Posted by: Smart_Money
In reply to: Bearmove who wrote msg# 98642 Date:4/17/2003 10:57:43 AM
Post #of 98681
Oil exporters may seek euro
accessatlanta.com
Oil exporters may seek euro
U.S. economy loses if dollar pushed aside
By MARILYN GEEWAX
The Atlanta Journal-Constitution
WASHINGTON -- Since 1901, when drillers unleashed a Texas gusher and created the modern oil industry, barrels have been sold for greenbacks. Whether they buy oil in Alaska, Norway or Bahrain, today's customers pay in U.S. dollars.
But when the United States launched its military attack against Iraq last month, many Muslim clerics began demanding that Arab countries sell oil for euros, not dollars. That move could send shock waves through the world oil market and the U.S. economy.
The United States benefits from the global use of "petrodollars" because countries that import oil must have dollars on hand. This global demand for dollars helps keep the U.S. currency strong.
Newspaper columnists and anti-war activists in countries stretching from Morocco to Indonesia have rallied behind the sentiments shouted in a Nigerian street protest witnessed by a Wall Street Journal reporter this week: "Euro yes! Dollar no!"
Using currency to wage economic warfare against the United States "has been talked about, off and on, since the Arab oil embargo in the 1970s," said Robert Lynch, senior currency strategist in the New York office of BNP Paribas, a French bank.
"It is mostly a threat" rather than a real possibility, Lynch said, because switching from dollars could economically harm many Muslim countries that already hold lots of U.S. dollars -- notably Saudi Arabia. Still, given the level of Muslim anger directed at the United States following the war, "anything is possible," he said.
And that is worrisome, he added.
"If oil trading shifted from dollars to euros, it would be a hugely significant event and certainly a negative one" for the U.S. economy, Lynch said.
Having a strong dollar lets U.S. consumers buy imported goods for less, which helps hold down inflation.
At the same time, countries that export oil receive dollars, which they in turn invest directly in U.S. securities to avoid currency fluctuation risks. Because these oil exporters are willing to purchase huge amounts of U.S. treasuries, interest rates also are kept low.
When Arabs first started looking for ways to harm the U.S. economy in the 1970s, there was no real competitor to the dollar.
That changed on Jan. 1, 2002, when about 300 million Europeans in 12 nations exchanged their francs, marks, lira and other national currencies for the new euro. Participants in the "eurozone" include Iraq-war opponents Germany and France, as well as Belgium, Spain, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal, Finland and Greece.
Britain, a U.S. ally in the Iraq war, is still considering whether to adopt the euro.
This campaign against petrodollars actually was launched by Iraq's ousted president, Saddam Hussein. In September 2000, his regime announced it would no longer accept dollars for oil being sold under the U.N. "oil for food" program. A government statement said that to confront the "daily American-Zionist aggression," oil would have to be paid for in euros.
While that particular move had a negligible impact on the U.S. economy, it gave Iraq a boost when the euro appreciated by 30 percent against the dollar in recent months.
Now that U.S. military forces control Iraq, that nation is expected to once again accept dollars for its oil.
But if other Arab countries make the switch to euros, or even to a dollar-euro blend, the entire global oil industry would become less profitable, said Sean Callow, currency strategist at IDEAGlobal, a financial research firm in New York.
"Using the dollar is so important because the oil industry must have a deep, liquid market" in which to conduct its worldwide transactions, Callow said. "If you have to use two currencies, it breaks up the market. It would add to transaction costs and be quite unwieldy."
Still, Callow said he is keeping an eye on the protest movement against the dollar.
"It doesn't make good economic sense, but I wouldn't be entirely dismissive of it," he said.
Arabs might hurt themselves financially by rejecting the dollar, he said, "but perhaps that is a price they would be willing to pay." |
