6 February 2008

The mystery of the severed cables

So, 5 undersea cables have now mysteriously been severed. Iran’s telecommunications connectivity is almost destroyed. Why on earth is this happening?

Meanwhile, Iran was due to start an international oil trading organization by February 11th, which would allow oil to be traded in currencies other than US dollars.

You know who else started selling oil in currencies other than the US dollar? Iraq, in 2000.

Hmm, what a coincidence.

In case anyone’s missing the significance: the only thing propping up the value of the dollar is that everyone needs oil, and you need dollars to buy oil. If countries could buy all their oil in (say) Euros, they’d stop dealing in dollars, stop lending the US money to run the deficit, and make it impossible to run the US economy as it’s currently being run. Or as the Economist puts it:

A shift towards a looser peg in the GCC would undoubtedly hurt the greenback. At the very least, dollars would be purchased at a slower rate—leading to what Mr Lyons calls “passive diversification”. At worst, the policy might encourage others to follow, sparking panic sales of American assets.

i.e. a very real chance of the US economy entering another Great Depression.

© mathew 2017