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Iran, India and the US Dollar

By: Dr.Dipak Basu
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(The author is a Professor in International Economics in Nagasaki University, Japan)

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In the recent Presidential Election in Iran, Tehran and other cities have seen the largest street protests and rioting since the 1979 Iranian Revolution. Supporters of reform candidate Mir Hossein Mousavi, upset at their announced loss and suspicions of voter fraud, took to the streets both peacefully and, in some cases, violently to vent their frustrations. Iranian security forces and hardline volunteer militia members responded with force and arrests, attempting to stamp out the protests. Meanwhile, thousands of Iranians who were happy with the election outcome staged their own victory demonstrations.

In the current civil unrest in Iran the opposition to present president Ahmadinejad is fighting the establishment with the members of the same establishment, if we look at the composition of the anti-government protest against vote-rigging in the recent national election. Mir Hossein Mousavi, the opposition candidate himself was the prime minister of Iran once during the first decade of the revolution. Mohammad Khatami, one of the main supporters of Mousavi, was president between 1997 and 2005. Ayatollah Hashemi Rafsanjani, another political ally of Mousavi is the head of the Assembly of Experts and another former president. They are the engineers of the Islamic revolution that had suppressed a possibility of a democracy in Iran in 1979 after the demise of the Shah of Iran. What are the implications for India?

Iran is dedicated to the Islamic revolution throughout the world, which would not be restricted to any geographical area. American invasion of Iraq has eliminated a secular government of Saddam Hussein and the most likely outcome for Iraq, due to its demographic characteristic, is a Shia-Muslim government, same as in Iran. There are sizable Shia population in Bahrain and Saudi Arabia as well. Thus, American occupation of Iraq has strengthened the Shia-Muslims and their ability to project their power throughout the Middle East and beyond. Although Iranians are opposed to the Arabs and Shias are opposed to the Wahabi-movement of Saudi Arabia, they can collaborate, as they did against Afghanistan from 1978 to 1992, as their world-view is the same. Both of them want to create Dar-Ul-Islam throughout the world.
While Saudi Arabia is supporting Islamic movement, violent or nonviolent, in a number of countries, so far Iranians are restricted their supports only for their co-religious organizations like Hamas in occupied Palestine and Syria, which undermines the secular liberal Al-Fatah movement of late Yasser Arafat.

Indo-Iranian Relationship:

So far, the relationship between India and Iran is cordial only because Iran needed India to obtain its vital imports and to obtain scientific and technological experts particularly in the field of nuclear energy. India made a deal to build a nuclear energy plant in Iran, although it will not see the light of the day because of the influence of USA on India today.

However, the equation has changed recently for the worse for India. Russia has already built a nuclear plant in Iran. China is building another nuclear plant. Both China and Russia are now a solid source of technology for Iran. China also is the source of most manufactured products Iran imports. Thus, Iran does not need India anymore.
India"s support so far to Iran, however tangential, emerges from that ambition of India to have direct link with central Asian oil and gas resources. The route through Afghanistan is impossible without the cooperation from Pakistan. The land route from Iran to India also has to pass through the most volatile area of Pakistan, Baluchistan, which is in revolt. The submarine pipeline from Iran to India also needs cooperation from Pakistan. India needs to think seriously whether the direct link either via land or submarine pipeline is at all feasible given the political situation in this area of the world and the changing international scene in Central Asia. Already Iran has signed a cooperation treaty with Pakistan regarding the oil and gas pipeline but India is not included in it.

Chinese Competition :

China is building nuclear plant in both Iran and Pakistan and is now the most important trading partner for both of these countries. In the competition between China and India for the Iranian market, India has little chance to overpower Chinese exports, which are both cheaper, due to wise exchange rate policy of China, and of great variety. China also can supply missiles fitted with nuclear weapons as it did already to Pakistan and North Korea. India cannot do that, as India has no missiles fitted with nuclear weapons. Indian missiles came from Russia and the former Soviet Union since 1987 originally; thus India cannot export these without the permission from Russia.

As a result, Iran is enhancing its trade relationship with China than with India. China has become the most important importer of oil from Iran already and got the contract to develop one large oil field in Iran. Thus, India has little importance for Iran.

However, Iranian problem has another dimension. USA via its news media particularly CNN is trying to describe the present turmoil of Iran as some kind of revolution. Interest of the United States is very different and can seriously disturb both economic and military stability in India.

The Possible US Reaction:

India has failed to understand the reason why the United States is so interested in Iran The reason is pure economics. Iran threatens the US Dollar and its present status as the sole currency of the world for trade in oil and gas. It costs nothing for the US to import anything from the rest of the world or to keep vast American military bases throughout the world, as payments can be made by Dollar, which costs only the paper on which it would be printed. However, Dollar is required for every oil- importing countries of the world; and that it is reason central banks of most countries keep their reserves of foreign exchange mainly in Dollar. When more dollars are circulated outside the US, or invested by foreign owners in American assets, the rest of the world has to provide the US with more goods and services in exchange for these dollars. The US even can pay its debt to other countries just by printing its own money.

That special status of Dollar can be threatened if the oil producing countries switch from Dollar to Euro for trade in oil and gas. From May 2006, Iran has done just that, which Venezuela already did and Iraq wanted to do just before it was invaded.

As a result, Iran can seriously undermine the demand for Dollar in the world market. If other oil exporting countries follow Iran, Dollar will collapse along with the US economy. A proposal to create a different reserve currency rather than US Dollar is already suggested by Iran"s friend Russia in the recent BRIC ( Brazil-Russia-India-China) meeting. Iran has the third largest oil reserve in the world, and it can seriously undermine the special status of Dollar on which the US economy rests.

Thus, the turmoil in Iran can provide an excuse for USA to intervene to support a supposedly pro-Western progressive force in Iran opposing the present president.

This is not the first time that USA has sympathy for one side of the Islamic regime which is determined to destroy the Western and Eastern civilizations. During the days of President Reagan, Iran has financed the terrorists to destroy the socialists in Afghanistan, Nicaragua, El Salvador, Honduras, Mexico and Ethiopia and in return USA has supplied weapons to Iran directly or indirectly through Israel, Pakistan and Turkey. USA is expecting that a new regime will be more accommodating particularly on the future of US Dollar than the current administration of Iran. A new regime in Iran can also give more opportunity for the Western oil companies, who already have taken over the oil fields of Iraq from the Iraq national oil company and its former co-investors like India and Russia.

The combined profit of the major Western oil companies is now more than the national income of 134 countries of the world and more than the combined national income of Russia, Taiwan, Mexico, and India. If they can control the oil wealth of Iran, their ability to increase the price of oil will be strengthened. As a result, India will be at their mercy as it was 1960, when all western oil companies refused to supply any oil to India when India was trying to establish the Oil & Natural Gas Commission. At that time, Indian economy was rescued from total collapse by Iraq and the Soviet Union, who had supplied both the oil and the technology for oil exploration. Iraq is now colonized by the U.S, and the Soviet Union does not exist any more. Thus, India is on its own and vulnerable. This is the possible danger for India if there will be an intervention from the United States.

Dr.Dipak Basu

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