Friday, December 22, 2006

More trouble for the dollar?

Venezuela mulls euro oil switch

Venezuela has expressed interest in an Iranian move to ask buyers to pay for oil in euros rather than US dollars. The oil-rich nation said it planned to see if a similar scheme could be introduced to its crude exports. Iran, the world's fourth-biggest oil producer, has already asked customers to pay for its oil in euros because of the current weakness of the dollar.......

Posted by archie @ 01:41 PM (560 views)
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6 thoughts on “More trouble for the dollar?

  • This is what we talked about nearly 2 years ago on this Blog – the switch from the Dollar to the Euro as the reserve currency. This would have knock-on repercussions on the US and UK mortgage markets and could hence be one of the triggers for a HPC.

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  • little professor says:

    This could be huge – with two big oil producing countries dumping the dollar, a huge increase in the supply of dollars wil inevitably lead to high inflation and devaluation of the US currency. Other countries will lose their nerve and also get rid of the dollars, leading to a downward spiral.

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  • Hmm. So the Iraq war was an abject failure. Venezuela’s been bartering its oil (rather than selling in dollars) for a while, and an Iranian Oil Bourse has been touted for some time. Sadam’s mistake was to openly trade in euros; Iran and Venezuela now look like they are trying to get to the same position, but using the salami slicing approach (bartering some oil here, pricing in dollars but then selling oil in euros there…).

    The longer-term (3-5 years?) effect will be to put great pressure on the dollar. Without a real commodity (oil — aka black gold) to support it and with the massive trade deficit this can only weaken it. China’s central bank response to all this will be interesting, and may become the keystone to the support of the dollar.

    A weaker dollar means US imports are more expensive, and from our European perspective this will affect the economies to a significant degree as we have strong trading relations with the US. It also means US products are cheaper in Europe, and the net effect may be to increase the import tarriff, possibly sparking an EU/US trade war.

    Just as Suez (1956) was the watershed that showed the impotence of the British (and French) Empire, it may be that Iraq presages a similar turning point for the American Empire.

    So all in all, why it may be good to see the US getting its come-uppance, it may be an ill wind that blows for us all. Interesting but scary times lie ahead.

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  • Do I hear Venezuela being added to Washington’s list of targets in the ‘war on terrorism’..?

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  • autopilotengage says:

    I echo earlier comments; this is exactly the catalyst needed for world interest rates to return upwards to long term trend. if any OPEC states go this route it could spell the end of an era for the US dollar as the world’s only “safe” currency.

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  • To my way of thinking, Venezuela and the USA have never been friends. My Father worked many years as an American mining engineer in Venezuela, building operations on the Orinoco to bring iron ore and coal out of the jungle on conveyor systems, into the ports so that there was the possibility of international commerce in a primitive third world place that had no plumbing or electric, except in the inner enclaves of the government. It took about ten years, planning to finished product. The deal, [after 100% American investment in the arrangement including training half of Caracas to run the Company], was to have been a 50-50 split of production costs and profits. When all was complete, the Venezuelan government nationalised the entire thing, and threw everyone including my Father in prison. He was eventually released, a man with a serious heart condition who lived on bread and water for three months without his medication. It was a miracle he survived at all, but his health never recovered. I waste no love on Venezuela’s government.

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