The associated press came out with a staggering report out of Iran April 19, 2008. Iranian President Mahmoud Ahmadinejad declared $115 barrel oil “too low”. He said, “The oil price of $115 a barrel in today’s global markets is a deceiving figure. Oil is a strategic commodity that needs to discover its real value.”

He also claimed that $115 barrel oil was still below the inflation adjusted highs set in 1980. Ahmadinejad called the United States arrogant and selfish and said us Americans believe oil is a free commodity. He then went on to comment on the U.S. currency and called the dollar “a handful of paper” lacking global support. A website quoted Ahmadinejad as saying, “The dollar is not money and longer but a handful of paper distributed in the world without commodity support.”

Ahmadinejad’s points he was trying to make are right on the mark but the evidence he uses is certainly flawed making his credibility all but lacking. I must downright dismiss his remarks that the price of oil is still too low. While I believe oil is bound to go higher the current price of oil is the current price of oil with no questions asked. There’s no conspiracy to keep the price of oil low. Now a much more appropriate argument would to say that per cup oil is cheaper than bottled water and to go more in depth on the facts of oil depletion. Making the argument that global production is higher now than it most likely will ever be again it would be all but conclusive that oil is bound to shoot up higher than it is right now.

His inflation adjusted numbers do nothing to support his claim. If you adjust the 1980 high of $38/bbl you will get a number between $96 and $103 barrel oil. Even if the price is lower than it was in 1980 it certainly should be higher anyway as global production was still increasing even though the United States peaked nationally in the early 1970s. Whether the numbers are higher are lower by some a few percentage points is trivial and a moot point as it totally disregards the reason why oil prices are where they are today. It’s about the rate of oil depletion a topic Ahmadinejad didn’t mention once.

His bearish view on the dollar has no merit. He calls it a handful of paper with no global or commodity support. He is right the commodity support is not there but fiat currency is not backed by an underlying commodity but a faith in the nation which the currency is printed that their monetary and economic policy is sound. Global support is still certainly there. While it may not always be there the facts Ahmadinejad are stating are downright incorrect. The Chinese are still buying our debt and as long as this happens our dollar will remain somewhat propped up. Of course if this support ever went away our dollar would crash and would only be compounded by runs on the dollar and the U.S. banking system. Neither our gold reserves at Fort Knox nor our currency reserves would be enough to help keep our currency stable in that situation as our gold would last two days and our currency reserves roughly eight seconds.

Ahmadinejad seems to want it both ways as these assertions seem nothing more than Iranian PR. It is no surprise that high oil prices and a weak dollar would benefit Iran’s economy. Of course if the reason for high oil prices is an increase in the rate of global oil depletion than that would mean Iran and Iraq may certainly be in decline and would also assume their reserves may be less than what has been stated. This would give not only Iran but all OPEC nations less leverage in the world.

On a more rhetorical note, a crashing dollar crashed would not be a handful of paper but of cotton

Source: http://biz.yahoo.com/ap/080419/iran_oil.html