Posted on 05/15/2005 5:14:47 AM PDT by RaceBannon
Putin: Why Not Price Oil in Euros? By Catherine Belton Moscow Times October 10, 2003
President Vladimir Putin said Thursday Russia could switch its trade in oil from dollars to euros, a move that could have far-reaching repercussions for the global balance of power -- potentially hurting the U.S. dollar and economy and providing a massive boost to the euro zone. "We do not rule out that it is possible. That would be interesting for our European partners," Putin said at a joint news conference with German Chancellor Gerhard Schroeder in the Urals town of Yekaterinburg, where the two leaders conducted two-day talks. "But this does not depend solely on us. We do not want to hurt prices on the market," he said. "Putin's putting a big card on the table," said Youssef Ibrahim, managing director of the Strategic Energy Investment Group in Dubai and a member of the U.S. Council on Foreign Relations, an influential body of leading world thinkers thought to help set the United States' foreign policy agenda. "In the context of what is happening worldwide, this statement is very important," he said.
Putin's words come in the wake of a protracted drive by the EU to attract more countries' trade and currency reserves into euros, in a bid to chip away at U.S. hegemony over the global economy and money supply. A move by Russia, as the world's second largest oil exporter, to trade oil in euros, could provoke a chain reaction among other oil producers currently mulling a switch and would further boost the euro's gradually growing share of global currency reserves. That would be a huge boon to the euro zone economy and potentially catastrophic for the United States. Dollar-based global oil trade now gives the United States carte blanche to print dollars without sparking inflation -- to fund huge expenses on wars, military build-ups, and consumer spending, as well as cut taxes and run up huge trade deficits.
Putin had previously brought up the proposal to switch to euros as prime minister in October 1999, at a meeting of EU leaders in Helsinki. Then, in an attempt to forge a new bloc to counterbalance the United States, he made the proposal alongside calling for closer cooperation between Russia and the EU, including on security issues. Since then, however, Russia's ties with the United States have warmed considerably -- and it is unclear whether Putin would risk damaging that relationship by going ahead with the euro move, analysts said. "Putin is very much interested in changing the structure of OPEC and he cannot do that without the United States," said Alexander Rahr, an expert on Russia at the German Council on Foreign Relations. "He can only get a foothold for Russia in the Middle East with [U.S. help]. And, he wants to get contracts for the Russian oil industry in Iraq -- for this, too, he needs the United States."
Some analysts said that the statement appeared to be aimed at boosting Russia's global clout on the world stage. "Putin is trying to create a position for Russia as an independent player. But his aim is not to undermine relations [with the United States]. He just wants to boost Russia's position up from being a junior partner," said Dmitry Trenin, geopolitical analyst at the Carnegie Moscow Center. Yevgeny Gavrilenkov, chief economist at Troika Dialog and an earlier architect of the Putin government's first economic plan, said debate is growing on a move to the euro as Russia mulls siding with the EU. "Such an idea is really possible," he said. "Why not? More than half of Russia's oil trade is with Europe. But there will be great opposition to this from the United States." He said that while a switch would have no direct impact on the Russian economy, it would give a great boost to the euro zone.
Lukoil vice president Leonid Fedun said Thursday that he saw no problem in the euro switch and that payments for such transactions would be minimal, at just 0.08 percent. "There is no problem ... If the state decides to do this, then we will support this initiative. From the point of view of the economy, there's no difference," Interfax quoted him as saying. But even Fedun could not help putting a political price tag on the move. "We are ready to move to the euro if the country will be included in a visa-free regime with Europe," he said. Rahr agreed that the timing of the statement seemed calculated to extract political concessions from the EU. "It's a bargaining chip," he said. Gavrilenkov suggested Putin was also angling for EU concessions on other issues discussed in Yekaterinburg, such as terms for Russia's WTO accession
More Information on the US Trade and Budget Deficits, and the Fall of the Dollar
http://www.globalpolicy.org/socecon/crisis/index.htm
From an E-mail I just received::
The threat to oil being linked to the Euro (that the Iraq war stymied) and the resulting total crash of the dollar is illustrated by this article. We went to war to prevent a global change in currency, which would have impoverished the USA in a matter of a couple of years if not just months.
MOSCOW, May 14 (RIA Novosti) - The share of the euro in the Russian gold and foreign currency reserves can be increased to 50%, said Pavel Teplukhin, president of the Troika Dialogue managing company.
"The country's international reserves must be maximally adjusted to the balance of payment structure," he thinks. "And the balance of payments consists of two parts, the trade balance and the capital account."
Russia's main trade partners are EU countries, with whom settlements are made in the euro, Teplukhin said.
On the other hand, debts (to the International Monetary Fund and the Paris Club) are assessed in the dollar, but their servicing will cost less owing to their early repayment. The company president views this as one more argument in favor of transition to the euro.
"The euro/dollar ratio in the country's international reserves should be close to 50:50," he thinks. "Until 2007, I would add to the reserves 10% of other currencies which are involved in the international currency relations, in one way or another." One of these currencies should be the Japanese yen, which is a global reserve currency.
"There are also special drawing rights (SDR), a synthetic currency used for IMF settlements that is a basket of currencies of IMF member states," Teplukhin said.
"Russia is becoming an active member of the IMF, not a borrower but a net creditor of the countries that are the recipients of the World Bank and IMF assistance. In this situation, the voice of the Central Bank in currency interventions should become louder," the company president thinks.
In his opinion, the Central Bank should not only tackle the domestic foreign policy but also influence the international dynamics of the exchange rate. To be able to do this, Russia should adopt "a creative attitude to the balance of the dollar, the euro and the yen in its international reserves."
"The Central Bank can play this part now because it is one of the world's largest holders of international reserves," argues Pavel Teplukhin.
The Russian gold and foreign currency reserves top $144 billion and may grow to $170-180 billion by the end of the year, according to the Central Bank's forecast.
The Central Bank can use this factor to influence the price of currencies on different markets, the expert thinks. "Russia has never had such a role" but can play it now. "We have the requisite specialists in Vneshekonombank and Vneshtorgbank. They can play the part of an active member of a group that determines the value of international currencies," he concluded.
The Iranian Threat: The Bomb or the Euro?
By Dr. Elias Akleh
03/24/05 "AMIN" - - Iran does not pose a threat to the United State because of its nuclear projects, its WMD, or its support to "terrorists organizations" as the American administration is claiming, but in its attempt to re-shape the global economical system by converting it from a petrodollar to a petroeuro system. Such conversion is looked upon as a flagrant declaration of economical war against the US that would flatten the revenues of the American corporations and eventually might cause an economic collapse.
In June of 2004 Iran declared its intention of setting up an international oil exchange (a bourse) denominated in the Euro currency. Many oil-producing as well as oil-consuming countries had expressed their welcome to such petroeuro bourse. The Iranian reports had stated that this bourse may start its trade with the beginning of 2006. Naturally such an oil bourse would compete against London’s International Petroleum Exchange (IPE), as well as against the New York Mercantile Exchange (NYMEX), both owned by American corporations.
Oil consuming countries have no choice but use the American Dollar to purchase their oil, since the Dollar has been so far the global standard monetary fund for oil exchange. This necessitates these countries to keep the Dollar in their central banks as their reserve fund, thus strengthening the American economy. But if Iran — followed by the other oil-producing countries — offered to accept the Euro as another choice for oil exchange the American economy would suffer a real crisis. We could witness this crisis at the end of 2005 and beginning of 2006 when oil investors would have the choice to pay $57 a barrel of oil at the American (NYMEX) and at London’s (IPE), or pay 37 Euros a barrel at the Iranian oil bourse. Such choice would reduce trade volumes at both the Dollar-dependent (NYMEX) and the (IPE).
Many countries had studied the conversion from the ever weakening petrodollar to the gradually strengthening petroeuro system. The de-valuation of the Dollar was caused by the American economy shying away from manufacturing local products — except those of the military -, by outsourcing the American jobs to the cheaper third world countries and depending only on the general service sector, and by the huge cost of two major wars that are still going on. Foreign investors started withdrawing their money from the shaky American market causing further devaluation of the Dollar.
The keen observer of the money market could have noticed that the devaluation of the American Dollar had started since November 2002, while the purchasing power of European Euro had crept upward to reach nowadays to $1.34. Compared to the Japanese Yen the Dollar had dropped from 104.45 to 103.90 yen. The British pound climbed another notch from $1.9122 to $1.9272.
http://www.informationclearinghouse.info/article8354.htm
Russia to price oil in euros in snub to US
By Ambrose Evans-Pritchard in Brussels (Filed: 10/10/2003)
Russia is to start pricing its huge oil and gas exports in euros instead of dollars as part of a stragetic shift to forge closer ties with the European Union.
The Russian central bank has been amassing euros since early 2002, increasing the euro share of its $65 billion (£40 billion) foreign reserves from 10pc to more than 25pc, according to the finance ministry.
The move has set off a chain reaction in the private sector, leading to a fourfold increase in euro deposits in Russian banks this year and sending Russian citizens scrambling to change their stashes of greenbacks into euro notes.
German officials said Chancellor Gerhard Schroder secured agreement for the change-over on oil pricing from Vladimir Putin, the prime minister, while on a trip to Russia this week.
Moscow: Middle East may follow lead of Russia's changeover to oil pricing in Euro
The two leaders have forged a close personal bond and are both keen to check American economic and diplomatic power.
Mr Putin was coy about German media reports on the deal yesterday but acknowledged that Russia was exploring the idea. "We do not rule out that it is possible. That would be interesting for our European partners," he said.
A switch to euro invoicing would not affect the long-term price of oil but it could encourage Middle Eastern exporters to follow suit and have a powerful effect on market psychology at a time when the dollar is already under intense pressure. Russia boasts the world's biggest natural gas reserves and is the number two oil exporter after Saudi Arabia.
Yesterday the dollar recovered slightly against the yen and euro, but the IMF and the European Central Bank both warn that America's ballooning current account deficit, now over 5pc of GDP, will lead to further declines.
Oil is seen as so central to the global power structure that the choice of currency used for pricing has acquired almost totemic significance. The switch from pounds to dollars after the Second World War has come to symbolise sterling's demise as a world reserve currency.
If the dollar were ever displaced by the euro, it would lose the enormous freedom it now enjoys in running macro-economic policy. Washington would also forfeit the privilege of exchanging dollar notes for imports, worth an estimated 0.5pc of GDP.
Maxim Shein, from BrokerKreditService in Moscow, said the switch to euros makes sense for Russia since it supplies half of Europe's energy needs. But the move is also part of a global realignment stemming from the Iraq war, which threw Russia, Germany and France together into a new Triple Entente.
"Abandoning the dollar is tantamount to a curtsey to the EU," he said. For now, IMF figures show the dollar remains king, accounting for 68pc of foreign reserves worldwide compared with 13pc for the euro.
http://www.money.telegraph.co.uk/money/main.jhtml;sessionid=3CG25B1XUPBBZQFIQMGCNAGAVCBQUJVC?xml=/money/2003/10/10/cnoil10.xml&menuId=242&sSheet=/money/2003/10/10/ixfrontcity.html&menuId=242&_requestid=25752
I dont doubt that, but I also dont disagree with going to war to protect our economy from what would happen from switching from the Dollar to the Euro
Your exchange rate info is a little out of date as the dollar has recently strengthened, although nowhere near parity.
Also, I'm curious about the relationship of the currency choice for international exchange as relates to the economical strength of the countries involved. It's pretty obvious the Euro Zone can't compete with the US economy.
Demand and supply of US dollars for trade in Oil is miniscule compared to the demand and supply of US dollars for merchandise and investment.
Oil represents about 2% of the daily transactions in US dollars, so the article's premise is bogus.
Yet we sink deeper into debt, both as our government grows without limit and our trade deficit continues.
Putin is playing a big card.... Europe is crumbling also.. Stay tuned ....
1. Iran does pose a threat to the United States. If they take over the Middle East or nuke the oil fields then the unemployment rate in the US would go over 50% and the rest of the world would starve. We, the US, have a coal reserve that if distilled into fuel to replace gas would last for over 500 years (Germany did this in WW II so the technology is not new) however it would take a year of so to get the plants on line or more if the anti-American environmentalist fought the conversion in the left-wing courts.
2. If you make the Euro the world currency and the oil fields of the Middle East are taken over or destroyed, there is no basis for the Euro as a currency as the EU has NO energy supply that could maintain its people or keep them from freezing or starving to death.
3. There is no guarantee that the EURO will remain a viable currency over the next 20 years. There are studies that say the EU will break apart when Islam takes over old Europe in the next 20 to 50 years as Islam is flooding Europe with illegal immigrants daily.
4. I know of no other nation that can withstand a total collapse of the oil supply except for the United States.
5. Without the exports to the United States that the world makes every day there would be no jobs for the masses in the rest of the world.
Some of my thoughts.
Events in Ukraine, Georgia, Kyrgyzstan and Uzbekistan could have change this calculus.
Did you voted for the Kerry/Michael Moore coalition in November???
Don't believe the liberal mantra "war for oil".
Sorry, I meant "VOTE", not "voted".
There isn't a single lefty that said we went to defend our economy, they claim we went for Cheney's wallet.
Please slow down and read the posts. :)
The left outside the USA does say that.
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