By Mahmood Khaghani 

From America First to Energy First 

November 26, 2018 - 11:19

 America First Anyone who has read Trump's book “Art of the Deal”, as I have several times since buying the book when it was published, will understand that the rules of Trump's America First policies are very different to the current multilateral rules of the global game. 

Most countries, not least Iran, view President Trump through the same lens as they viewed his predecessors, who worked within established global rules and norms. 

I interviewed Chris Cook of the Institute for Strategy, Resilience & Security at University College London at length with respect to his assessment of President Trump and his America First foreign policy. 

Cook began by saying that in order to understand President Trump's actions and America First doctrine it is necessary to understand Trump as a businessman and a person.

Trump the Businessman

Cook stated, and I agree, that President Trump is first and foremost a businessman, and he suggested that Trump's worldview is that of a Chief Executive of U.S. Incorporated. So Trump's America First worldview is transactional, pragmatic, neutral and non-ideological based on the exercise of dominant market power in making bilateral deals in the interests of America First. Trump has no interest in or understanding of conventional geopolitical considerations, and no patience for conflicting ideologies or religions.
So, President Trump is throwing away the multilateral rules which have historically constrained the USA, and in his view destroyed much of USA industrial base, in favour of bilateral deals in which the USA exerts economic power, through policies such as Energy Dominance.
Cook pointed out that because Trump is rich, he is therefore not susceptible to control or influence by Wall Street and financial interests. However, in identifying U.S. commercial interests with his own, Trump transgresses the conventional rules of behaviour which govern U.S. Presidents.
Finally, and most important of all, Cook said that Trump's perspective as a life-long developer is fundamentally constructive. Trump understands that development creates value; that global nuclear war is bad for property prices; and that no-one undertakes suicide bombings for profit.

 Trump the Person

On whether Trump's America is bent on military domination, Cook said that in his view, President Trump is a pacifist, who detests violence. He pointed out that Trump has never once since taking office been to see U.S. troops and recently refused point blank to hear or see any of the horrific evidence in the Khashoggi case. 

As a developer, Cook said, Trump regards U.S. military expenditure increasingly complex, costly and functionally useless (but massively profitable) destructive weaponry simply as a waste of money. Trump prefers constructively addressing the $multi-trillion backlog of deteriorating U.S. civil infrastructure, and creation of 21st Century U.S. transport and energy infrastructure. Trump sees the U.S. network of military bases and colossal naval fleet as largely redundant which address military threats which ended decades ago, but which it suits the military-industrial complex to pretend still exist. 

Finally, I asked his view of President Trump as a person. Cook's view is that Trump tries hard to demonstrate that he is a family man genuinely interested as human beings in the people he meets and above all their families, which for Trump is a high priority. Furthermore, he wishes to demonstrate a genuine respect for other cultures and religions, and this respect is reinforced by his deeply religious Vice President Mike Pence.

Cook added that it is a major mistake to judge President Trump by his words, which change from day to day and moment to moment: Trump should be judged by his actions.

Cook concluded by saying that Trump and his close advisers are conducting reality-based policy, which is to act, and continue to act, forcing others constantly to react and reflect while Trump moves on to act again.

I drew from these insights that neither Iran nor any other country can engage Trump's America First policy within U.S. rules of dollar economics and dollar diplomacy. We currently see the U.S. is attempting to impose its will on a deeply frustrated (but in some ways equally ambitious) European Union. Since the founding of the Euro, the European Central Bank and EU have aimed to obtain petroleum backing for the € (PetroEuro) from bank debt claims over oil & gas (energy) thereby enabling the EU both to secure supply and to escape from U.S. financial hegemony.

As Cook pointed out, the attempt of the UK, France & Germany to set up a special purpose vehicle (SPV) to enable Iran to clear payments is doomed to failure because no major bank wishing to conduct business in dollars will use it.

A Fintech Clearing Solution?

So in order to address Trump's America First policies a new set of rules (institutions) and instruments is now needed for the global economy. Cook believes that a new generation of financial technology (Fintech) is now emerging entirely outside the existing system and that this will provide an opportunity for Iran to engage the U.S. within a new services market paradigm – Energy First.

Energy First

I asked Mr. Cook to explain first what is meant by Energy First strategy and secondly how it may be implemented without resistance from those who benefit from the existing commodity market paradigm.

He said that it has been clear for some time that the energy market is evolving from a capital-intensive commodity market to a smart services market based upon what he terms intellectual capital (and which Exxon terms the Fifth Fuel) which requires fewer physical resources and financial capital. What he meant by this is that people do not use oil and gas; they use energy as a service delivered to them by utilities, such as heat or cooling, power for transport, lighting and even water.

He added that such a market in energy services is not an alternative to the existing commodity markets, but is additional or complementary to it.  Energy Financial Technology (Energy Fintech) has been the subject of his research and development interest for two decades and comprises new agreements which convert energy commodities to services by sharing risk, costs, surplus, and data, as well as new instruments for exchanging the intrinsic and objective value of energy.

I observed that Iran's introduction of oil sales by NIOC to the private sector at the Iran Energy Bourse was a conventional commodity exchange response to U.S. physical oil trading sanctions.  On the other hand, Venezuela's Energy Fintech response to funding difficulties within the dollar system involved the issuance of a Petro Coin as a currency again based on oil.

I then asked Chris Cook his views on these conventional (Iran) and complementary (Venezuela) financial oil market initiatives. He said: “Most Venezuelans and Iranians do not own an oil refinery and therefore oil is irrelevant to their daily needs for energy, which are typically delivered as a service by utilities. So while the Petro currency is in theory backed by oil, in practice the Petro instrument is merely a proof of payment conferring only an abstract right over oil reserves. Crucially, the Petro is not convertible for oil since it is not accepted in payment by Venezuelan National Oil Company- PDVSA as an alternative to dollars, Euros or Venezuelan Bolivars.  This lack of convertibility into useful energy renders the Petro meaningless and accounts for its failure as a policy initiative.

Meanwhile, Iran's Energy Bourse difficulty is that as a new physical oil market it must compete with massive Western oil exchanges and benchmarks, and buyers are susceptible to both financial and physical U.S. sanctions.”

Energy Fintech

Cook then went on to point out that a credit or token which can be used to pay for essential energy services is universally acceptable to the average person as a means of exchange or currency. This “Energy Credit Obligation” (ECO) instrument convertible for the utility of energy as a service has been proposed to the Scottish Parliament, and was presented at a recent conference in Moscow, following a visit he made earlier this year as a Senior Research Fellow at University College London to brief a Russian Deputy Minister.

At this point I consulted Ambassador Dr. Shams Ardakani, the current Head of Commission for Energy, Refinery and Petrochemical at the Iran Chamber of Commerce, Industries, Mines and Agriculture (ICCIMA) who is a retired Ambassador, but still a very active energy diplomat and has recently met EU officials.

His view of Mr. Cook’s innovative Energy Credit Obligation (ECO) proposal was positive and he observed: “As every energy economist and diplomat knows, energy has no nationality. In my view, the ECO could be implemented both domestically in Iran and internationally. The proposal is particularly relevant to cooperation with those countries which have shown they are honouring their signature on the JCPOA, and undoubtedly could resolve the current difficulties with the proposed SPV.” Ambassador Dr. Shams Ardakani further added that the ICCIMA is planning to follow up this new initiative purely on a private and academic basis. 

Energy Treasuries

Clearly, such an initiative cannot be introduced within the existing system for the simple reason that an ECO cannot be issued by banks because they do not supply energy.

So, it follows that the role of banks and states as institutions must also evolve to the provision of services such as risk management, administration, dispute resolution, standard setting, quality control and above all “Energy Loans” - introducing energy investors to investments in the flows of renewable energy and efficiency savings from new infrastructure required for Iran's transition to a sustainable low carbon 21st Century economy. 

Chris Cook explained:  “In the same way Germany, France & the UK are discussing a new institution outside the existing SWIFT messaging system from which Iran is now excluded, there is no reason why Iran's Central Bank, Petroleum and Energy Ministries should not likewise create new institutions.” Russia has already taken steps in developing an alternative to the Society for Worldwide Interbank Financial Telecommunication-SWIFT payment system. According to recent reports, the system envisions interweaving its operations between BRICS countries. This means that credit organizations and companies from this organization may join the Russian countertype of SWIFT. It is also reported that as of September this year, 416 Russian companies have joined the System for Transfer of Financial Messages (SPFS), including the Russian Federal Treasury and large state corporations including Gazprom Neft, Rosneft, and others. 

The concept of an “Energy Treasury”

Mr. Cook proposes, and Ambassador Dr. Shams Ardakani agrees, that the concept of an “Energy Treasury” which brings energy service providers together with banking service providers should be urgently explored and tested. Since energy services are of course delivered locally, proofs of concept at the local level in Iran are necessary. Such decentralized local initiatives will naturally require the participation of local authorities under the supervision of central authorities, with implementation by the private sector, and with access to research and development through a Resilience Network of academic institutions.

Such “Local Energy Treasuries” (LETs) would be responsible for accountancy, transparency and risk management in respect of Energy Credit Obligation (ECO) issuance. So, LETs would be members of regional energy treasuries, which in turn would be members of an Iranian National Energy Treasury, responsible for regional and national strategic issues. This concept may be implementable in cooperation with Energy Charter Secretariat, Economic Cooperation Organization Secretariat, and the EU & UK as well as with the World Bank to benefit regional and global energy security.

This seems to me a completely sensible domestic approach to energy policy which is likely to spread organically once the system becomes trusted. It would (especially if combined with reasonable amnesty concessions on a 'one-off' introductory basis) be likely to attract and mobilize the enormous amount of 'dark money' sitting in gold, dollars, and Euros throughout Iran.

These hoards of idle and unproductive wealth could be invested via Energy Loans in new and efficient energy infrastructure which offers an energy return in ECOs to the investors.

How can Iran pay for essential goods and services?

At this point, I returned to Mr. Cook and asked how Iran could access and pay for international goods and services urgently required. 

He replied: “Iran could propose to the EU and UK that in addition to conventional (but difficult, due to U.S. intimidation) sale of oil to European and UK refiners in exchange for Euros and UK pounds, Iran could supply oil under swap arrangements. In return for oil supplied, Iran would be entitled to a flow of products such as Euro 5 gasoline from European & UK refiners, in respect of which “Energy Credit Obligation” (ECO) credits returnable in payment for products could be issued. Such energy swaps and credit obligations, if mutually assured within an “Energy Clearing Union” guarantee framework, would give Iran the choice of either taking delivery of such gasoline, or of using ECOs in exchange for European & UK goods and services.”

By way of an illustration, I reminded Mr. Cook we had discussed oil for product swaps in the Greek context at the Delphi Economic Forum earlier this year, as well in articles published by the Tehran Times. However, resistance to the concept from certain Iranian business groups probably reflected the fact that transparency is the enemy of private profit.

I pointed out that there are those in Iran and elsewhere who profit from sanctions. Cook agreed, saying: “Sadly that is the case. But please consider the fact that if Hellenic Petroleum, which is a major regional supplier of oil products, were to enter into oil for product swaps, then Iran's entitlement to Hellenic “Energy Credit Obligation” ECOs would undoubtedly be accepted in payment by businesses throughout the region eager to supply goods and services to Iran but unable to access conventional bank payments. 

I could also imagine such swaps would work well with the Saras refinery in Sardinia and even the Grangemouth refinery in Scotland (which Iran supplied reliably for 60 years) which between them can supply products throughout the Mediterranean and North West Europe.”

In summary, since a conventional Clearing House, SPV is unlikely to work to any meaningful extent, an Energy Clearing Union agreement could guarantee the performance of ECO issuance and clearing between the EU, UK (even after BREXIT) and Iran. Mr. Cook considers that: “In the same way that Italy, Greece, Spain, and others could later be added to the SPV, so Russia, Turkey, and Caspian littoral nations, as well as Central Asian countries, could be added as members of an extended Eurasian Energy Clearing Union.” 

Energy for Peace

During my recent dialogue with Ambassador Dr. Shams Ardakani, he approved in principle the energy for peace strategy which the private and academic sectors may now actively implement based on Energy Swaps and Energy Credit Obligation (ECO) instruments to achieve an Energy First outcome.

The Energy for Peace strategy aims to gradually build trust and to fund redeployment of immense financial and intellectual resources from wasteful destructive technologies to the existential threats of climate change and depletion of finite resources.

Cook pointed out that humanitarian exemptions to sanctions such as medicines, food and water, and associated technologies have been ineffective due to the absence of payment channels, and that the ECO proposal may begin on this basis.

Such Energy for Peace humanitarian initiatives are not new: I myself was a member of a team initiated and implemented as part of HE Zanganeh's energy diplomacy just such an initiative in relieving the Republic of Azerbaijan’s (Nakhchivan Autonomous Republic) and the Republic of Armenia during winter fuel shortages in 2005.  


I hope that Mr. Cook's above commentary, analysis & Energy for Peace proposal could be given the attention they deserve by the relevant Iranian authorities, while Iran stands firm against current U.S. sanctions with minimal hardship. Mr. Cook believes that President Trump would also find it irresistible to create a constructive legacy as the U.S. President who led the introduction of a new era of global peace and prosperity through accepting an Iranian overture of Energy for Peace.

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