Petroeuro Petrodollar
So I guess I had heard of this before and it made sense, but somehow crossing a discussion of it today made me say to myself "Why didn't I pay more attention to this idea before?"
In any case, here's the proposed scenario (somewhat simplified):
1. In the beginning, OPEC mandates that only US Dollars can be used to trade for oil.
2. This has hepled to maintain a superior US economy (among other things).
3. Iraq begins to trade Oil for Euros.
4. We bomb the crap out of them.
5. No one ever trades oil for anything but dollars ever again.
This link has a lot of details, plus some great history, but since it's very long, here's a few excerpts:
World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy. The world's interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies. To prevent speculative and manipulative attacks on their currencies, the world's central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world's central banks to acquire and hold more dollar reserves, making it stronger. This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars. Everyone accepts dollars because dollars can buy oil. The recycling of petro-dollars is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973.
In a major challenge to "dollar hegemony," in October 2000 the government of Iraq discontinued using the dollar for its reserves and international transactions, in favor of the euro. The value of the euro relative to the dollar was declining at the time, and commentators predicted that the move would be costly, because of the dollar's use in international oil trade. Between 2001 and February 2003 almost all of Iraq's oil exports were paid for in euros, amounting to approximately $30 billion. Over the same period, the value of the euro relative to the dollar increased by 30%.
Shortly after the Iraqi move, Jordan set in motion a bilateral trade arrangement with Iraq, also transacted in euros. By August 2002 Iran had converted more than half of its foreign exchange reserve fund to euros, and China had begun exchanging some of its reserve fund from dollars to euros. In the same period Russia's Central Bank doubled its euro holdings to 20% of $48 billion. Speaking to a Spanish Finance Ministry conference in 2002, senior Iranian oil official Javad Yarjani remarked that "It is quite possible that as bilateral trade increases between the Middle East and the European Union, it could be feasible to price oil in euros. This would foster further ties between these trading blocs by increasing commercial exchange, and by helping attract much-needed European investment in the Middle East."
In any case, here's the proposed scenario (somewhat simplified):
1. In the beginning, OPEC mandates that only US Dollars can be used to trade for oil.
2. This has hepled to maintain a superior US economy (among other things).
3. Iraq begins to trade Oil for Euros.
4. We bomb the crap out of them.
5. No one ever trades oil for anything but dollars ever again.
This link has a lot of details, plus some great history, but since it's very long, here's a few excerpts:
World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy. The world's interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies. To prevent speculative and manipulative attacks on their currencies, the world's central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world's central banks to acquire and hold more dollar reserves, making it stronger. This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars. Everyone accepts dollars because dollars can buy oil. The recycling of petro-dollars is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973.
In a major challenge to "dollar hegemony," in October 2000 the government of Iraq discontinued using the dollar for its reserves and international transactions, in favor of the euro. The value of the euro relative to the dollar was declining at the time, and commentators predicted that the move would be costly, because of the dollar's use in international oil trade. Between 2001 and February 2003 almost all of Iraq's oil exports were paid for in euros, amounting to approximately $30 billion. Over the same period, the value of the euro relative to the dollar increased by 30%.
Shortly after the Iraqi move, Jordan set in motion a bilateral trade arrangement with Iraq, also transacted in euros. By August 2002 Iran had converted more than half of its foreign exchange reserve fund to euros, and China had begun exchanging some of its reserve fund from dollars to euros. In the same period Russia's Central Bank doubled its euro holdings to 20% of $48 billion. Speaking to a Spanish Finance Ministry conference in 2002, senior Iranian oil official Javad Yarjani remarked that "It is quite possible that as bilateral trade increases between the Middle East and the European Union, it could be feasible to price oil in euros. This would foster further ties between these trading blocs by increasing commercial exchange, and by helping attract much-needed European investment in the Middle East."
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