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India Offers To Pay For Iran Oil With Gold
It appears that gold isn't really a currency... until it is. The Economic Times reports that India is attempting to ensure steady crude oil supplies from Iran. In doing so it is doing everything it can to pay Iran in a way that avoid loopholes associated with recent US sanctions. And the stunner: "India could settle crude oil import transaction using gold in the short term, while efforts to resolve the deadlock continue." But does Iran realize they can't possibly eat all that gold? Or that The Fed has no way of diluting to oblivion? Or that, unlike the dollar, it is currently not involved in a global race to bottom in which every central bank will have no choice but to print ever more of its linen-infused currencies? Something tells us that the answer to all three is yes.
From Economic Times:
India is determined to ensure steady crude oil supplies from Iran and is even considering settling payments with gold in the short term before the two countries agree on a mutually accepted currency and a bank to clear the transactions.
"We have written a letter to NIOC ( National Iranian Oil Company )) asking it to suggest a bank where US sanctions are not applicable," a government official involved in the matter said requesting anonymity.
Another official said India could settle crude oil import transaction using gold in the short term, while efforts to resolve the deadlock continue. An Indian delegation, including officials from ministries of external affairs, finance and petroleum, will visit Tehran next week to thrash out the payment issue, officials said.
Oil industry officials are keenly awaiting a solution as India imports 80% of the 184 million tonne of crude oil it refines every year, and Iran accounts for 16% of these purchases, making it the second-biggest supplier, after Saudi Arabia.
India's crude oil imports from Iran faced an impasse after the Reserve Bank of India declared that a regional clearinghouse that involved the Iranian central bank could no longer be used to settle oil and gas transactions between the two countries.
It appears that it was the United States which itself precipitated this decision to seek potential alternative "currencies"
Several analysts believe India had acted under the pressure of the United States, which has lauded the RBI's action. Last year, India had protested Iran's remarks on Kashmir, and earlier, India had voted against the country's nuclear programme in a resolution of the International Atomic Energy Agency.
Domestic oil companies faced the crisis after the Reserve Bank of India (RBI) discontinued a settlement through the Asian Clearing Union (ACU) for crude oil payments to Iran. ACU, an initiative of the United Nations Economic and Social Commission for Asia and Pacific (ESCAP), was established in 1974 at Tehran for promoting regional co-operation. It facilitates payments among member countries for eligible transactions on a multilateral basis. The model helps in economising the use of foreign exchange reserves and transfer costs.
Ironically it is the US' desire to maintain political hegemony that may just be the catalyst that forces other countires to realize that transacting in a currency which is less and less deserving of a reserve moniker, is greatly overvalued.
h/t Mike Krieger
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They don't want "global responsibilities." That is the hubris of the USA trying to be "superpower" and our delusions of Roman grandeur.
As for destabilizing and/or starting a war with India...forget it. Too many nukes, too many quality armaments. Too cozy a relationship with Russia, India is UNSC expansion country. We'd have to engage in the style of war we'd have to fight China with and this would get potentially very ugly. Using Pukistan is a complete non-starter. After India destroyed them, AQ would move into that vacuum.
Well this is a shot across the dollars head. Have to assume that he other oil producing nations would like to get gold over Zimbabwe Ben's Fun Bux as well. With no more need for the petrodollar and the funding obligations looks like a one way ticket to the bone yard of history for the dollar.
So when do we invade India for floating the idea?
I would have to assume that other oil exporters would LOVE being paid in gold as well. I do not think that will happen, at least in the short term. India paying in gold seems to be a very dumb move on their part. They will run out of gold before Iran would run out of oil. Every buyer should pay in fiat as long as possible.
No way we invade India or Iran. Why?
1. They would not run out of gold. The price would change accordingly. If I can buy gold at 1400 an oz and then get 1400 an oz worth of oil on it, then it's just a transaction. India is already a massive gold importer, they just import more gold instead of dollars. Total none issue about running out so long as they can import gold. This is true at gold at $35 or $55,000.
2. As far invasion, the US will not allow it to happen. Now I don't think the US would invade India, it's to big and to blatant. but i can see a wave of terror attacks and possibly a rogue nuke strike from Pakistan into India if they don't see the light. If the petrodollar breaks the happy fun time ponzi ends shortly there after. These boys have every incentive to keep the ponzi rolling as long as possible.
TRUE your point number 1. But, why should they let their gold out for cheap? If India were to pay $1400, $1500, then $2000 (1 oz future gold prices), they would be misspending that very valuable store of wealth.
NO WAY Bearinglandia would pay gold for oil if they would take fiat. Even a US$!
I don't see it as an issue so long as they can import gold. Example
Lets say you want wheat and I'm a wheat farmer. You have copper, but I will only accept yap stones for my wheat (because I'm retarded). So 1lb copper gets you 100 yap stones and with those yap stones you buy 1lb coppers worth of wheat from me. It was just a move through transaction, copper to yap stones to wheat. Likewise they will earn the Rupee and then buy dollars or gold and then gold to oil. The process is effectively the same, they are just changing the transaction medium. There Is no value lost, except for minor tranasaction costs. Now sure I would be dumping dollars, but that is because of Zimbabwe Ben. Trading commodities in this manner does not result in a loss of value for anyone, except maybe the parasitic dollar cartel. This does assume a flow of gold, if the flow stops then the price must move up to readjust the market mechanics, but even still the transaction system does not change, just hte prices.
Iran might start buying stuff from India with that gold. problem solved.
Black Gold... Texas Tea...
well listen to a story
bout a man named abdul
the temple folk said
hindi gold for oil, what a fool
fiat greenbacks are the place ya gotta be
so they loaded up on debt
and called up Mr. Bernanke
Ben's Bell Arabs!
Y'allah come back now, ya hear!?
Petrodollar crumbling?
http://www.youtube.com/watch?v=9EE8BzpE0dU
Now imagine Iran agrees. Now imagine the two parties agree to value gold at, say, $50,000 per toz for this transaction. That would buy you a lot of oil, and that may be the real price of physical gold in large quantities anyway.
Now imagine all of this has already happened before.
http://www.usagold.com/goldtrail/archives/another1.html
A great deal for India, not so much for Iran. The one with the gold wants a super high price, not the one getting the gold. Very few people walk into a car dealership and demand to pay 25x the sticker price.
You can't buy physical gold in quantity at the paper gold price. This is a good deal for Iran too.
Ok, so the gold price goes up till it smacks it loose from the hands of the holders. Arbitrarily setting a price like that is economic suicide. Imagine Toyota setting it's car price 25x higher or lower and think through the response. Or the USA setting it's corn prices 25x higher or lower then market.
I'm not saying that gold might not go up as a result of being used in an oil trade, I'm saying arbitrarily setting a number is a recipe for disaster. And it's a much better deal for Iran to push for spot, they can even point to India's purchase from the IMF to prove that there is gold out there :)
There it is Shameful. Yes, Iran should push for spot. But, India is a big loser paying gold at spot for oil.
India loses unless they are paying with paper gold a la IMF chits!
:)
So long as the window is open at these prices there is no reason to believe it would not be at world market prices. I have no reason to think that Sprott is paying more then market prices, surely he would be screaming bloody murder if he was. Is supply tight, on those levels you bet! But I cannot fathom a full dual market. If there was a "secret" gold market where gold was worth more then all participants would have an incentive to loot the lower cost market and arb it. It would only take one player to break the game. I understand conspiratorial thinking but a lot of FOFOA's work relies an ultra cabal that does not act human IE in personal interest over that of a group. Totally breaks down when apply game theory, because I can assure you, put any trader from ZH in that position to make risk free arb of 5x or more of his money every time and he would break that trade!
The market participants in the size physical gold market are only a few central banks. The deals are done through BIS only. I doubt they would deal with Iran, so this is one way for Iran to get physical gold.
There are no traders to arb anything; they get to trade the price of paper gold on paper markets. In fact, they get to print money by selling paper gold to suppress the price.
Sprott tried to buy in size and was denied.
Are these central bankers you refer to human? Because if they were then they would be out buying with wild abandon in their personal accounts. All their friends/family would know to move in, it would spread. Ask yourself what would you do if you were an insider and saw a dual market?
You say amounts of quantity. Look at the amount that flows into India every year. It's not a tiny sum, and then look at other gold imports. A lot of gold gets mined every year. It stands to reason that anyone in the know would be screaming to import gold at these prices if the real price was say 55k, it would be totally worth bidding it up to 5k to get it if it's worth 55k on a shadow market. More gold is held in private hands then in the central banks. For your plan to work the BIS bankers would have to all be saints and not be willing to buy on the private market for themselves or their nations, after all if worth that much I would be on the streets of Mumbai racing though every gold shop I could to load up! Even buying 22k jewelry would be profitable at 55k vs current prices. Also makes one ask WTF are gold exporting nations thinking. Are their central bankers simply not in the know or traitors?
Sprott was able to get gold no? Sure it takes a while because I have no doubt there is a fair amount of fraud in this market. I just think it's silly to believe there is an entirely other "shadow" market, because a few players would break it. And everyone loves risk free arbs with big money, even if was a Anglo buying gold in coin form to recast into bars.
I'm willing to listen to conspiracy theories, but the best ones don't require mt to ignore human nature, and much of this does. If the dual market existed, the people who knew of it would be 100% all in on gold and giggling as they wait for a revaluation, do you really think all the major world players were able to get 100% into gold in the past 10-20 years? Now you will respond that they don't need to, just 2% would keep them at par. Yeah the mega wealthy only care about staying at par not amassing more wealth and competing with each other ;) The market is tight because a lot of players want to by and they don't want to overpay. If China crashed in like a tornado and was tossing out bids like crazy they would get their gold, or reveal massive financial fraud and crash the system. But they might pay more then they want so most people are just adding to their piles in horror as the end of the west unfolds.
Think about this. Say Buffet came out tomorrow and announced he would pay 10k an oz and is opening "We Buy Gold Shops". Do you think he would have problems amassing physical? With the revaluation right around the corner he would be able to get what 5x his money, with no risk. So why wouldn't they be agressive buyers right now?
By all means buy gold, but I wouldn't wait for some magical 2nd market to open and propel you into mega wealth.
Common sense arguments such as this seem to be ignored over at fofoa.
I never felt I got direct answers to my questions. It's seductive, there is some circumstantial evidence for the idea, but it ignores a lot of real world mechanics and aspects of human nature. But what gold bug doesn't want to be told that his gold will go to 55k in purchasing power? If that were to happen tomorrow I could retire now, and I'm still a young man so I would love it to be true.
I'm all for buying gold, most of my net worth is in physical gold, followed by physical silver then a smattering of the miners. So I'm a gold bug, but I think he happens to be wrong.
It's also a problem when you cannot explain a monetary system to a normal person who is interested. Even our ponzi system is quite simple if you break it down to a person who is willing to listen.
I can't beat FOFOA up to bad though, those in gold will weather the storm a hell of a lot better then most. So the people who listen to him will do well, so there is that. And it's sure a hell of a bettor motivator to tell someone they will make 30xish on their money rather then telling them they will keep their purchasing power :)
I'm in agreement with everything you've said. What I want to know is how freegold will stabilize the system after the reset? Default will wipe the debt off the books as well, but without a new system what's to stop the exact same scenario occurring 40 years down the line.
What happened behind the closed doors of the LBMA is now happening out in the open. Freegold anyone?
"Freegold" is an unstable transition state between a fiat system and a gold standard. You can't separate the functions of money among different UNLINKED materials and expect the system to be stable. Freegold would lead straight to hyperinflation of the fiat, and cause the system to quickly collapse back into a gold standard (official or de facto).
Which is fine by me.
Allowing gold to float against currency hasn't hurt the euro. Sorry but FOFOA is right; trying to hold a set price for gold never works. Someone always cheats.
As far as I can make out - the Europeans want to redirect the dollar reserves into Gold - this will not cause hyperinflation in Europe if the same quanity and velocity of money remains with regard to their internal CPI.
What happens in the US may however collapse into hyperinflation - how the ECB can manage this without global strife I have no idea.
I would suggest that US create a counter - perhaps a North American silver standard to peserve some of its buying power.
No. No imposed standards. The Euro has benefited nicely by NOT being on any standards (at least in terms of the value of their gold going up nicely vs. their other reserves).
Just let gold and silver rise without manipulation.
There is always manipulation - the very act of instigating a new structure benefits certain individuals , money is a human construct - although certain models can convert thermodynamics into more efficient end uses.
Could this trade involve some BIS IOU'S?
Yeah.. I dreamed.. that JFK stopped paying the FED interest and got shot for it... then I dreamed the Sadaam started trading Iraq Oil in Euro's and he ended up hanged ... my most recent dream was Iran trading Oil in Gold and Silver and then i woke up but I can fill in the blanks....
Gold can be very bad investment, or gold can bring the highest return ever.
Instead buying on dips, investors should just order the round trip shipping of the gold.
If each investor instead buying the next oz of gold would just order the round trip shipping of their physical gold, the price would skyrocket.
Imagine you have few oz of gold and the round trip will cost your around few hundred $$ ( vs. another oz of gold).
There would be race to the bottom for those who would order the round trip last.
Other than paying monkeys to move gold, I can find NO VALUE in your logic!
Anyone in the Persian Gulf will tell you that the gold sent to Iran will quietly make its way to Dubai by ferryboat in trucks. The leadership of Iran knows that it may have to escape quickly and wants to place its assets where it can get to it. In Dubai, hundreds of thousands of East Indians do all the labor and send the money back to India. This is a bit simplified but it does make the point that in the Middle East gold is money.
Every country that has entertained the notion of transacting oil in anything other than dollars has been invaded. I think either the ship will be stopped in the Persian gulf and the Au confiscated, or Iran will be invaded.
You know they can ship it in submarines like Mexican drug cartels smugling drugs to US?!
Iran will not be invaded.
Surpriced now??
Wait untill your local gas station starts
demanding payment in gold and silver.
All the signs pointing in one direction,
still a little time left to prepare.
Respect the India people for saving
their little wealth into PM.
Jim Rickards's latest tweet - "Gold is where the velocity goes to die. MV = pY".
does mike krieger live in palm beach county?.....think tyler H/T'd the wrong mike
first india dumps F16s on favor of russkies, and now this?
well well weell... it's time to unleash "the Pakis" !
"Gold still represents the ultimate form of payment in the world." Alan greenspan
This is like telling the Hell's Angels you're gonna start buying your oxy from someone across town 'cuz it's cheaper.
It makes you really wonder what the gold swap arrangements between central banks really are. I doubt that any real gold would switch hands for this. But if this is a bluff, it's a really good one. I think it's India's way of telling the US military to get the fuck out of the region. As I tell my military friends, "don't assume the US government won't abandon you on the battlefield."
I've said it before and I'll say it again. I work hard so I can buy coins with fierce animals on them. If my pay would not buy coins with fierce animals on them I would not work. Apparently these coins (the gold ones at least) can now buy the most valuable commodity in the world. So now I know that my fierce animal coins are not only friggin awesome but they are probably now the currency of 1st resort.
so you must own some austalian lunar mice, isle of man cats (household kind) and chinese pandas
so you must own some austalian lunar mice, isle of man cats (household kind) and chinese pandas
You forgot Aussie Koalas. They're cute but ferocious if their young are threatened. So are the Pandas. Don't mess with a mama Panda.
I want one with a water buffalo on it. Water buffalo will find predator kitty children and do a kooky dance on them till their stuffing falls out. Then they'll go eat some grass knowing nobody will be climbing on their backs trying to bite through thier spine in the middle of their salad bar.
Damn, and I have no fierce animals, just Maples. Beautiful, shiny maples.
The whole thing doesn't make sense.
India must be truely desperate if they really consider such a move. With todays gold price, how long will their gold last when they exchange it for oil? Doing the swap now will look even more stupid than Gordon Browns sell off of UK gold at market low.
They are brilliant. They will lock in the price of oil at a very low price because they are offering a real currency. Chances are they will have locked in a price of about $50/bbl (oil) in gold at current prices. They will be immune from the machinations and maniupulations of the commodity exchanges.
I'm curious if someone will offer gold for silver!
Let's see. According to Wikipedia, India has 557.7 tons of gold. Not sure if that includes the purchased 200 tons from the IMF, so lets just add them on top and assume India has 757.7 tons of gold.
757.7 tons = 757,700.0 kg = 24,360,621 ounces gold
24,360,621 ounces gold = 33,300,968,462.79 USD (at 1367 USD/ounce [2])
33,300,968,462.79 USD = 373,120,094.82 barrels oil (at 89.25 USD/barrel [3])
According to the CIA factbook [4], India is consuming 2,980,000 barrels a day, so after 125 days they have used up all their gold. 125 days till all their gold reserves were literally burned. Even if they locked in on 50 USD/barrel, then its 223 days.
And these numbers are even optimistic as the CIA numbers are based on 2009. I'am pretty sure their consumption did increase since then.
So what happens after those 125 / 223 days? You think Iran is going back to happily accept pieces of papers (aka USD) again? I think this whole thing nicely illustrates that you can easily print USD, but you can't print gold. Showing Iran that you are also willing to give them gold for oil is IMHO a very dangerous game for all of us (major currency issuers).
[1] http://en.wikipedia.org/wiki/Gold_reserve
[2] http://www.kitco.com/gold.londonfix.html
[3] http://finance.yahoo.com/q?s=CLG11.NYM
[4] https://www.cia.gov/library/publications/the-world-factbook/rankorder/21...
Quoting FOFOA post here (which is worth a read). Yes it's an old post so the numbers are a bit low! Your above calculations assume 1oz = $1367 and 1 barrel = $89. What about if it was just 1oz = 1000 barrels, with no USD in the middle? --
Answer : Freegold.
Further to this idea --
In India's case
24,360,621 ounces gold = 24,360,621,000 barrels of oil = 8,174 days or 22 years supply. Lot of assumptions there, but I think you can see it gives you different results to your calculations.
Thanks for the link, will read it tomorrow (already pretty late on my side of the pond).
So just some general thoughts: What my little calculation brought home to me is just how much undervalued gold really is. If a nations "wealth" (gold) can be consumed in such a short time, then it isn't valued high enough. It just doesn't feel right/proper that current numbers result in "all your gold" for "125 days worth of oil".
Also the fact that your gold is simply gone - without any chance to create new one - shows how valuable it really is.
Maybe it is far fetched, but one might see this conceptually related to the end of Bretton Woods, when Nixon basically acted on the realization that US would run out of gold soon if stay with the convertability of paper into physical gold.
They'd have to work out deals to sell other goods and services back to the Iranians in gold or gold backed paper of some kind to keep it flowing back and forth. If it could be done that simply.
But you can't EAT gold! Hell you can't eat oil either .....
"We have written a letter to NIOC ( National Iranian Oil Company )) asking it to suggest a bank where US sanctions are not applicable"
The Fed would be happy to oblige, paying in gold even. Of course the 'gold' would be stored safely at the Fed and gold payments processed quickly & efficiently through the Fed clearing house.
From Iran: http://www.presstv.ir/detail/158783.html
Fool me once, shame on you...
If Iran takes delivery of large amounts of physical gold, they will surely be invaded by the Bill Daley administration.
emptyThe owners of the USD plantation will not be pleased at this circumvention of their anti-money laundering scam.
http://www.bloomberg.com/news/2011-01-11/singh-calls-meeting-with-minist...
Onions bitchez!
Said it here a few weeks ago. Onions will bring the masses out on the street in India before any stock market action.
ORI