Oil Cartel Moves to Discuss Switching Dollars for Basket of Currencies
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24 November 2007:
When the Euro was adopted as currency for consumers in Europe, the price of oil per barrel was about $23, or €27.60 in 2001. As time wore on, the European Union surpassed the United States as the world's No.1 economy in 2006, and its currency had appreciated about 87 percent by November 2007.
As of 23 November 2007, per barrel oil flirted with $100 and closed at $98.18 for January delivery. A barrel bought with Euros would be about €66. For those trading in dollars oil is up 66 percent in 12 months, but in Euros the price is up 39 percent. Two of the world's oil producing leaders say there is plenty of room for the price to increase further without impacting the world's "other" currencies.
Venezuela's President Hugo Chavez, and Iran's President Mahmoud Ahmadinejad rallied OPEC this week to switch from dollars to a basket of currencies as the dollar loses relevancy in the global marketplace.
Saudi Arabia however did not agree with the concept since the Royal Family is joined at the hip with politicians in the United States. Saudi Arabia's foreign minister blasted the proposal as irresponsible and added that discourse of this kind in public could cause undo harm to the dollar.
Nonetheless, OPEC's finance ministers agreed to review the proposal and to discuss abandoning the weakening dollar for a basket of currencies.
While such a move would still hold a percentage of dollars...it is interesting to plug-in projected euro-to-dollar rates simply to show how such a complete switch would affect consumers in the United States.
The European Union's economy is "go slow" -- but it registers consistent and steady growth. Participating nations do not fund wars or plunge into debt to power-up a military. Consumers across Europe do not overspend either. The United States however is totally dependent upon consumer debt to grow its economy (shopping until they drop) and it accounts for nearly half of the world's total military spending.
Some givens for the example to work: Oil remains stable (at $98 a barrel;) inflation is nil; and the euro continues to increase as expected against the dollar simply because their economy is indeed more stable. That scenario could put oil at about €70 per barrel, but in dollar terms it would be $133 (based upon highest expectations of €1=$1.88) in two years. Politics aside though, oil, inflation, and currencies will fluctuate...even if political leaders got-on well together.
But don't expect Venezuela or Iran to change their strong sentiment against the United States before January 2009 at the very least. President Chavez views Iran as Venezuela's brother country, "united like a single fist," he said.
"God willing, with the fall of the dollar, the deviant U.S. imperialism will fall as soon as possible, too," President Chavez said. Although the United States lacks the military might to attack another country, depsite increased military spending, Chavez insists Washington is planning an attack on Iran in which case would cause oil to spike to $200 per barrel he said from Tehran.
Venezuela's leader argues that the euro is a better and more stable currency and that South America too is considering a common currency to avoid any paper ties with the imperial United States.
Iran's leader added that he shares common views with President Chavez and together god is on their side to defeat the United States.
Iran and Venezuela agreed to create a joint bank and numerous oil-industry related subsidiaries this past week. The two nations are already building joint petrochemical facilities on their home turf.
Their trading partners will be centered upon the Asian continent, which will account for the majority of oil demand in coming years, and in all countries south of the United States' border.
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