Nov. 24
By Sam Barden for Trend Agency
Climate Change vs ISIS
The single biggest threat and common enemy of the World today is not ISIS, it is Climate Change! Unless we move to an era of Energy co-operation rather than energy competition, climate change will eventually defeat all of humanity, regardless of race or religion.
Energy Diplomacy
Energy co-operation can be achieved today, through the deployment of Energy diplomacy, setting the world on a new path, which can defeat climate change. As the world prepares for the re-entry of Iran into the global hydrocarbons market, and global markets generally, will Iran simply re-enter the current market complex? Can Iran lead the world into a new era of energy co-operation and energy pricing through Energy diplomacy, taking into account carbon fuel savings, which has intrinsic value, rather than measured through USD savings which has no intrinsic value? The answer is, yes they can.
Gas Exporting Countries Forum (GECF)
Iran heads the Gas exporting Countries Forum (GECF) through the position of Secretary General, currently held by HE Seyed Mohammad Hossein Adeli, an Iranian National. He is the second person to hold this position, after Leonid Bokhanovsky, of Russia. Russia and Iran hold approximately 44% of the worlds proven gas reserves between them, and both countries are looking at how to create a complimentary energy pricing and trading complex which does not rely on the USD as the base pricing mechanism for energy globally.
Multi polar economy vs Uni polar military
The conundrum, which has dogged the world recently, has been the fact that we live in a modern multi polar economy globally, yet we have had a uni polar military system. Finally, this has changed, and we now have a multi polar military world to compliment our multi polar economic reality. President Putin has lead this change, through the deployment of the Russian military into Syria. The result has catalyzed other nations to join Russia to create a multi polar military complex for the first time since the Second World War. There is no turning back from this reality, and nor should there be.
Dollar Politics vs Energy Diplomacy
Dollar politics is practiced through dollar diplomacy, which is what the G20 is all about. Through the IMF or the World Bank more debt is offered to pay existing debt, via the banks of course, in exchange for governments agreeing to austerity measures on their countries, which are normally things like slashing public sector spending, pensions and social security. Each country is also asked to increase taxes in order to pay for the new debt, which is used to pay for the old debt. The credit crisis of 2008 has invalidated dollar diplomacy. It is simply no longer working.
Intrinsic value (Energy) vs Non-intrinsic value (USD)
What is needed is a debt equity swap. Our current economic system is distorted because it is overlaid by bank money, which is intrinsically worthless.
The time is right for a move to reality-based economics, by way of swapping debt-based money for intrinsic-based value. The simple solution is to price our currencies not against something with no intrinsic value such as debt, but price it against something with intrinsic value such as energy, or more specifically energy units.
Gas Energy units as a World standard
An energy unit is an undated credit, redeemable in payment for the underlying. This is different to a USD (actually a Federal Reserve Note) because an energy unit is asset-based, whereas a USD is debt-based. If we start with an energy unit in gas, and say that each energy unit in gas is redeemable for 5 mmbtu (one million British thermal units) each worth $5, then all of the sudden we have an asset-based currency valued in energy. To put this in perspective, one btu would heat about three cups of tea or 500 milliliters of water.
Dollar politics and dollar economics will evolve to energy economics. Energy economics is neutral, and relies on innovation of production, efficiency of distribution and a mechanism for clearing and account. This will drive us to naturally value energy savings, unlike the current carbon tax, which has no intrinsic value and taxes valueless CO2 emissions. Energy economics is not an alternative to dollar economics but is a complimentary or additional economic approach.
Energy diplomacy
Energy diplomacy will be instrumental in this evolution. The IEF (International Energy Forum) has 87 member countries, which account for 90% of oil and Gas supply and demand, just one home for the practice of Energy diplomacy. The GECF is a more natural home, as gas is homogenous and therefore able to be the global price basis for intrinsic value, based in energy.
Open Energy
Back in 2006, I wrote and presented to the Russian oil Ministry what I called Open Energy. Open energy identified that the hydrocarbons markets and commodity markets generally, are fragmented, opaque, inefficient and mispriced. Coupled with the fact that the global banking system is under enormous stress, flooded with valueless currency through quantitative easing in the form of debt based credit, the role of intermediaries, mostly banks, the risk of failure and boom bust cycles is even higher, and surely does not fit with Iran's stated desire for a resistance economy. The solution is a collaboration of global exchanges, which can trade and swap energy products. Investment Capital enters directly onto the Exchange and directly into the tradable product, thus greatly reducing counterparty risk, exposure bank risk, and indeed outside market volatility. In fact, as President Rouhani stated in 2014 at Davos, we need a new market paradigm where consumers and producers can come together to create value directly. He is correct, and the infrastructure already exists within Iran. As Chris Cook noted, "as President Rouhani stated in Davos in 2014, there is a need for new multilateral energy market institutions which enable producer and consumer nations to transact directly, and to collaborate by sharing costs, knowledge, information, expertise and risk." All that is needed is some innovation of products.
Energy Swaps
A transparent, accessible exchange based product swap listed on the Iran Oil Bourse, on Kish Island, would be a first step in Iran moving the global energy market toward long lasting energy security, using energy diplomacy. A combination of the Iran Oil Bourse and a Russian Exchange, such as St Petersburg Mercantile Exchange (SPIMEX) could be enough to launch a new mechanism to price and trade gas on a multi currency basis and with a regional, globally recognized price benchmark such as the Caspian.
Syria solution
The war in Syria is not about democracy, or religion. It is about transiting gas from the Caspian region through Iran, Iraq, Syria and into to the Mediterranean. A combination of diplomacy and regionally based and accepted pricing and trading mechanisms will achieve this peace, driving investment back into the region and reversing the refugee crisis which is threatening to sink the European Union. This will only be attained and made sustainable through diplomacy, and specifically through energy diplomacy. Iran, through the GECF can drive this solution, providing regional security, peace and enhanced global energy security.
Conclusion
The GECF, currently lead by Iran, has all the tools, relationships and most certainly the power of intellect to drive meaningful and sustainable innovation and change to the global energy complex, and finally address the elephant in the room, climate change. An Energy based global trading system, priced in gas, in a collaborative framework, which includes producers and consumers will be a natural compliment and ultimately transition the world away from the Bretton Woods based standard, to a gas based system which rewards resource efficiency and monetizes energy savings. Energy diplomacy is the most powerful and sensible tool to achieve this, and Iran can deliver this outcome now.
Sam Barden is the director of SBI Markets, an international commodity trading and advisory company which advises governments and private firms on deal financing and facilitation