the "axis of evil", is an upheaval in the world geopolitical scene whose consequences are incalculable. What is at stake, in addition to peace, is the survival of the petrodollar, that is, the hegemony of the U.S. dollar.

A few months ago this seemed unattainable. Before the Arab spring it was impossible. But after the agreement that avoided an invasion of Syria, a result of Soviet diplomacy, anything seems possible in the Middle East, and perhaps even in other parts of the world. The framework of alliances that had made possible a fragile stability in the region has evaporated. The three traditional allies of the United States — Israel, Saudi Arabia and Egypt — are moving in different directions with respect to the Superpower, while Russia is testing a return to the region and China is increasing its role in a key region.

All analysts and a good portion of the media now recognize that Washington is no longer playing alone on the world scene. Some advisors that have always played a key role in White House decisions, such as the influential Zbigniew Brzezinski, National Security Advisor to Jimmy Carter (1977-1981), had foreseen an agreement with Iran since the arrival in the presidential team of Hassan Rohani, well known for his pragmatic approach. "Congress is finally embarrassed by the efforts of Netanyahu to dictate policy to the United States", he wrote in his Twitter account some days ago (Eldiario.es, November 15, 2013).

An agreement signed with Iran by the permanent members of the UN Security Council plus Germany (5+1) is to hold for six months and establishes a reduction of the Iranian nuclear programme in exchange for a lessening of the international embargo. Iran has agreed to reduce to half the uranium enriched to 20 per cent, to not enrich to more than five per cent in the future, to not increase the capacity for enrichment in the Natanz facility or the reactors of Fordow and Araki, and to refrain from building any new installations accepting the supervision of the International Atomic Energy Agency.

Washington for their part has agreed to end the boycott on Iranian oil, unblock Teheran´s funds outside Iran, suspend sanctions on the automobile industry and on aerial services, in addition to allowing the purchase by Iran of food, medicines and medical equipment.

The agreement reached on Sunday morning in Geneva has a number of advantages for both parties: there is an assurance that Iran will not develop nuclear weapons and preserves their right to develop a programme of nuclear energy for peaceful purposes. This could be the first step in 35 years towards a long-term understanding between the Islamic Republic and the West, although there are still certain areas of tension and differences of opinion both in the region and at a global level. For different reasons, the agreement is a winner for Iran, the United States, Russia and China, while the losers are Saudi Arabia and Israel. France attempted to derail the conversations, but in the end had to yield.

The realism of Obama

The key to all this is the understanding of the difficulties faced by Washington, since this is the actor that had established the edifice of global governability that is now losing ground. An attempt to restore their influence involves an agreement with Teheran, but not for the motives adduced. It is in fact highly improbable that Iran could produce a nuclear weapon in the short term. Everything indicates that in the immediate future there will be only one nuclear power in the region, Israel. On the other hand, Pakistan and India have become nuclear powers without the consent of Washington, but the former is an ally and the US is flirting with the latter.

The problem for Obama is elsewhere: he needs an urgent geopolitical repositioning. The growing influence of Russia in the region and above all of China in the world led the Pentagon to establish the strategy of the "Asia-Pacific Pivot" to contain the country that the US sees as their principal competitor. We all know that the future of the world economy is moving to Asia. In addition, since the onset of the Arab spring in 2011 Washington lost vital allies that had been unconditional: Turkey, Israel, Saudi Arabia, Iraq. This created too much instability that made it impossible to concentrate on Asia. Because of this the analyst Pepe Escobar writes: "Washington wants more leverage in Southeast Asia, and in all of Eurasia" (Russia Today, November 15, 2013).

“With the temporary agreement obtained with Iran in Geneva, Barack Obama is reaching for the greatest foreign policy success of his presidency and the United States has the greatest chance for redesigning world geopolitics since the fall of the Berlin Wall”, (El País, November 25, 2013). If this agreement had not been reached before, it was because internal US politics did not allow it. If it now succeeds, it is because of the need to reposition themselves in a region where they are tied hand and foot. Three years ago, when Brazil and Turkey reached an agreement that would allow Iran to enrich uranium outside the country, "it was making a concession that it now does not need to make", pointed out the former foreign Minister and present Minister of Defence of Brazil, Celso Amorim (Folha de São Paulo, November 27).

For Iran a truce was urgent, above all to escape the sanctions that savaged their economy. Inflation had reached 30 per cent, unemployment 20 per cent. Petroleum exports, representing 80 per cent of government income, had fallen by half. Iranian currency, the rial, had been devalued by 100 per cent with respect to the dollar and food prices had doubled. It is true that Iran was still exporting crude oil to more than 30 countries, including India and China, and that half of their trade with Beijing was done in yuans, which affected the dollar. In addition, raising the sanctions will bring 8 billion dollars to Teheran since they will have access to their assets frozen in other countries, as well as the restoration of trade.

If the agreement is consolidated and moves forward during the next six months, the White House will have their hands free to achieve what is really important: the encirclement of China, involving Japan, South Korea and Australia; and, obviously, their fleet of aircraft carriers and the network of military bases.

The new Saudi-Israel alliance

Chinese diplomacy has affirmed that the signed agreement is "only the beginning" and pointed out that there is still a long way to go (Xinghua, November 25, 2013). "China will continue to facilitate conversations and will undertake a constructive role in this direction", said the spokesman for the foreign ministry.

China is probably the country whose interest most lies in avoiding war in the region, a war that would involve a number of powers and would bring with it the closing of the Straights of Hormuz in the Persian Gulf, through which twenty per cent of oil traded in the world passes. If this were to happen, oil prices could double and the flow of oil could be interrupted, to the detriment mainly of Asian countries and Europe. Washington, on the other hand, is moving towards self-sufficiency in energy and US sources are much more diversified than those of their principal competitor.

For Moscow it is important to end the war in Syria and "change the emphasis from overthrowing Bashar al Assad to that of combating terrorism." (The Brics Post, November 25, 2013). Something similar involves the Iraqi government of Nouri Al Maliki, which needs to overcome the terrible Sunni-Shiite polarization which has left the country in chaos a decade after the US invasion. In both cases, the role of Teheran is not small. Allied with the presidents of Iraq and Syria, Teheran could become the key piece to lower decibels, sustained by the increasingly influential Russian diplomacy.

But the key question is the new alliance between Israel and Saudi Arabia. Prime Minister Benjamin Netanyahu complained in a telephone conversation to Obama that he considered the signing of the agreement with Iran "a historic mistake", since "the world has become a more dangerous place" (Russia Today, November 26, 2013). For their part, the Saudi Royal Family is indignant at the agreement with Iran. The Saudis suffered a double defeat, with the failure of their hoped for victory in Syria and now with their archenemy Iran becoming a privileged interlocutor with Washington, challenging their leadership in the region.

Some sources maintain that Israeli and Saudi secret services are working together to prepare attacks on Iranian soil, while the BBC noted several weeks ago that Saudi Arabia was looking to obtain nuclear weapons through Pakistan, whose nuclear programme Saudi Arabia supported at one time. More serious is the fact that Riad is disposed to facilitate drones, tanker aircraft and helicopters, in addition to their airspace, for an Israeli attack on Iran.

However, it is most probable that the new allies will not directly attack Iran but will intensify the face-off on the Syrian front and, probably, in Lebanon, where the Shiite Hezbola militia continues to cause problems for Tel Aviv. It appears that the suicide attack against the Iranian Embassy in Lebanon, which cost the lives of 23 persons two weeks ago, is part of the escalation designed to counter the new power relations in the region. The other weak point is the Gaza Strip, where the delegate of the United Nations declared that the humanitarian crisis resulting from the Israeli blockade of the Hamas government has reached "all essential services, including hospitals, clinics, sewage and water pumping stations." (Asia Times, November 27, 2013).

The Middle East was the centre of US Hegemony since 1945. This is no longer the case and their interest is gradually moving to the Asia Pacific region. But in this region, which continues to have strategic importance, things have become too complicated for Washington. Since the fall of Hosni Mubarak during the Arab Spring they lost control of Egypt. Israel has become a very problematic ally and Saudi Arabia is looking towards China. The principal pieces in the strategic chess game continue to move in unforeseen directions without a central command that can regulate the game.

Oil and Dollars

The scenario in which the main powers in the Middle East act was established during the First World War, by France and England through the secret Sykes-Picot agreement of May 16, 1916, establishing their respective areas of influence in the region when oil achieved strategic importance by replacing coal as the fuel for warships. In February of 1945, returning from the Yalta Conference, President Franklin D. Roosevelt landed in the Suez Canal to meet with the Saudi authority Ibn Saud, establishing an alliance under which the winning power of the Second World war replaced England as the dominant power in the region.

The House of Saud became the principal supplier of cheap oil to the power that was responsible for nearly half of the global GDP. The recent report of the International Energy Agency has revealed that thanks to new technologies such as hydraulic fracking, the United States will equal and surpass Saudi Arabia as the principal petroleum producer. They pointed out that this will happen by 2015, which is as much as to say that this is a change that is just around the corner.

For the United States, self-sufficiency in energy is important, since their dependence on imports has been one of their weaknesses. But the role of Riad is still up in the air. At the beginning of 2012, China and Saudi Arabia signed an agreement for the construction of an enormous refinery to produce 400 thousand barrels per day in 2014, in the port of Yanbu, in the Red Sea. The Chinese State enterprise Sinopec will have 37,5 per cent of the refinery together with the Saudi enterprise Aramco which will have 62,5 per cent.

The agreement represents "a strategic partnership in the refining industry between one of the main energy producers in Saudi Arabia and one of the world's most important consumers ", said Aramco President and CEO, Khalid Al-Falih (China Daily, January 16, 2012). China imports 56 per cent of the petroleum that it consumes; the Saudi Kingdom is the principal supplier of petroleum to China and the greatest exporter of crude oil in the world. China participates in infrastructure building projects in Saudi Arabia, including railways, ports, electricity and telecommunications. What is involved here is a long term turnabout in the area of world petroleum and concretely, in the Chinese presence in a region, and in a country, that was a pillar of Washington’s hegemony.

The year 2012 saw this change: China replaced the United States as the principal importer of Saudi crude. But the theme is deeper: in 1972 the United States and Saudi Arabia agreed that all the petroleum sold by the monarchy would be denominated in U.S. dollars. This was the birth of the petrodollar that was adopted by nearly every country and became the support of the superpower economy, giving it an advantage possessed by no other country.

In 1975 all the OPEC countries had agreed to fix the price of their petroleum reserves in U.S. dollars in exchange for weapons and military protection. The petrodollar system, better known as "petroleum for dollars" created artificial demand for dollars in the whole world. With the world increase of demand for petroleum, the demand for US dollars increased in tandem. In this way the money that the world spends passes through the Federal Reserve, ensuring the financing of the US public debt. In addition, the US has the privilege of obtaining world petroleum for free, printing the paper that pays for it.

If the petrodollar is dropped, the dollar would no longer function as the reserve currency and this would mark the end of US hegemony. The BRICS countries have begun to trade in their own currencies, in particular China and Russia. Saudi Arabia is the key. The day that it ceases to sell its petroleum in dollars, the financial system and Wall Street will suffer a devastating impact. We need only recall that the real reason for the invasion of Iraq was that Saddam Hussein decided to sell his oil for euros.

The decline of the dollar has accelerated in recent years with agreements between China and the United Arab Emirates, Brazil, Russia and among the BRICS, but also with Japan and Australia, to use their own currencies (Geab 72, February 2013). At the beginning of 2013 the European Laboratory of Political Anticipation indicated that "raising the sanctions on Iran is the first stage for paying in euros for petroleum imported to Europe", and added that the old continent should not "take charge of the instability and the debility of the US economy."

This tendency collides head on with the internationalization of the yuan, the currency that has risen most against the dollar. A symptom of what is coming is the vertiginous increase in the purchase of gold by central banks in 2012, the greatest since 1964 (CNBC, February 14, 2013). The Popular Bank of China just revealed that "the country no longer benefits with the increase of foreign currency holdings", so they may put a brake on the purchase of dollars (Bloomberg News, November 21, 2013). China has reserves of 3,6 trillion dollars, three times that of any other country and more than the German GDP.

One characteristic of periods of transition tends to be the acceleration of change, and above all, the tendency to resolve conflicts through military force. The agreement with Iran puts off war in the Middle East, but could accelerate tensions in the Asia Pacific Region.
(Translated for ALAI by Jordan Bishop).

Raúl Zibechi, a Uruguayan journalist, writes in Brecha and La Jornada and is a collaborator of ALAI.

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