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De-linking the Dollar from Oil - a Casus Belli for USA ?

Would de-linking the US Dollar from Oil price affect the price of fish in Peoria ?

  • Not a jot - dumb question....pass the the de-caf latte

    Votes: 5 38.5%
  • Um....absolutely yes....US economy severely jeopardised

    Votes: 3 23.1%
  • Meh....some - but not a showstopper...ally hat stuff.

    Votes: 1 7.7%
  • I have a 6 liter SUV...Jezza eat yer heart out .. What was the question ?

    Votes: 4 30.8%

  • Total voters
    13
  • Poll closed .

Goatman

ADC
Book Reviewer
#1
Hmmm

In 2008 the Iranian Oil Bourse (IOB) was inaugurated in Kish Island. The IOB is intended as an oil bourse for petroleum, petrochemicals and gas in various currencies. Trading is primarily in the euro and Iranian rial along with a basket of other major currencies, excluding the US dollar
Source

The Economist The oil business Big Oil’s bigger brothers
A high oil price is great for oil companies, but it also attracts competitors
Oct 29th 2011

State-backed firms now dominate the business. Exxon may be the world’s biggest listed company by market capitalisation, but it is a tiddler beside the National Iranian Oil Company or Saudi Aramco (see chart). Measured by the reserves it controls, it is only the 11th-largest oil and gas firm in the world. Shell and BP scrape into the top 20. State-backed firms control around 80% of the world’s oil.


I expect there are plenty of people on this board who can explain to me why the Iranian Oil Bourse might or might not be a threat to the United States economy....not least the bid to make the Euro rather than the US Dollar the international currency of choice for the buying and selling of oil ?

.....all way above my inumerate level of comprehension obviously...words of less than three syllables please.....
 
#2
Didn't the late unlamented Mr Hussein threaten to only trade his oil for Euros not all that very long before being dragged to the gallows?

According to a few of the more creative conspiraloon sites that is.
 

Goatman

ADC
Book Reviewer
#3
Gosh that was quick......' only if you listen to whackos'?

then there's this

EU governments agree in principle on Iranian oil ban | Reuters

By Justyna Pawlak and Julien Toyer

BRUSSELS | Wed Jan 4, 2012 10:52am EST

BRUSSELS (Reuters) - European Union governments have reached a preliminary agreement to ban imports of Iranian crude to the EU but have yet to decide when such an embargo would be put in place, EU diplomats said on Wednesday.

The agreement, news of which sent crude oil prices higher, followed talks in the last days of December between EU envoys, diplomats said. Objections to the idea, notably from Greece, were dropped during the talks, they said.

"A lot of progress has been made," one EU diplomat said, speaking on condition of anonymity. "The principle of an oil embargo is agreed. It is not being debated anymore."

A European ban on Iranian crude would be part of concerted Western action to put pressure on Tehran to abandon its nuclear program, which many governments worry aims at producing an atom bomb. Tehran says its aims are peaceful only.

The United States imposed new sanctions on New Year's Eve to cut financial institutions that work with Iran's central bank off from the U.S. financial system, thus blocking off the main source of Tehran's payments for crude.

Europe started preparing a new push against Iran's financial and energy sectors in December, with the aim of agreeing sanctions by the end of January.

A ban on exporting oil-related technology to Iran and more measures against shipping of crude are also under discussion, diplomats said.

Diplomats said there was still a debate among European capitals over whether to enforce a crude ban immediately after it is agreed or to wait a few months. Some EU member states are concerned about the economic impact of an embargo at a time when Europe is struggling with massive debt problems.

Greece, in particular, has been hesitant but Greek government sources said on Tuesday that Athens would not break ranks with its EU partners on the issue.

Tensions between the West and Iran -- the second biggest producer in the Organization of the Petroleum Exporting Countries -- have already pushed up oil prices.

On Wednesday, the price of a barrel of benchmark Brent crude rose more than a dollar from its previous close to a session peak of nearly $114, following the news that Europeans had agreed in principle to ban Iranian crude.

Iran supplies a total of around 450,000 barrels per day to EU member states, making the bloc collectively the second-largest market for Iranian oil after China.

EU Energy Commissioner Guenther Oettinger has said that if there were a ban on Iranian imports, supplies could be bought from elsewhere, notably leading OPEC member Saudi Arabia.

....whereas the U.S gets 40% of its imported oil from.........Canada :) Ain't geopolitics grand......

PS - 155 views and only one person responds to the poll.....I can only conclude Arrsers are shuffling their feet and waiting to be GIVEN their opinion ? Or just too consumed with the endless ennui of t'Interweb.....(can't be arrsed)

No?....well go mad - VOTE and damn the torpedoes!

PPS - for the blank faced few - Peoria - a small town in Illinois long-used by American PR companies as a bell-wether for how issues will play in Main Street USA.
 
#4
The cynic in me says it could easily be a cause for war since I can't imagine the US being too willing to let such a valuable cash-cow as this slip away. It wouldn't just be oil either - the US$'s status as the leading currency for settlement of international trade in general would evaporate if people got too used to buying and selling in some other currency.

Whether it should be a cause for war is another matter. A genuinely free-market approach would see switching confidence to some other currency as a pure expression of the 'invisible hand' but I doubt we'd see Washington sticking to Smithian principles once the market started acting against US national interests. Dollar transactions are an immensely important way for the US to get large amounts of money for doing absolutely nothing whatsoever and since they seem unwilling to face the structural weaknesses of their own economy I see no reason to expect they'll be any more realistic this time round.
 

Alsacien

MIA
Moderator
#5
Goatman, you are absolutely right flagging this as a hot topic. Personally I have been too busy to comment at the level it deserves, maybe over the weekend...

One nugget to throw into the ring: In 2008-9 talks were at an advanced level to start pricing oil in Euros rather than Dollars, as the currency was seen as more neutral. This was not a problem for the business side of US perspective, but may have been politically a bit of a media bun fight. Anyway Lehmann and the follow up has meant nobody is keen on changing anything that ain't broke right now, but it will probably resurface in the future. Anti US sentiment is certainly an issue in the Middle East, and oil producing countries may be keen to separate themselves and appear US neutral where possible.
 
#7
The cynic in me says it could easily be a cause for war since I can't imagine the US being too willing to let such a valuable cash-cow as this slip away. It wouldn't just be oil either - the US$'s status as the leading currency for settlement of international trade in general would evaporate if people got too used to buying and selling in some other currency.

Whether it should be a cause for war is another matter. A genuinely free-market approach would see switching confidence to some other currency as a pure expression of the 'invisible hand' but I doubt we'd see Washington sticking to Smithian principles once the market started acting against US national interests. Dollar transactions are an immensely important way for the US to get large amounts of money for doing absolutely nothing whatsoever and since they seem unwilling to face the structural weaknesses of their own economy I see no reason to expect they'll be any more realistic this time round.
I think you may be conflating three issues:

- Need for oil
- Profit from oil (and associated service industries)
- The currency in which oil is benchmarked or traded

The first two might be precipitate a conflict or war, but the former is more likely to do so than the latter. The third? Brent is traded in Stirling,why not the others in whichever currency? It's a bit more complexity to trading, but that's where money is to be made (yes - sorry everyone, people make money from speculating on what will happen with commodities. Look on the bright side - the price of tulip bulbs has crashed. Opportunity?)
 
#8
To be honest, I hadn't considered the profits made from oil industry enterprises independently since I assumed they'd be largely covered by the 'international trade settled in dollars' or internally in local currencies.

Without meaning to teach my granny egg-sucking, settling transactions in a reserve currency generates demand for that currency which pushes up its price on the international market. This hands not just economic power but large amounts of political power to whoever controls the issuing of that currency. Which government would willingly give up that power by seeing the demand undermined without wielding the whip?
 
#9
oil base price is listed in $ as its currently the internationally recognised and fairly stable, every currency converter posts USD/GBP usd/Euro rates on there front page and allows you to choose from any currency to make your conversions, oh and they also detect the viwers location and publish the USD/local currency rate.

the reason being most people know roughly what a USD is worth against there home currency so much like ISO standards everyone opted for a single standard trading unit to use when refering ot the price

changing the referance currency would be relativly simple and wouldnt necessarily affect anything, you just change the trading company that sells the comodities ot a us one so there still creaming off the top XD


naw of course it would change everything, there would be to many digital USD's floating around so the currency would dive bomb were noboddy to be using them for market trading...
 
#10
To be honest, I hadn't considered the profits made from oil industry enterprises independently since I assumed they'd be largely covered by the 'international trade settled in dollars' or internally in local currencies.

Without meaning to teach my granny egg-sucking, settling transactions in a reserve currency generates demand for that currency which pushes up its price on the international market. This hands not just economic power but large amounts of political power to whoever controls the issuing of that currency. Which government would willingly give up that power by seeing the demand undermined without wielding the whip?
Bolded your first paragraph to highlight the vast amounts of money required for sustainable oil production. To wit: A small production company may use a high pressure deepwater drilling rig/vessel for an all-up cost of well over $1m per day. So the drilling company is making a few bucks, as are the associated service companies.

Drilling may be exploration (obviously speculative), or production (to sustian production levels, increase them, or prevent the falling as quickly). But it will still cost a shit load of money per day whatever the reason for drilling.

The largest service companies work in certain currencies. The amounts of money involved allow them to say "**** you" if someone suddenly says "we'll pay you in rods of iron".

For an example of the power of service companies, there's Halliburton and the Gulf War. Halliburton were only a contractor to O&G Producers.
 

Goatman

ADC
Book Reviewer
#11
see? lotsa clever people on here......now tell me why since 1971 the US Dollar has been underpinned not by the discredited 'gold standard ' ( even though US has the world's largest holding) but by something called the 'petro dollar'....?

Y'all will appreciate I'm way out of my comfort zone here but < scratches head> ....According to the The Economist article, Iran controls the world's largest verified reserves ?.......the majority of oil trades CURRENTLY take place in dollars ?......the viability of USD as a currency depends on oil price ? (not least because of US oil holdings both domestically and via Big Oil players such as Exxon/Texaco and oil-industry related Halliburton).

Ahem.....quite apart from the Embassy hostage/Desert Eagle fiasco I'd say that Sam has sound economic reasons for wanting Iran destroyed - none of which are to do with any threats to the West or indeed any existential threats to USA's staunchest ally/ bear keeper in the region ...... er....n'est-ce pas ?
 
#12
Shifting away from US dollar as reserve currency is harder then many make it out to be.

Say your a small/medium Asian country that import 100% of its oil. You need dollars to pay for your oil imports. Currently you acquire those dollars by exporting good to US and then using dollars acquired to pay for oil you need.

The current system works very much in said countries favor they both acquire needed oil and 100s of thousands of jobs in export sector.

What advantage would said countries have in changing to oil priced in euros? They have molded there economies for decades to produce the dollars surpluses needed to buy oil. Changing to euro priced oil would both require they acquire more euros and also deal with a large unneeded dollar surplus. They also have to try and protect all those jobs involved in exporting to US.

Oil priced in dollars is a three sided issue one side is US another is oil exporting countries and finally the oil importing ones. The current system is is mostly beneficial to oil importing countries and neutral to oil exporters. Changing to euro would be harmful to oil importers and potentially harmful to exporting countries if importing countries were not able to acquire needed euros for oil imports as they were dollars.

You also have the basic requirement for the reserve currencies economies to run permanent large trade deficits in order to allow oil importing countries to pay for there oil imports.

Pricing oil in euros while at same time having Germany trying to run a massive trade surplus simply isn't viable.
 

Goatman

ADC
Book Reviewer
#13
Thank you the continuing edumacation Siddar -bracingly didactic - but of the four poll options what is your response?
 
#14
I vote one because most likely the fish isn't imported so price will be unchanged. Unless as a result delinking US starts exporting fish to europe for euros to pay for its oil imports. That would cause the price to rise.
 
#15
see? lotsa clever people on here......now tell me why since 1971 the US Dollar has been underpinned not by the discredited 'gold standard ' ( even though US has the world's largest holding) but by something called the 'petro dollar'....?

Y'all will appreciate I'm way out of my comfort zone here but < scratches head> ....According to the The Economist article, Iran controls the world's largest verified reserves ?.......the majority of oil trades CURRENTLY take place in dollars ?......the viability of USD as a currency depends on oil price ? (not least because of US oil holdings both domestically and via Big Oil players such as Exxon/Texaco and oil-industry related Halliburton).

Ahem.....quite apart from the Embassy hostage/Desert Eagle fiasco I'd say that Sam has sound economic reasons for wanting Iran destroyed - none of which are to do with any threats to the West or indeed any existential threats to USA's staunchest ally/ bear keeper in the region ...... er....n'est-ce pas ?
My bold. Not by a long long way. Venezuela is currently top according to OPEC Saudi Arabia is still miles ahead of Iran.
 

Goatman

ADC
Book Reviewer
#16
So The Economist graphic is incorrect - or my reading of it ? I note it refers to oil and GAS - not sure if this alters the picture?
 
#17
So The Economist graphic is incorrect - or my reading of it ? I note it refers to oil and GAS - not sure if this alters the picture?
Gas would alter it by a huge amount, but does not really paint a true picture of the viability of a country's proven reserves. Transportation and storage of gas is far more difficult than liquids (oil). In many places gas is not financially viable - especially offshore - because there has to be a certain amount of gas under enough pressure with a supporting infrastructure to transport it and store it. Oil & condensate is easier because the infrastructure usually exists in oil producing countries; does not need to be under high pressure for transport and storage; and is easier to contain (safer).

Throwing in proven gas reserves is a bit of a white elephant IMO.
 
#18
I vote one because most likely the fish isn't imported so price will be unchanged. Unless as a result delinking US starts exporting fish to europe for euros to pay for its oil imports. That would cause the price to rise.
i voted one because everyone and there dog prints there own euro's its the most insecure currency in the world owing to its close relationship with monoploy and being completly worthless on the world stage, if it wasnt for the ERM thats still in place altering the euro's value so germany gains a more favourable export ratio it would of gone down the toilet several years ago. gotta love the fact they knew how easy it was to print your own before they went into production (anyone with a printing press can produce a passable result so long as there making the watermarked paper) and they were scared of a free market currency run crushsing the project, its probably the main reason why the whole euro bloc is a trading joke instead of an economic power house.
 
#19
Gas would alter it by a huge amount, but does not really paint a true picture of the viability of a country's proven reserves. Transportation and storage of gas is far more difficult than liquids (oil). In many places gas is not financially viable - especially offshore - because there has to be a certain amount of gas under enough pressure with a supporting infrastructure to transport it and store it. Oil & condensate is easier because the infrastructure usually exists in oil producing countries; does not need to be under high pressure for transport and storage; and is easier to contain (safer).

Throwing in proven gas reserves is a bit of a white elephant IMO.
isnt that the job of economists to sell lies and alter things to suit there own agenda, or at least the agenda of the people pulling the purse strings ....
 
#20
isnt that the job of economists to sell lies and alter things to suit there own agenda, or at least the agenda of the people pulling the purse strings ....
I personally think the Economist is a very intelligent publication - without reading the article it's impossible to comment on whether I believe it to be accurate.

An economist in an oil company will be there to assist the maximisation the profit or potential profit of the company by accurate forecasting, but a decent one with an ounce of common sense and a reputation to maintain would not 'cook the books' - if the CEO wanted to do that then he should be the one to take the risk.

I am in a different field in an O&G company, but if the CEO wanted me to lie about 'things' I would refuse. I can't think of a colleague who would do differently. Ultimately, it is the CEO who decides which pieces of information he will present to the board and shareholders, not the economist.

Edited to add: Actually I can think of some mendacious lying colleagues, but only one of them reports to the CEO
 

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