Oil should be priced in Euros Apr03
The eurozone is the biggest importer of oil in the world yet oil trading on the world market still takes place mainly in US dollars.
Oil rich Arab countries have huge liquid and real assets in the USA, however, these investments have given them little political influence over US policy in securing peace in the Middle East. If oil was partly issued in Euros, some of this investment would flow into the EU, creating new jobs and giving a huge boost to the Eurozone economies. Investment builds good trading relations and similarly, good economic partnerships are able to influence politics. The EU would consequently be a stronger broker for settling many disputes that have set the Middle East ablaze.
The oil rich nations could sell their oil to the USA in US$, to the EU in Euros and in either currency to the rest of the world. This would allow them to invest both in the USA and Europe increasing their influence with both power blocks. The Arab countries, in particular, would gain substantial influence in the UN, in Washington and the EU capitals. Oil trading in Euros would also boost and stabilise the Euro against the US$. European interest rates would fall and it is likely that a parity would be achieved and maintained for the two major world currencies.
Let us hope that the EU will take a lead in persuading the oil rich nations in the Middle East to formulate a scheme for the purchase of oil in Euros. This would end economic stagnation in the EU, kick-start genuine negotiations in securing a just settlement in Palestine and remove the root cause of terrorism.
Oil in Euros
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I don't think so
there was an economic embargo
they sold it for food and medicines
the oil-for-food program it was called I think
there was an economic embargo
they sold it for food and medicines
the oil-for-food program it was called I think
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Irak could sell a part of its oil to the United Nations, which gave it money to buy food and medicine. An bank account had been opened in dollars... and Saddam Hussein asked to the UN to convert this account in euros.!Pretfles! wrote:I don't think so
there was an economic embargo
they sold it for food and medicines
the oil-for-food program it was called I think
Other countries prefer to trade in euros for political reasons: Cuba, North Korea... or because their money is linked with the euro. Most of them are in Eastern Europe and Africa. Latin America is more linked to the $ and Asia to the Yen.
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thats why I used a past tense 
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Re: Oil in Euros
Wouldn't this simply create a relation between the EU and the Arab countries similar to the one they have with the US? I really would like oil to be priced in Euros, but will this be good to the Arab countries? If they have huge assets in the US (in what was, until very recently, considered the strongest and most liable currency in the world) and still can't influence them, why would things be different with the EU and Euro?JohnS wrote:The oil rich nations could sell their oil to the USA in US$, to the EU in Euros and in either currency to the rest of the world. This would allow them to invest both in the USA and Europe increasing their influence with both power blocks. The Arab countries, in particular, would gain substantial influence in the UN, in Washington and the EU capitals. Oil trading in Euros would also boost and stabilise the Euro against the US$. European interest rates would fall and it is likely that a parity would be achieved and maintained for the two major world currencies.
Let us hope that the EU will take a lead in persuading the oil rich nations in the Middle East to formulate a scheme for the purchase of oil in Euros. This would end economic stagnation in the EU, kick-start genuine negotiations in securing a just settlement in Palestine and remove the root cause of terrorism.
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When will we buy oil in e
When will we buy oil in euros?
When it comes to the global oil trade, the dollar reigns supreme. But it has a challenger, writes Faisal Islam
Faisal Islam
Sunday February 23, 2003
The Observer
Whether the price of oil is surging to new highs, as it is today, or slumping, as is predicted after a war in Iraq, there is one enduring constant: the dollar sign.
Oil trading, whether from Norway to the Netherlands, Britain to Bermuda, or Bahrain to Bangladesh, operates through the US greenback.
The oil-dollar nexus is one of the foundations of the world economy that inevitably filters through to geopolitics. Recycling so-called petrodollars, the proceeds of these high oil prices, has helped the United States run its colossal trade deficits. But the past year has seen the quiet emergence of the 'petroeuro'.
Effectively, the normal standards of economics have not applied to the US, because of the international role of the dollar. Some $3 trillion (£1,880 billion) are in circulation around the world helping the US to run virtually permanent trade deficits. Two-thirds of world trade is dollar-denominated. Two-thirds of central banks' official foreign exchange reserves are also dollar-denominated.
Dollarisation of the oil markets is one of the key drivers for this, alongside, in recent years, the performance of the US economy. The majority of countries that require oil imports require dollars to pay for their fuel. Oil exporters similarly hold, as their currency reserve, billions in the currency in which they are paid. Investing these petrodollars straight back into the US economy is possible at zero currency risk.
So the US can carry on printing money - effectively IOUs - to fund tax cuts, increased military spending, and consumer spending on imports without fear of inflation or that these loans will be called in. As keeper of the global currency there is always the last-ditch resort to devaluation, which forces other countries' exporters to pay for US economic distress. It's probably the nearest thing to a 'free lunch' in global economics.
And for a long time, everything has worked smoothly. The oil industry was born in Texas, and so developed in dollars. The complex web of supply chains, distribution, and futures markets, all run off the central rock that is the US dollar.
But now there is the euro. At the time of its launch, various overblown claims were made to its role as 'co-hegemon', sharing the spoils of reserve currency status. The rapid fall in the euro after its launch put paid to such suggestions. But the single currency has since rescued itself, reigniting talk of euro-ised oil. In fact, it's happening already.
Iraqi oil, two-thirds of which is being snapped up by US companies, can only be paid for in euros.
'It was a political move on the part of the Iraqi government to show that the euro could be a substitute for the dollar in denominating the oil price,' says Fadhil Chalabi of the Centre for Global Energy Studies.
That move was made in the same week that the euro reached its historic low of $0.82 in October 2000. The subsequent 30 per cent rise in the euro has greatly helped the United Nations' oil-for-food programme in Iraq.
Soon afterwards, Jordan launched its own bilateral trade scheme with Iraq, carried out entirely in euros.
Last year, in a little noticed Opec speech to a Spanish Finance Ministry conference, Javad Yarjani, a senior Iranian oil diplomat, said: 'It is quite possible that as bilateral trade increases between the Middle East and the European Union, it could be feasible to price oil in euros. This would foster further ties between these trading blocs by increasing commercial exchange, and by helping attract much-needed European investment in the Middle East.'
Yarjani said the 'critical question is the overall value and stability of the euro, and whether other countries within the union adopt the single currency'.
The first point is beginning to be answered. The second refers to Britain and Norway. If either joins the single currency, the key Brent benchmark could be redenominated in euros, offering an impetus to movers within Opec.
The rising value of the euro makes redenomination in the immediate financial interest of European oil majors such as TotalFinaElf and Shell. Over the past year both companies have seen profits gobbled up by the dollar slump, as their profits are calculated in euros. Opec member countries too would have a strong interest in moving to euros. The eurozone is the biggest importer of oil in the world and 45 per cent of Middle East imports are from Europe. Even US oil majors would benefit from selling their oil in a currency that is increasing in value, say US energy consultants.
The Iranian and Russian parliaments have recently discussed adopting the euro for oil sales.
Last year Russia entered into negotiations with Germany over the establishment of an exchange to sell oil futures denominated in euros. Russia, which on some measures is the world's Number 1 oil producer at the moment, is awash with petrodollars, but trades mainly with Europe. Russia's foreign exchange holdings recently reached an all-time high of $50bn.
At the moment, European consumers are benefiting from the link between oil and the dollar. The euro's surge has, in effect, paid for much of the increase in the price of oil. This, however, is just the flipside of the very high prices in France and Germany in Autumn 2000, which were a combination of a very weak euro and high oil price. US consumers have no such additional worries, as there is no currency risk.
So there is a huge list of potential winners from a move to price oil in euros, but movement remains slow.
'At various points in time since the early 1970s, oil producers have discussed this, especially in periods when the dollar has been weak. Opinions have tended to be wide-ranging, depending on the strategic and trade alliances certain members have with particular trade blocs,' said Yarjani.
That was an elliptical reference to the overwhelming influence of Saudi Arabia, whose government is the staunchest ally of the US within Opec.
'The Saudis are holding the line on oil prices in Opec and should they, for example, go along with the rest of the Opec people in demanding that oil be priced in euros, that would deal a very heavy blow to the American economy,' Youssef Ibrahim, of the influential US Council on Foreign Relations, told CNN.
Last year the former US Ambassador to Saudi Arabia told a committee of the US Congress: 'One of the major things the Saudis have historically done, in part out of friendship with the United States, is to insist that oil continues to be priced in dollars. Therefore, the US Treasury can print money and buy oil, which is an advantage no other country has. With the emergence of other currencies and with strains in the relationship, I wonder whether there will not again be, as there have been in the past, people in Saudi Arabia who raise the question of why they should be so kind to the United States.'
Historically, empires have been exporters of capital, rather than importers like the US. The dollar has been vital to this revolution. At the euro's launch Martin Feldstein, a Harvard economist, pointed to the possibility that the single currency could weaken the status of the dollar to the extent that it 'could complicate international military relationships'. Feldstein is an outside contender to replace Alan Greenspan at the Federal Reserve.
Oil pricing is just the background to a wider issue. The Bank of China and the Russian Central Bank are both rumoured to be waiting for the best moment to increase the holdings of euros. Only 5 per cent of Chinese reserves are held in euros, but more than 20 per cent of its trade is with Europe. Middle Eastern states hold $700bn of US assets, but comparatively little in Europe.
So is the euro the missing link between the 'axis of evil' and the 'axis of weasel'? It is greatly appreciated in the former and was invented in the latter. Research by State Street shows that the euro has gained 'safe haven' status since last August as the dollar has lost it. It's likely this shift is a temporary phenomenon. Petroeuros may just change that.
Guardian Unlimited © Guardian Newspapers Limited 2003
When it comes to the global oil trade, the dollar reigns supreme. But it has a challenger, writes Faisal Islam
Faisal Islam
Sunday February 23, 2003
The Observer
Whether the price of oil is surging to new highs, as it is today, or slumping, as is predicted after a war in Iraq, there is one enduring constant: the dollar sign.
Oil trading, whether from Norway to the Netherlands, Britain to Bermuda, or Bahrain to Bangladesh, operates through the US greenback.
The oil-dollar nexus is one of the foundations of the world economy that inevitably filters through to geopolitics. Recycling so-called petrodollars, the proceeds of these high oil prices, has helped the United States run its colossal trade deficits. But the past year has seen the quiet emergence of the 'petroeuro'.
Effectively, the normal standards of economics have not applied to the US, because of the international role of the dollar. Some $3 trillion (£1,880 billion) are in circulation around the world helping the US to run virtually permanent trade deficits. Two-thirds of world trade is dollar-denominated. Two-thirds of central banks' official foreign exchange reserves are also dollar-denominated.
Dollarisation of the oil markets is one of the key drivers for this, alongside, in recent years, the performance of the US economy. The majority of countries that require oil imports require dollars to pay for their fuel. Oil exporters similarly hold, as their currency reserve, billions in the currency in which they are paid. Investing these petrodollars straight back into the US economy is possible at zero currency risk.
So the US can carry on printing money - effectively IOUs - to fund tax cuts, increased military spending, and consumer spending on imports without fear of inflation or that these loans will be called in. As keeper of the global currency there is always the last-ditch resort to devaluation, which forces other countries' exporters to pay for US economic distress. It's probably the nearest thing to a 'free lunch' in global economics.
And for a long time, everything has worked smoothly. The oil industry was born in Texas, and so developed in dollars. The complex web of supply chains, distribution, and futures markets, all run off the central rock that is the US dollar.
But now there is the euro. At the time of its launch, various overblown claims were made to its role as 'co-hegemon', sharing the spoils of reserve currency status. The rapid fall in the euro after its launch put paid to such suggestions. But the single currency has since rescued itself, reigniting talk of euro-ised oil. In fact, it's happening already.
Iraqi oil, two-thirds of which is being snapped up by US companies, can only be paid for in euros.
'It was a political move on the part of the Iraqi government to show that the euro could be a substitute for the dollar in denominating the oil price,' says Fadhil Chalabi of the Centre for Global Energy Studies.
That move was made in the same week that the euro reached its historic low of $0.82 in October 2000. The subsequent 30 per cent rise in the euro has greatly helped the United Nations' oil-for-food programme in Iraq.
Soon afterwards, Jordan launched its own bilateral trade scheme with Iraq, carried out entirely in euros.
Last year, in a little noticed Opec speech to a Spanish Finance Ministry conference, Javad Yarjani, a senior Iranian oil diplomat, said: 'It is quite possible that as bilateral trade increases between the Middle East and the European Union, it could be feasible to price oil in euros. This would foster further ties between these trading blocs by increasing commercial exchange, and by helping attract much-needed European investment in the Middle East.'
Yarjani said the 'critical question is the overall value and stability of the euro, and whether other countries within the union adopt the single currency'.
The first point is beginning to be answered. The second refers to Britain and Norway. If either joins the single currency, the key Brent benchmark could be redenominated in euros, offering an impetus to movers within Opec.
The rising value of the euro makes redenomination in the immediate financial interest of European oil majors such as TotalFinaElf and Shell. Over the past year both companies have seen profits gobbled up by the dollar slump, as their profits are calculated in euros. Opec member countries too would have a strong interest in moving to euros. The eurozone is the biggest importer of oil in the world and 45 per cent of Middle East imports are from Europe. Even US oil majors would benefit from selling their oil in a currency that is increasing in value, say US energy consultants.
The Iranian and Russian parliaments have recently discussed adopting the euro for oil sales.
Last year Russia entered into negotiations with Germany over the establishment of an exchange to sell oil futures denominated in euros. Russia, which on some measures is the world's Number 1 oil producer at the moment, is awash with petrodollars, but trades mainly with Europe. Russia's foreign exchange holdings recently reached an all-time high of $50bn.
At the moment, European consumers are benefiting from the link between oil and the dollar. The euro's surge has, in effect, paid for much of the increase in the price of oil. This, however, is just the flipside of the very high prices in France and Germany in Autumn 2000, which were a combination of a very weak euro and high oil price. US consumers have no such additional worries, as there is no currency risk.
So there is a huge list of potential winners from a move to price oil in euros, but movement remains slow.
'At various points in time since the early 1970s, oil producers have discussed this, especially in periods when the dollar has been weak. Opinions have tended to be wide-ranging, depending on the strategic and trade alliances certain members have with particular trade blocs,' said Yarjani.
That was an elliptical reference to the overwhelming influence of Saudi Arabia, whose government is the staunchest ally of the US within Opec.
'The Saudis are holding the line on oil prices in Opec and should they, for example, go along with the rest of the Opec people in demanding that oil be priced in euros, that would deal a very heavy blow to the American economy,' Youssef Ibrahim, of the influential US Council on Foreign Relations, told CNN.
Last year the former US Ambassador to Saudi Arabia told a committee of the US Congress: 'One of the major things the Saudis have historically done, in part out of friendship with the United States, is to insist that oil continues to be priced in dollars. Therefore, the US Treasury can print money and buy oil, which is an advantage no other country has. With the emergence of other currencies and with strains in the relationship, I wonder whether there will not again be, as there have been in the past, people in Saudi Arabia who raise the question of why they should be so kind to the United States.'
Historically, empires have been exporters of capital, rather than importers like the US. The dollar has been vital to this revolution. At the euro's launch Martin Feldstein, a Harvard economist, pointed to the possibility that the single currency could weaken the status of the dollar to the extent that it 'could complicate international military relationships'. Feldstein is an outside contender to replace Alan Greenspan at the Federal Reserve.
Oil pricing is just the background to a wider issue. The Bank of China and the Russian Central Bank are both rumoured to be waiting for the best moment to increase the holdings of euros. Only 5 per cent of Chinese reserves are held in euros, but more than 20 per cent of its trade is with Europe. Middle Eastern states hold $700bn of US assets, but comparatively little in Europe.
So is the euro the missing link between the 'axis of evil' and the 'axis of weasel'? It is greatly appreciated in the former and was invented in the latter. Research by State Street shows that the euro has gained 'safe haven' status since last August as the dollar has lost it. It's likely this shift is a temporary phenomenon. Petroeuros may just change that.
Guardian Unlimited © Guardian Newspapers Limited 2003
Re: Oil in Euros
I think the main point for this is: what do the oil sellers want?JohnS wrote:Oil should be priced in Euros Apr03
(...)
Let us hope that the EU will take a lead in persuading the oil rich nations in the Middle East to formulate a scheme for the purchase of oil in Euros. This would end economic stagnation in the EU, kick-start genuine negotiations in securing a just settlement in Palestine and remove the root cause of terrorism.
-> they want to keep their income, whatever the currency is used.
For the moment, they keep their influence on the US politics. They get money. Why would they mind about the euro?
They will switch to the euro only when their interests will be in game.
- if the main oil sellers move to the euro too (Russia, Nigeria, Norway, UK...)
- if London Stock Exchange switches to euro (most of the oil trades are made in london).
- if the other goods are trade in euros, so they need euros to buy primary and manufactured goods...
There is a law of "inertie". The British Pound collapsed in the 1930's after the Great Depression, but kept a kind of influence untill the Second World War. Dollars officially collapsed in the 1970's with the quit of the Bretton Woods agreeements. It had the advantage not to have a challenger, which is not the case since 1999.
Monetary affairs take it slow. I am sure the situation will be rather different in one decade or two.
Last edited by Olivier on Wed Oct 01, 2003 6:04 am, edited 1 time in total.
Re: Oil in Euros
Actually, it won't change much if the European Union buys its oil in euros. The main thing is that the Arabs invest their petro-dollars in the USA.BogPoet wrote: Wouldn't this simply create a relation between the EU and the Arab countries similar to the one they have with the US? I really would like oil to be priced in Euros, but will this be good to the Arab countries? If they have huge assets in the US (in what was, until very recently, considered the strongest and most liable currency in the world) and still can't influence them, why would things be different with the EU and Euro?
As soon as the deficits and the debts will appear too huge, they will probably decide to invest in Europe, Japan, China or somewhere else...
A good way not to suffer from moving exchange rates between the currency they use to sell ($) and the currency they use to invest (euro, yen, yuan...) is to sell in the same currency. The best challenger is, of course, the euro.
The first Oil Chock (1973) was caused because of political reasons (against Israel and the USA) but also because the collapse of the dollar in the early 70s suddenly prevented them from making as much money as they did in the 60s... because of the dollar unstability.
They simply increased the prices in $ to make as much dinars/riyals...
About influence... the Arabians country lost a part of their influence in the USA because:
- they have started to put their money elsewhere than in the USA (they are smart! Don't put all your eggs in the same basket).
- today the US debt is owned by Japan (the majority) and China (41% - 121 billions of Treasury vouchers).
The dollar will keep its privilege untill the confidence vanishes... which is to come sooner or later.
It's just a question of months or years. Not of decade.The decision of hanging the USA economy will be taken... in Beijing!
If I was Taiwanese, I would be very afraid...
Last edited by Olivier on Wed Oct 01, 2003 6:11 am, edited 1 time in total.
The Islamic countries have discovered that the euro can be used as a monetary weapon...When will we buy oil in e wrote: Last year, in a little noticed Opec speech to a Spanish Finance Ministry conference, Javad Yarjani, a senior Iranian oil diplomat, said: 'It is quite possible that as bilateral trade increases between the Middle East and the European Union, it could be feasible to price oil in euros. This would foster further ties between these trading blocs by increasing commercial exchange, and by helping attract much-needed European investment in the Middle East.'
GW Bush has focused his anger against the Arabs and the Islamic countries, which are not the same! Don't forget that Iran, Nigeria and Indonesia are not arabic but are islamic.
He should be aware that a switch to the euro can be decided as quickly as the Oil producers did in 1973... An OPEC decision would be enough.
The USA are helped in the way that the arab leaders are holding the power just because of the US support. If the USA collapsed in a major recession, we would see revolutions in Saudi Arabia, Egypt, Jordan...
The markets don't like revolutions. The euro will take the main place but little by little.
This is the most important point. Stability of the currency!When will we buy oil in e wrote: Yarjani said the 'critical question is the overall value and stability of the euro, and whether other countries within the union adopt the single currency'.
Because if the debt and deficits, people lost confidence into the dollar already 30 years ago.
The euro has been created to stabilise the european economy. Duisenberg and Trichet are "ayatollah" of stability and "no-inflation". It sounds nice for the rich people... That's why France and Germany must respect the Stability Pact.
That would be the declic for the rest of the world, not only for the oil market but also for the other goods. Gold will follow Oil...When will we buy oil in e wrote: The first point is beginning to be answered. The second refers to Britain and Norway. If either joins the single currency, the key Brent benchmark could be redenominated in euros, offering an impetus to movers within Opec.
The European Union will be soon have 450 consumers, and among them 300 are already using the euro. The euro has already become a major currency.
Furthermore, the EU is the main trade partner of Russia (I don't know for Iran).When will we buy oil in e wrote: The Iranian and Russian parliaments have recently discussed adopting the euro for oil sales.
Right... And Bush has forgot this point for the other producers...When will we buy oil in e wrote: Last year the former US Ambassador to Saudi Arabia told a committee of the US Congress: 'One of the major things the Saudis have historically done, in part out of friendship with the United States, is to insist that oil continues to be priced in dollars. Therefore, the US Treasury can print money and buy oil, which is an advantage no other country has. With the emergence of other currencies and with strains in the relationship, I wonder whether there will not again be, as there have been in the past, people in Saudi Arabia who raise the question of why they should be so kind to the United States.'
He did not want to sea that the Hijackers who crached their planes of the WTC were in majority saudi citizens... as Ben Laden is.
Their problem is how to sell $ without losing too much money...When will we buy oil in e wrote: The Bank of China and the Russian Central Bank are both rumoured to be waiting for the best moment to increase the holdings of euros. Only 5 per cent of Chinese reserves are held in euros, but more than 20 per cent of its trade is with Europe. Middle Eastern states hold $700bn of US assets, but comparatively little in Europe.
Interesting article!!When will we buy oil in e wrote: Petroeuros may just change that.
Olivier
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John S
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Is the end to dollar hegemony in sight?
I found these very interesting articles:
http://www.simedia.org/new/soc-econ-pol ... lapse.html
http://www.atimes.com/atimes/Global_Eco ... 4Dj02.html
http://www.simedia.org/new/soc-econ-pol ... lapse.html
http://www.atimes.com/atimes/Global_Eco ... 4Dj02.html