Strike On Iran, A Green Light From Washington (EWJ, FXI, RSX, UUP, GLD, USO)

Dominique de Kevelioc de Bailleul: Reports of the USS Enterprise aircraft carrier battle group setting course to join battle groups USS Lincoln and Vinson in the Arabian Sea and today’s back-to-back announcements regarding the complete termination of Iran’s financial transactions through SWIFT, as well as the announced joint agreement between the U.S. and the UK to release strategic oil reserves into the oil market (NYSEArca:USO) spells war with Iran.

After 30 years of various sanctions and hostile rhetoric aimed at Iran, for the U.S. to turn back now, it would have to admit defeat, thus sending a powerful signal that U.S. dollar hegemony is imminently unraveling.  Allowing Iran to make the rules concerning payment for its oil will surely embolden other oil producers to follow in step—a step other OPEC members would gladly take if it meant ridding themselves of the hopelessly inadequate U.S. dollar as recompense. Get my next ALERT 100% FREE

William R. Clark, author of Petrodollar Warfare: Oil, Iraq and the Future of the Dollar, cites an anonymous source during research for his  book.  In his essay of 2003, titled, Revisited — The Real Reasons for the Upcoming War With Iraq: A Macroeconomic and  Geostrategic Analysis of the Unspoken Truth, Clark penned:

The Federal Reserve’s greatest nightmare is that OPEC will switch its  international transactions from a dollar standard to a euro standard. Iraq  actually made this switch in Nov. 2000 (when the euro was worth around 82  cents), and has actually made off like a bandit considering the dollar’s steady  depreciation against the euro. (Note: the dollar declined 17% against the euro in 2002.)

The real reason the Bush administration wants a puppet government in Iraq — or more importantly, the reason why the corporate-military-industrial network  conglomerate wants a puppet government in Iraq — is so that it will revert back  to a dollar standard and stay that way. (While also hoping to veto any wider OPEC momentum towards the euro, especially from Iran — the 2nd largest OPEC producer who is actively discussing a switch to euros for its oil exports).

Iran has stopped discussing accepting euros for its oil, but has instead  leapfrogged to a more egregious policy of now accepting yen, rials, rubles, renminbi and gold (NYSEArca:GLD) in exchange for its crude.  In fact, the Iranians went a step further in January, as to intentionally insult the U.S., by making the announcement that included a gratuitous statement that the policy change in Tehran was suggested by the Russians.

Within days of the shocking Iranian communique, Russia Today reported that India had agreed to pay with gold for Iranian oil.  Then, reports of Japan (NYSEArca:EWJ), Korean and China discussing or making similar arrangements began hitting the news wires.

“India has reportedly agreed to pay Tehran in gold for the oil it buys, in a move aimed at protecting Delhi from U.S.-sanctions targeting countries who trade with Iran,” RT reported.  “China, another buyer of Iranian oil, may follow Delhi’s lead.”

Moreover, Russia and China followed through with vetoes against Iranian sanction at the United Nations Security Council vote, which elicited a strong response from U.S. Ambassador to the UN, Susan Rice.  Japan and other nations also expressed opposition to U.S. aggression towards Iran now that oil supplies are targeted.

As to the timetable for an Iranian attack, it’s been suggested that domestic politics have played a role within the Obama administration to, not only enhance his re-election chances, but to aid the Federal Reserve in its dilemma, as well.

Further so-called ‘quantitative easing’ and the ramifications of inflation has not gone unnoticed by the American people, aided by the popularity of presidential candidate as well as the most threatening opponent of the Fed, Congressman Ron Paul of Texas.  Paul has also gained support from voters with his message of returning American troops and closing U.S. military bases worldwide.

“The U.S. government will likely not raise on this busted flush because Ron Paul’s success in the primaries, despite the concerted efforts of the corporate  media, the GOP, and Israel, has sent a clear and unambiguous message to the  status quo that starting yet another war for Israel is going to cost incumbents their jobs come November,” influential blogger Michael Rivera of  WhatReallyHappned.com wrote in a Jan. 16 post. Now, two months later, that the Republican primaries have moved past Super Tuesday, with establishment  candidate Mitt Romney of Massachusetts garnering a significant lead in the  delegate count, conjuring up a scapegoat for the expected rise in oil prices  following an attack on Iran serves as a neat and direct connection between a closing of the Straits of Hormuz and soaring gas prices.

A geopolitical event of that magnitude will provide a narrative for the Fed,  whose remarkably low interest rates though direct purchases of U.S. Treasuries must continue.   Otherwise, higher interest payments on $15 trillion of U.S. debt will blow out an already massive budget deficit.  The dollar would fall.  But a shock-and-awe war with Iran, a proxy war with Russia (NYSEArca:RSX) and China (NYSEArca:FXI), the dollar (NYSEArca:UUP) may actually gain strength in a timeout from the risk-on trade and flight out of the U.S. dollar.

Following last week’s FOMC meeting and Fed Chairman Ben Bernanke Congressional mildly hawkish testimony, not surprisingly, the interest rate on the U.S. 10-year Treasury has suddenly shot up 30 basis points within three days, smashing through key technical levels and rising rapidly.  Traders of sovereign paper wonder who will buy the new U.S. debt issuance if the Fed doesn’t intervene with more primary dealer direct purchases, a point famously  made last year by PIMCO’s Bill Gross.

“U.S. Treasuries extended their rout on Thursday, with the 10-year yield hitting a fresh 4 1/2 month high . . . ,” Reuters reported on Thursday.  “The 10-year yield has broken above key technical level of 200-day moving  average, at 2.25 percent on Thursday, for the first time since July.”  Each  percentage point of U.S. Treasury interest adds approximately $150 billion to  the U.S. budget deficit—a deficit that has already been projected to shrink for  fiscal 2013.

With Ron Paul marginalized, for now; a Fed that desperately needs an excuse  for further monetary easing (Bernanke will say that high oil prices threatens the alleged recovery of the U.S. economy); a diversion from the connection between easy money and higher energy prices; and the political support an  incumbent president typically receives during a ‘justifiable’ war against a ‘rogue’ nation, the White House will most likely strike Iran and gamble on a jump start to WWIII.

By Dominique de Kevelioc de Bailleul From Beacon Equity Research

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