Posted on 02/25/2006 1:55:39 AM PST by albyjimc2
I was hoping someone with a firm grasp on economics could help me with a lack of knowledge on the subject of selling oil in dollars to euros. Is this certain to happen and what would the reason be? Any help would be greatly appreciated. Thanks.
A point in history.
October 31, 2000
The United Nations Sanctions Committee approves an Iraqi request to be paid in Euros, rather than United States dollars, for oil exported under the "oil for food" program, which is part of the sanctions regime stemming from Iraq's 1990 invasion of Kuwait.
Every time the price of oil goes up, the US government can print and spend more dollars because they will be soaked up by a world that needs more dollars to pay for oil.
If Euros can be used to pay for oil, then the US government can no longer indiscriminately print dollars.
All Americans would have to start living within their budgets.
For a country that needs ever higher levels of debt to pay off old debt, that is a prescription for bankruptcy and dramatically lower standard of living.
Think Argentina.
BUMP
Very interesting topic. Thanks for bringing it up!
I'm still not convinced that a change in the currency that a commodity is denominated in will affect currencies one way or another.
http://www.energybulletin.net/12463.html makes some interesting arguments, but I would hazard a guess that there are equal and opposite countervailing forces to the forces he sites, much as a tub of water seeks a common level. In the end, I believe that the strength of a currency is based on a) Which country's stability do you trust?, and b) Which country's goods (products, securities, financial instruments) do you want to own? All other strength tendencies such as those derived from which currency used to denominate oil get balanced out by other strength tendencies.
Trading a hot commodity like crude oil in Euros instead of dollars lessens demand for dollars and makes American economic developments less relevant on the world stage.
The UK never adopted it.
The sky is falling, but if you are sitting on a big pile of GOLD, you'll be sitting pretty!
And I can sell you as much gold as you like with only a 20% mark-up!
"And I can sell you as much gold as you like with only a 20% mark-up!"
Maybe, but gold and silver can be had at spot, or market, prices.
http://www.ccc.nps.navy.mil/si/nov03/middleEast.asp
Oil is currently priced (benchmarked) against two grades of oil:
Brent North Sea and
West Texas Crude
Both of which are denominated in dollars, AND, perhaps more importantly, traded in New York and London.
Even if Iran wanted to open an "oil bourse" in Tehran, who would want to buy there?
Other countries (whether they admit it or not) have faith not only in the transparency and fairness of the financial institutions of the US and Britain, but also in the legal institutions of those countries (since we're talking about contracts here).
Does anyone REALLY think that the Mullahs are capable of running an open and transparent oil exchange?
Would anyone REALLY want to have to go to Tehran and throw themselves into quagmire of their legal system in order to have their contracts enforced?
You are presupposing that the NY and London oil exchange is open and transparent. I have some swamp land you can buy that will soon turn into prime coastal condos on its own, ahah. The world of oil is arcane and corrupt from the get go, see oil for food scandal as a primer.
Careful! Your ignorance is showing. You appear to be stuck in the pre-Ides of August, 2005 era.
ping
George Soros? Is that you?
/wiza gurl....or was I?
Once again your "erudite" response is so out of date as to be painful. You still don't get it. It's got nothing to do with the Euro versus the dollar but an "economical suicide bomber COUNTRY" deciding to pressure the weakness of the Dollar in the economical framework of the world and tip it over.
The oil bourse does not have to work - in western terms - as a successfull venture - it probably won't - but it will be sufficient to rock the boat at first and then capsize it.
The tumble will NOT be gradual since every effort by the central banks of the world and by all the economical might of the USA will NOT be able to stop let alone slow the tumble.
There is simply not enough nmoney in the world to buy up the amount of dollars which will be jettisoned onto the market once oil gets unlinked from the Dollar. Money is a commodity and a glut on the market as with beans or pork fat drops it's value. If nobody will buy it - and at a certain point in time nobody will - the value will be zero.
Other currencies will follow suit and crash so it's not a matter of currencies - it's the Hojatieh destructiveness of neo-Iran aimed at destroying the global economy and the total vulnerability of this when push comes to shove. With NOTHING in the world's defenses able to prevent a lunatic nation from achieving this end.
Now is this clearer or are you still in your inside the box, out of date thinking mode?
Just as you would have been had you denigrated someone for warning that Pol Pot would kill off a couple of million of his citizens on the basis that they would revolt, would resist etc. They didn't and he did. It was a one of a kind situation and that's what we face today with Ahmadi-Nejad.
That's also why the only possible solution is to take Iran out of the picture completely rather than chit chat with them. Way past that point in time. Even beyond nuclear reasons, which are far less dire than the economical harm Iran can cause.
For crying out loud - change gear. any reference to anything prior to August 15th , 2005 is NO LONGER VALID as a parameter and has no bearing on what's going on. Do please wake up.
The sky may well fall and gold will have NO VALUE EITHER, so it's not a factor. Change gear and get into the post-Ides of August, 2005 situation instead of the trite old fashioned thinking that you seem to be using. It's a ball game you have never encountered nor has the world.
So you are saying that a large number of otherwise rational human beings would willingly participate in the total liquidation of their assets in return for zero?
Not likely. As the return on the Dollar falls below that which was paid for it, many will simply wait for a possible rebound than sell at a definitive loss.
Appears you would have to explain Argentina to some of the posters here. They simply do not get it. Nor the fact that someone has to be willing to buy Dollars if there is someone who starts selling them. A run on the Dollar (like a run on a bank) will plummet it down.
So far the "responsibly minded" world has bought up extra dollars even though they no longer need the amounts available - just to keep the prime currency in place and viable. They have huge surpluses of Dolars, way beyond theri needs because of invtervention to keep the dollar afloat. Neo-Iran is not only irresponsbile but hell bent on doing harm. The people in charge have lived off meagre salaries and have no personal wealth to defend nor care about their citizens - and they win national wealth when oil and natural gas become primary barter items in a world where currency has little or possible no value. They win if that happens, not lose.
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