Iran returns fire in the Economic War

Smart decision by Iran - and a warning. Economic warfare is a soft way of attacking your enemy without all the kinetic nastiness -passive aggressive warfare if you want; but warfare nonetheless. The US Dollar is at a historically weak point - and Iran makes the decision to make a strike.

Iran asked Japanese refiners to switch to the yen to pay for all crude oil purchases, after Iran's central bank said it is reducing holdings of the U.S. dollar.

Iran wants yen-based transactions ``for any/all of your forthcoming Iranian crude oil liftings,'' according to a letter sent to Japanese refiners that was signed by Ali A. Arshi, general manager of crude oil marketing and exports in Tehran at the National Iranian Oil Co. The request is for all shipments ``effective immediately,'' according to the letter, dated July 10 and obtained by Bloomberg News.

The yen rose on speculation for an increase in demand for the currency, the result of Japan's annual 1.24 trillion yen ($10.1 billion) of oil imports from Iran. Central bankers in Venezuela, Indonesia and the United Arab Emirates have said they will invest less of their reserves in dollar assets because of the weakening currency.

And so it starts. We opened this opportunity for them. Good timing on their part. In a broad sense, the value of the Dollar is a rough function of supply and demand. By no longer demanding that payments are made in dollars - the global demand for dollars goes down. As the dollar gets weak, the more it costs to import almost everything. As along as we have a deficit, we need foreigners to buy our bonds. If the dollar is weak - they will want more of a premium to buy them - i.e. we will have to increase the interest rates on out national debt. That will cause all interests rates to rise. Economics is a function not only of math, statistics and other quasi-hard sciences, but also psychology. In economics you can have a herd mentality. Our huge foreign debt is owned mostly by Asia - Japan and China mostly. What if they start to head for the door. How do you get Yen? You sell something else for them. Sell Dollars. More Dollars being sold as demand decreases means an increasing collapse in its value, and so on. As for the balance of payments issue, we'll cover that some other day. From a Red perspective, solid move. Difficult to counter.