"The financial equivalent of a nuclear strike," says one analyst. We do wish he would refrain from that particular analogy. The whole showdown over Iran--with Washington apparently threatening to use nuclear weapons in the name of protecting the world from nuclear weapons--may actually have more to do with maintaining global hegemony of the petro-dollar. From AP, May 5:

Iran wants oil market in Euros

TEHRAN — Iran took a step on Friday toward establishing an oil market denominated in euros, a plan analysts described as highly unlikely to materialize but which in theory could have serious consequences for the U.S. economy.

Iranian state-run television said the country's oil ministry granted a license for the euro-denominated market, an idea first floated back in 2004, though just who would trade on it remains unclear.

If the market were to succeed — or if Iran simply demanded payment for its oil in euros — commodities experts said it could lead central bankers around the world to convert some dollar reserves into euros, possibly causing a decline in the dollar's value.

Oil is currently denominated in dollars around the globe, whether through direct sales between producers and consumers or in trades made on markets in New York and London.

But if one day the world's largest oil producers allowed, or worse demanded, euros for their barrels, "it would be the financial equivalent of a nuclear strike," said A.G. Edwards commodities analyst Bill O'Grady.

"If OPEC decided they didn't want dollars anymore," he added, "it would signal an end of American hegemony by signaling an end to the dollar as the sole reserve currency status."

If the dollar lost its status as the world's reserve currency, that would force the United States to fund its massive account deficit by running a trade surplus, which would increase inflationary pressures.

O'Grady said there are practical reasons why the Iranian threat is an empty one.

For starters, Iran is not a very attractive site for a market, given the volatile nature of its politics, the U.S. sanctions against it and the lack of a fair legal system. Moreover, there is no indication that the European Union is interested in vying to become the world's central bank, which requires a willingness to run large currency deficits, he said. For the U.S., that has meant allowing cheap imports to undermine the strength of some major industries, including textiles, autos and electronics manufacturing.

PFC Energy oil analyst Jamal Qureshi said the fears stirred up by a hypothetical euro-denominated oil market in Iran or anywhere else are overblown, not least because the oil trade is just a small component of the overall global economy.

Iranian legislators earlier this year urged the government to set up the market to reduce the United States' influence over the Islamic republic's economy. They also criticized Oil Minister Sayed Kazem Vaziri Hamaneh, saying he had delayed setting up the bourse.

First floated in 2004 when reformist president Mohammad Khatami was in power, the idea of a euros-traded oil bourse gained new life after the stridently nationalist Mahmoud Ahmadinejad was elected president last summer.

Iran is the fourth-largest oil producing country in the world, the second-largest in the Organization of Petroleum Exporting countries and controls about 5 per cent of the global oil supply, so it has a measure of influence over international oil markets. Tehran also partially controls the Persian Gulf's Strait of Hormuz through which much of the world's oil supply must pass.

Iran has sought to wield its oil resources as a bargaining tool in Tehran's ongoing standoff with the West over its nuclear program.

Oil prices jumped above $75 a barrel last month amid escalating diplomatic tensions between Washington and Tehran. On Friday, crude oil futures traded just above $70 a barrel.

Iran's deputy oil minister, M.H. Nejad Hosseinian, said Thursday he doubted the U.N. Security Council would impose sanctions on Iran's oil sector because such a move would drive oil prices higher.

Council members are considering imposing sanctions on Iran for defying their request to halt all uranium enrichment-related activities by late last month.

Deja vu factor: Saddam was threatening to do the same thing before Operation Iraqi Freedom in 2003. See WW4 REPORT #88

See our last post on the Iran crisis and the struggle for control of oil.