Opec considers ditching the dollar

Business Report ^ | 9/10/04 (Asia)

[Rams82]

Opec considers ditching the dollar

Algiers- As the US dollar continues its slide against world currencies, should oil, the most valuable global commodity, now be priced in euros?

The Organization of Petroleum Exporting Countries (Opec) is having a think about the relative merits of abandoning the greenback for the European single currency, and some analysts expect it to be discussed at the powerful oil cartel's special meeting in Algiers on Tuesday.

"I would be surprised if the question was not examined" in Algiers, a source close to Opec said at the cartel's Vienna headquarters.

Opec's current secretary general, the Venezuelan Alvaro Silva, recently indicated that the question was being mulled by the 11-member group, which has massive influence over global oil prices and production.

"We are speaking about negotiating for crude in euros. It is possible that the organization will discuss this and take a decision at a given moment", Silva said.

Qatar's energy minister, Abdullah bin Hamad al-Attiya, admitted that oil-producing states were worried in mid-January, when the euro hit an unprecedented high of $1.2898. But, he added, "the passage from one currency to another is a difficult decision."

After its free-fall slide in January, the dollar has recovered slightly to hover around 1.27 to the euro, but countries are still reeling from the currency instability while exporters who price their goods in dollars have complained of continued drop in profits.

At Opec's last meeting, held in Vienna in December, the member states, responsible for one-third of the world's oil production, complained that their oil profits were down 25 to 30 percent due solely to dependence on the dollar.

Adopting the euro, the currency of 12 of the European Union's 15 current members, would call for a major overhaul in world oil trading, but the idea has been circulating since before its introduction in 2002 .

At a conference on the "hidden threats of currency crises" back in March 2001, Venezuela's ambassador to Russia Francisco Mieres-Lopez first publicly evoked a possible switch.

"With all this talking, the euro makes slowly and surreptitiously its way in the price fixing mechanism," an analyst at the Dresdner-Kleinwort-Wasserstein brokerage firm in London said.

"What's more, Russia, one of Opec's competitors, has been threatening for several months now to switch its oil market to euros", the source said.

The question has now built into a behind-the-scenes battle of minds at Opec, which groups Algeria, Kuwait, Indonesia, Iran, Iraq, Qatar, Libya, Nigeria Saudi Arabia, the United Arab Emirates and Venezuela.

Post-war Iraq remains outside of the cartel's quota system, which has currently fixed the group's output at 24.5 million barrels per day.

Saudi Oil Minister Ali al-Nouaimi, whose country is considered the cartel's heavyweight, Opec Secretary General Purnomo Yusgiantoro of Indonesia and Algerian Energy Minister Chakib Khelil have ruled out switching to the euro.

Their Opec partners, however, are not as categorical.

"If the dollar/euro value remains the same in 2004 as in 2003, prices will climb to unrealistic levels," said Hojjatollah Ghanimifard, acting deputy for international affairs at the National Iranian Oil Company.

A trader at the Rothschild bank in London added: "Trading in petrol involves enormous sums of money. If the dollar loses its role as a currency of reference, the United States, the world's largest oil importer, will no longer be able to have outside countries finance its abyssal trade deficit."

He said it was unlikely that the price of crude would be quoted in euros in the near future but down the line prices could be fixed in line with a "basket" of currencies -- "dollar, euro or yen". - AFP

[arkfreepdom]

Whatever. If they think any currency is going to be more stable than the dollar in the long run....have at it.

[rastus macgill]

Some of my conspiracy-minded friends tell me the threat of pricing oil in euros led to the Iraq war.The story goes that Saddam was a proxy for the French.

[Mr Spock]

Interesting. If they did switch to the Euro, wouldn't that mean that oil prices would cost us more now being that the dollar is falling compared to the Euro?

[Mr Spock]

Some of my conspiracy-minded friends tell me the threat of pricing oil in euros led to the Iraq war.The story goes that Saddam was a proxy for the French

It's a possibility I suppose. I don't think we'll ever know the real agenda behind the war. I'll bet my lucky dime that it had something to do with money $$$$ though :).

[July 4th]

It will cost us more in the long run as purchasing oil will take more than one transaction - the purchase and the hedge. We don't need to worry about currency fluctuation at the moment, so changing to euros would add currency risk to a situation where there were none before.

[Rams82]

Hopefully it wont happen... If OPEC did switch the price would go up and many countries would sell their dollars hurting our abillity to fund deficits.

[the Real fifi]

It seems this threat is reported every month.

[Rams82]

True, but this recent one has something to do with the OPEC meeting tommorrow (or today in Asia).

[ChuckShick]

There's been a lot of conspiracists claiming Bush fought the war to stop the switch to the Euro. It's all bunk.

In April 2002, the head of OPEC's Market Analysis department said any change was premature, especially since the markets would need to make the change. OPEC can't do it on its own. OPEC currently draws its prices from the Brent, WTI (West Texas Intermediate), and Dubai markets which are priced in dollars and won't be changing anytime soon. It's a pipedream of the hate America crowd.

[Rams82]

Oops they are meeting in Europe. I don't know what time it right now in Vienna.

[Rams82]

I certainly hope so...

[Tallguy]

Some of my conspiracy-minded friends tell me the threat of pricing oil in euros led to the Iraq war.The story goes that Saddam was a proxy for the French.

In a world powered by petro-chemicals this is Big Stuff. It would basically mean that the Euro is replacing the Dollar as the world's 'reserve currency'. No more foreign investors financing the US Budget Deficits with their dollar-based investments.

I had also heard that Saddam was offering to price oil in Euro's and that he had in fact done so. Of course the French were supposed to aid him in getting the embargo lifted through their seat on the Security Council (remember that the Iraqis could only legally sell oil through the UN Oil-for-Food program). Not only didn't that happen, the French weren't able to prevent the US from invading.

[yankeedame]

Good lord, how many times have I read this story? (Well, not this particular story, but stories almost exactly like it; over the past 10 to 12 months at a minimum.)

[TexanAmerican]

What would OPEC do if we told them that if they proceeded to deal in Euros, we would start drilling in Alaska?

[Rams82]

OPEC which is filled with many Anti-U.S. countries could be bluffing to hurt the dollar.

[Red6]

The OPEC wanted to do this during the oil crisis. They offerd to use the German Mark and Germany declined.

Curency is itself a comodity that has a supply and demand. Already the Euro zone is feeling the crunch of a high valued Euro and what the impact is economically.

If they addopt the use of the Euro as the trading currency for oil it would push the value even higher, cripeling their already weak ecomomies even further.

The Euro zone is economically not on par with the US economy and can't deal with that kind of stress. At least not now.

As the Euro begins to compete with the dollar, as is happening you'll see a weakening of our currency and a strengthening of theirs. This actually works to our favor. Although the Euro conspiracy theorists don't see it that way.

I guess you should be carefull what you wish for.

Red6

[Solson]

OPEC switches to the Euro and we'll be drilling in Saudi Arabia... :)

[paul51]

I'll bet my lucky dime that it had something to do with money $$$$ though :).

No, no, no. You're forgetting, it was all about OIL. Remember?

[KellyAdmirer]

If they were going to do it, they should have done it a couple of years ago, when the dollar was 30% stronger. Now, they already have lost most of the gains from such a switch, as the dollar is a lot closer to a bottom - though not, I think, there yet, given the continuing huge US trade deficits. I hardly weep for these guys, though.