January 13, 2004
OPEC gets closer to pricing in Euros.
Writing in the
Globe and Mail, and based on Reuters reports, Patrick Brethour
reports that OPEC is moving closer to making the transition to pricing oil in euros, rather than dollars. This has been predicted, and it increasingly looks like it's going to happen.
CALGARY -- OPEC is considering a move away from using the U.S. dollar -- and to the euro -- to set its price targets for crude oil, the highest-profile manifestation of the debilitating effect of depreciation on the greenback's standing as the currency of international commerce.
Several members of the Organization of Petroleum Exporting Countries are seeking formal talks on using the euro, as well as the U.S. dollar, when determining price targets for crude, a senior oil minister within the cartel said yesterday. "There are countries that are proposing this," Venezuela's Oil Minister Rafael Ramirez said in Caracas. "It's out there, under discussion."
Mr. Ramirez did not specify which OPEC members are pushing the proposal, but much of the impetus is believed to come from Persian Gulf producers.
They have seen their purchasing power in Europe pinched as the U.S. dollar loses ground against the euro -- including touching a record low yesterday.
Any move to water down the use of the U.S. dollar as the currency would have enormous symbolic impact, said one prominent Canadian energy analyst.
"On a symbolic level, I think it's huge, not only for what it says about the U.S. dollar, but also the implied change to the nature of energy trading worldwide in the future," said Wilf Gobert, vice-chairman of Peters & Co. Ltd.
Beyond the blow to the greenback's prestige, a move by OPEC to even partly price in euros would ensure that any further depreciation in the U.S. dollar boosts oil prices, Mr. Gobert said. And any country -- not just the United States -- using the U.S. dollar for pricing would see the cost of the commodity rise as that currency fell.
Indeed, while OPEC has yet to make any formal break with the U.S. dollar, its refusal to boost output has already offloaded much of the cost of the dollar's depreciation on to the American economy. Mr. Gobert said oil prices at the end of last month, about $32 (U.S.) a barrel, would have been much lower if not for the decline in the value of the U.S. dollar over the past 24 months. Using the exchange rates of the dollar versus the euro two years ago, crude would be selling for $22 a barrel instead, he said.
One thing in the article that may not be quite accurate is that the impetus is coming primarily from Persian Gulf states. Russia, which may now have the world's largest oil reserves, and which does much more trade with Europe than it does with the US, has also suggested it would like to see the change. And Venezuela, where the US is steadfastly trying to overthrow its democratically-elected government in order to regain control over its oil, also doesn't have much interest in sticking with the dollar. Mexico is another country which could well benefit from it. The peso is one of the few world currencies that hasn't risen against the dollar, and the switch to euros could change things a lot there. (I really don't know much about the peso or the Mexican oil industry, but that makes some sense to me.) It would make political sense though for the Venezuelan oil minister to focus on the Persian Gulf states, at least publicly.
I also note that the article is datelined Calgary, center of Canadian's oil industry. The Canadian dollar is rising against the US dollar, but I'm not sure how it's doing against the Euro. Currencies are so complicated, you can go crazy trying to figure out all of the implications of these changes. But George Bush's Texas, and the Bush families extensive oil interests, on the other hand, would probably not benefit.
This is an extremely complex economic development. And would affect countries all over the world in many different ways, ways that would be very difficult to foresee and plan for. (Norway, for instance, makes lots of money on North Sea oil, and the fact that it's priced in dollars is probably the major reason they haven't adopted the euro. Great Britain also counts a great deal on North Sea oil.)
So the folks at OPEC would likely proceed slowly and cautiously. But if it happens it would certainly constitute a somewhat significant event in the global economic history. Especially for America. Oil has now replaced gold as the world's economic standard, and the US has benefited enormously from having it priced in dollars. And everyone in the world is terrified of American dominance, and there are few things that would alter that more than this. It would be a big step in global efforts to draw a noose around the US, the so-called "redlining of America."
Americans really need to wake up to the degree and extent by which American economic policies (both Clinton's and Bush's, this isn't a partisan thing at all) are damaging their long-term economic interests. Believe me, the American stock markets wouldn't like this at all. The ones in other countries I think would though.
