Readers keep asking if Bush is attacking Iran because it plans to open an oil bourse that would permit oil to trade in Euros. A number of readers mistakenly believe that this would wreck the dollar's value.

The answer is no.

The neocons' plans for the Middle East predate any notion of an Iranian oil bourse.

Will an Iranian oil bourse hurt the dollar? Not really.

The dollar's value depends on the world's willingness to hold dollar denominated assets, not on the currency used to pay oil bills. If payments were not made in dollars, there could be a slight negative impact on the dollar from countries reducing their dollar cash balances and from the psychological shock of pricing oil in Euros (or some other currency). However, what really counts is what do the oil producers, for example, do with the currency that they are paid. If they are paid in dollars, but exchange the dollars for Euros or Yen and purchase equities or bonds or real estate in Europe and Japan, it doesn't help that oil is billed in dollars. Or if they are paid in Euros but exchange the Euros for dollars and purchase US assets, it doesn't hurt that the oil is billed in Euros.

The negative impact on the dollar will be far greater from the additional red ink necessary to finance an attack on Iran than from an oil bourse. Today, US war-making capability is dependent on the rest of the world to finance it.

Oil is billed in dollars because the dollar is the world reserve currency. The dollar is not the reserve currency because oil is billed in dollars. The US is abusing the dollar's role as reserve currency. When a trusted alternative appears, the dollar is likely to lose its reserve currency role. Iran, however, cannot cause that transition.