The US dollar and the euro might be undermined by an oil export embargo that would throw the world economy in a tailspin. Gold might make a comeback, which is what Bin Laden wants.

Milan (AsiaNews) – Should Iran be referred to the UN Security Council or its nuclear installations be attacked by the US or Israel, Tehran might impose an oil embargo on the West. But statements by the head of the International Atomic Energy Agency, Mohammed el-Baradei, on a possible agreement and by Saudi Arabia and Kuwait, which called on OPEC countries not to cut their quotas, run in the opposite direction.

Threats of an oil embargo

Should Iran carry out its threat of an oil embargo, the consequences might be dire; not because the loss of its oil production would make much difference—3.9 million barrels per day or 4.62 per cent of 84.5 million barrels consumed in the world (based on fourth quarter 2005 OPEC estimates calculated by the author) —, but because if Tehran was behind the Islamist activism against the "blasphemous Muhammad cartoons" Muslim governments might be forced to do the same against the US or even Europe. Neutrality vis-à-vis the blasphemous infidels at a time of Muslim rage will be deemed sacrilegious.

If OPEC's Muslim members (Algeria, Indonesia, Iran, Kuwait, Libya, Qatar, Saudi Arabia and United Arab Emirates) joined an Iranian-led oil embargo, North America, Europe, Japan, Australia, South Korea and Taiwan would lose 61.06 per cent of the 32.452 million barrels they import per day (latest OPEC data available for 2004).

With Muslim OPEC members pumping 23.169 million barrels per day or 27.42 per cent of the world's oil consumption (based on OPEC estimates for December 2005), OECD countries get 45.88 per cent of their total consumption, which is 50.5 barrels per day (based on figures for the 4th quarter of 2005).

Skyrocketing prices and economic depression

The threat does not stop there. Based on current demand, oil's average prices hover around 60 dollars a barrel. In case of extreme market instability, prices might rise three or four times. For exporting countries imposing the embargo, there may not be any squeeze because with oil at 200 dollars any quantitative drop in exports would be compensated by higher prices per unit. For oil importers however the squeeze would really be on for they would not be able to replace loss supplies on the short run.

Should oil reach 100 dollars a barrel, world GNP would start falling; at 200, it would go into a nosedive and an economic depression would set in provoking financial and monetary crises that would affect the banking system.

Personal and corporate insolvencies would skyrocket as real estate markets collapsed under rising interest rates. Banks would be sucked into the vortex of insolvency which, in turn, would affect all financial markets already overwhelmed by atypical liquidity such as derivatives and term deposits whose importance ballooned in the last two decades, especially with rising oil market revenues.

When all is said and done, a triple economic, banking and financial strike would provoke a structural crisis of the monetary system as people dumped US dollars and then euros. For years, an albatross has hung over the US currency, namely huge deposits in US dollars accumulated over time around the world. Even a small move to sell off might turn a ripple into a disaster.

With oil at 60 dollars, OPEC countries' total exports are worth 533 billion dollars at current levels; at 200 dollars, they would be worth 800.

Even a small increase would still have a devastating effect. Clearly, this is part of the strategy of those who want to knock out the US. Although touted as the dollar's replacement as the main reserve currency, the euro is not in a position to do so.

As any modern currency, the euro is only a tool of exchange and payment with legal tender but without any intrinsic value in itself. The Maastricht Treaty remains its political point of reference and it is included in the proposed but not yet ratified European constitution. Hence, the euro, too, suffers from structural weaknesses. What is more, Europe cannot exert any military, political or economy supremacy on its own.

With credibility and trust in currencies like the US dollar and the euro gone, the gold standard—which reigned supreme in the world economy till the Great War—might be reintroduced.

Despite attempts to reintroduce it after the First World, the gold standard was finally abandoned after the Second World War when wartime conditions definitely showed its drawbacks and opened the door to Bretton Woods system.

For Islamists like Osama Bin Laden, the Great War not only removed the last shred of traditional political legitimacy the Islamic Caliphate had, but it also saw the 1917 Balfour declaration usher in legal Jewish settlements in Palestine, i.e. foreigners colonizing Muslim land.

By the same token, from al-Qaeda's point of view, the Second World War not only meant the creation of the State of Israel, but it especially marked the rise of nationalist regimes in Muslim lands that introduced a separation between politics and religion.

By Islamist standards, all Arab nationalist regimes wielded power through terror and corruption. Their economic policies led to inflation: printing money without any relation to gold.  Hence, for Bin Laden, the US dollar and related currencies and monetary and financial markets are tools "infidels" used to enforce their "illegitimate" domination over Islam.

Al-Qaeda and a gold-based financial system

From an Islamist point of view, new rules of the game are needed to undermine existing world financial markets. And trends seem to be in their favour. On the one hand, there are no alternatives to oil; on the other, there is no new gold standard. For al-Qaeda and Islamists around the world there is a window of opportunity to exploit now and only now. In a few years, the West will have reduced its dependency on oil. In 20 years, nuclear fusion technology will provide it with unlimited power. For this reason, Bin Laden wants to overthrow the world's existing political and economic order and is willing to push the world to the brink of an economic and financial meltdown.

If the main world currencies lose credibility, the use of gold would generate an unprecedented deflationary spiral (it is no accident that al-Qaeda offers rewards in gold) and widespread poverty. There is not in fact enough bullion in the world to cover current economic transactions.

Given today's intense division of labour per finished product, the rate of transactions is much higher than in the past. Reintroducing the gold standard would mean going back centuries, if not millennia. 

The real problem today is the existing monetary system does actually have many real shortcomings. Recurring financial crises like those of Asia, Russia and Argentina are proof of that. The growing rate of recurrence of such crises points to an underlying structural problem that has hitherto not been addressed and which precedes the rise of Islamism.

Al-Qaeda is pouring oil into the fire and should it succeed in achieving its goal of supremacy, it would be in a position to impose its economic theories based on gold and the Sharia's complicated financial rules. It would then have the power to run financial and political matters as well as regulate technological innovations, including rejecting them if it so desired.

• iran
• al-qaeda
• economy
• oil
• embargo
• nuclear
• financial
• system
• opec
• osama
• bin
• ladin