Iranian Oil Bourse Nonsense

I must have seen five different articles on the Iranian Oil Bourse over the past week or so. I have probably seen a hundred posts over the last year that the war in Iraq was because Hussein was going to price oil in Euros. These articles all make for sensational headlines but it is all nonsense. Perhaps we went to war in Iraq with intention of stealing their oil, but we sure did not go to war over pricing.

..And the notion that the U.S. dollar is currently “backed by oil” is so nonsensical that it is difficult even to fathom what that phrase is intended to convey. When we say that under a gold standard, the dollar is backed by gold, I know exactly what that means– it means you can surrender dollars at any time to obtain a fixed amount of gold promised by the government. But if you surrender dollars on any given day in January 2006, how much oil are you going to get back?

It varies literally by the minute, and the rate at which dollars get exchanged for oil has nothing to do with the promises made by any government and everything to do with market fluctuations in supply and demand.

Howe Street