Pricing Oil in Euros

[Makalakumu]

I stumbled across this a while ago, but have been unable to do some research...until now.

Pricing oil in Euros is something that is virtually ignored by US media, but it could turn out to be a big deal. If OPEC priced oil in Euros rather then US dollars, the value of the dollar would imediately fall 20 to 40 percent. Our economy could very well crash from this move. Apparently, Saddam Huissein began pricing oil in Euros in November of 2000...

The War to Save the US Dollar

This should make for a lively discussion.

 

[Makalakumu]

Here is another very interesting article...

http://www.feasta.org/documents/papers/oil1.htm

The list of citations at the end is extensive.

 

[Makalakumu]

Apparently Russia and the rest of Europe are going to start pricing oil in Euros. This move is probably a snub because of how we entered the war in Iraq.

http://www.money.telegraph.co.uk/money/main.jhtml?xml=/money/2003/10/10/cnoil10.xml&menuId=242&sSheet=/money/2003/10/10/ixfrontcity.html

 

[Makalakumu]

Here is a CNN article reporting on Iraq's conversion from Dollars to Euros. This article is dated October 30 of 2000.

http://archives.cnn.com/2000/WORLD/meast/10/30/iraq.un.euro.reut/

 

[dubljay]

Apparently Russia and the rest of Europe are going to start pricing oil in Euros. This move is probably a snub because of how we entered the war in Iraq.

http://www.money.telegraph.co.uk/money/main.jhtml?xml=/money/2003/10/10/cnoil10.xml&menuId=242&sSheet=/money/2003/10/10/ixfrontcity.html

I don't think it has as much to do with snubing the US for the war in Iraq as it does with the Euro being a more stable currency. If I heard/remember correctly the Euro is backed more or less by gold where US currency is not. Likewise the Euro is backed by several nations, not just one. It's more of a business/economic decision than political. It would make sense for European countries to price things in a common currency to them, and for Russia as well as European countries are their closest trading partners (especailly the large British companies like BP and Shell). I'm not denying that there are political motives in this decision, however the simple business explanation is more than adequate reason.

Just my opinion and I could be wrong.

-Josh

 

[dubljay]

Well after doing some minimal research it appears I was wrong in my statement of the Euro being backed by gold. However the point still stands that the Euro is a more stable currency that is replacing US dollars in the world market (http://www.halexandria.org/dward305.htm).

 

[Makalakumu]

It makes perfect financial sense for Russia to price oil in Euros. And it still does not bode well for the US economy. Also, I do not think that France, Germany, and Russia are very willing to bargain because of Iraq. There is a political side of this coin.

 

[dubljay]

I'm not denying that there aren’t political motives, nor do I necessarily disagree with their choices. Bush's forte is not foreign relations. Indeed this decision will hurt the US economy, but this was only a matter of time since the inception of the Euro. This inevitability could have been slowed if Bush played well with others. I call it inevitability because of the economic side of it, not so much the political side. Bush’s foreign relations have simply acted as a catalyst.



America is going to have to come to the harsh reality that it isn’t the financial superpower of the world. I’m afraid in this situation that if we can’t beat them we should join them. The US will have a hard time in finding a way to get the kind of support that the European Union (EU) has. Canada has always maintained its ties to Brittan, and our southern neighbors do not possess stable enough economies. I think that minimize the damage by this the US should swallow its pride and begin to price some things, like oil, in the Euro.



Again just my opinion and I could be wrong.



-Josh

 

[Tgace]

All this is very possible. However I wouldnt worry about the sky landing on your head just yet. It would be a disaster for Europe if the US dollar crashed. This stuff is so intricate....

http://www.moneyweek.com/article/139/investing/currencies/euro-usurp-dollar.html

How would a collapse in the dollar affect the euro?
The euro is the main beneficiary of the weaker dollar and this strength has added to its appeal as a potential reserve currency. But a collapse in the dollar could be as much a disaster for Europe as for the US. The US could be faced with higher inflation, higher interest rates and a stockmarket and property market crash, while the eurozone could find its goods priced out of world markets. Unable to rely on exports to the US, the nascent EU recovery would collapse. The eurozone may hope this scenario can be avoided by collective government action, as it was in 1986, following a 44% collapse in the dollar, with the Louvre Accord. The answer then was interest-rate cuts, which led to a boom followed by a stockmarket crash in 1987. This time, a solution would most likely involve big sacrifices by the US - sacrifices that in the current political climate it may not be willing to make.

 

[Tgace]

And a weak dollar isnt 100% bad. "Strong" and "weak" take on different meanings in economics.

http://www.chicagofed.org/consumer_information/strong_dollar_weak_dollar.cfm

This is a very interesting article on the issue of currency value. A topic I am not very familiar with.....

Weakening Dollar

Advantages

-U.S. firms find it easier to sell goods in foreign markets.
-U.S. firms find less competitive pressure to keep prices low.
-More foreign tourists can afford to visit the U.S.
-U.S. capital markets become more attractive to foreign investors.

Disadvantages

-Consumers face higher prices on foreign products/services.
-Higher prices on foreign products contribute to higher cost-of-living.
-U.S. consumers find traveling abroad more costly.
-Harder for U.S. firms and investors to expand into foreign markets.

A weak dollar also hurts some people and benefits others. When the value of the dollar falls or weakens in relation to another currency, prices of goods and services from that country rise for U.S. consumers. It takes more dollars to purchase the same amount of foreign currency to buy goods and services. That means U.S. consumers and U.S. companies that import products have reduced purchasing power.

At the same time, a weak dollar means prices for U.S. products fall in foreign markets, benefiting U.S. exporters and foreign consumers. With a weak dollar, it takes fewer units of foreign currency to buy the right amount of dollars to purchase U.S. goods. As a result, consumers in other countries can buy U.S. products with less money.

Ideally, the dollar and all nations' currencies should be valued at a level that is neither too high nor too low. Such a level would help sustain long-term economic growth and stability both here and abroad. However, this ideal is difficult to reach since many factors affect the value of a nation's money. Some of the factors are complex, but many are quite simple.

 

[Makalakumu]

Does anyone really think the pricing of oil in Euros by Saddam was a factor for the invasion of Iraq? Some of the articles suggest this, yet one has to wonder if the currency situation is really THAT bad...

 

[dubljay]

Does anyone really think the pricing of oil in Euros by Saddam was a factor for the invasion of Iraq? Some of the articles suggest this, yet one has to wonder if the currency situation is really THAT bad...

Not really, simply because Iraq was still under heavy UN sanctions. Granted it probably was a bit of concern to US interests, but hardly a major factor of consideration, probably didn't even enter the equation.



And I'm not really that paranoid that the US economy will crash with things sifting into Euros instead of dollars, by nature, economies tend to be rather cyclical so it was just a matter of time before the US entered the low side of the cycle. It will have an impact, and if nothing is done to prepare for this change then I'm sure the impact will be much more profound.

 

[Makalakumu]

The articles that I posted were either written by Europeans or cited Europeans. I wonder if their perception of the US is so negative that they think we would have gone to war over currency? On the other hand, I will make a pretty hefty bet that the new Iraqi government resists changing over to the Euro...

 

[MisterMike]

Maybe a strong Euro will help the EU fight its own wars from now on.

 

[Flatlander]

If money flows out of the US thus driving down the dollar, Greenspan will increase interest rates even more, and continue to do that until inflation is checked. By then, all of the Americans who have used the equity in their homes like a chequing account while interest rates were low will feel more pressure in their cashflow, which will come directly out of discretionary spending. Real estate will depreciate, and jobs will be lost. Gold will go up. Canadians will flock to Vegas and Hawaii. Money will slowly begin to flow back into the US.

 

[Shotochem]

How long before the is ONE currency for the entire world?

Can this possiby happen in the future considering that due to advances in technology we have become a more global economy?

Could it really work? What would the ramifications be? Can you fight a war with monetary units instead of bullets or would it bring total chaos?

(hmmmmm.......sounds like a good storyline for a Tom Clancy novel) :idunno:

 

[Phoenix44]

Does anyone really think the pricing of oil in Euros by Saddam was a factor for the invasion of Iraq? Some of the articles suggest this, yet one has to wonder if the currency situation is really THAT bad...

Yes, I've heard that theory, and not only from foreign commentators, but from Americans as well. As for the UN sanctions on Iraq, remember, they were due to expire in 2001. They'd been in place since 1990, and some countries, Russia primarily, believed it was high time the sanctions were ended.

I would not be too optimistic about a falling dollar being good for U.S. exports. We no longer export anything the rest of the world wants. We are a net importer nation.

I have also heard the theory that the chaos in Iraq was fomented to benefit the Saudis. If Iraq was capable of freely exporting it's oil, the Saudi petro industry would take a hit.

 

[Tgace]

We are #4 in exports....actually #3 on a nation by nation basis.

http://www.cia.gov/cia/publications/factbook/rankorder/2078rank.html

Where do people get such chicken little attitudes?


http://www.washtimes.com/business/20050511-115410-4130r.htm

If WE bought more American goods we would all be better off.....

 

[dubljay]

We are #4 in exports....actually #3 on a nation by nation basis.

http://www.cia.gov/cia/publications/factbook/rankorder/2078rank.html

Where do people get such chicken little attitudes?


http://www.washtimes.com/business/20050511-115410-4130r.htm

If WE bought more American goods we would all be better off.....

Chicken Little is inspired by the media. Even though I know better I have a nasty habit of taking the media at face value at times, eventually I come to my senses and do a little research on my own.


I can't agree more if people and business bought more things domestically things would improve greatly.

 

[Phoenix44]

Have you ever actually tried to buy American? I make a real effort to buy American. Believe it or not, I was inspired to do so by Michael Moore's movie, "The Big One." I'm sorry to say it's getting harder and harder to buy American.

I tried to buy running shoes for my son. Even if you look for "American" brands, like Nike, they're mostly made in China. And if you find a company that does manufacture shoes in America, like NuBalance, only a few of their models are American-made. And I really can't buy kids' running shoes on-line unless I already know the model and fit...and I've yet to find them in a store! And if I was lucky enough to find that one pair (and I didn't), it might not even be suitable for him--I certainly wouldn't have a selection to choose from.

Unless you're wearing a custom made in Boulder, CO Bujin Designs gi like mine, yours probably isn't American made.

And it's a pretty sad commentary when someone who WANTS to buy American can't.