Collapse of the Petrol Dollar Looming

[Polly]

In his annual State of the Nation address to both houses of parliament on 10 May 2006, Novosti reports President Putin said that work on making the Rouble an internationally convertible currency would be completed by 1 July 2006, six months ahead of schedule. To promote the currency, he announced that an oil and gas stock exchange will be created in Russia, that would trade in Roubles.

"The rouble must become a more widespread means of international transactions. To this end, we need to open a stock exchange in Russia to trade in oil, gas, and other goods to be paid for in roubles." - Putin

Russia's oil exports represent 15.2% of the world's export trade in oil, making it a much more significant player than Iran, with 5.8% of export volumes. Russia also produces 25.8% of the world's gas exports, while Iran is still only entering this market as an exporter.

GlobeAndMail.com is reporting that President Chavez of Venezuela is considering following Iran's move towards pricing oil in Euros. Venezuela has 5.4% of the export market, although since the bulk of his country's exports are of heavy oil to the US, where it needs special facilities to process it, it would be a very brave or foolhardy President that told the US to buy its oil in Euros, or else ... Nevertheless, you can see the attraction for any country wanting to apply some pressure on the world's superpower. And where Venezuela leads, Bolivia may not be far behind. You can see how this could quickly get out of control.

While the Iranians have been suffering numerous delays in implementing their bourse, Russia could have their oil market up and running almost as soon as their currency market is ready to take on the work load, which might only be a few months away.

Some commentators on the Iranian proposal have suggested that the impact on the US Dollar would not be so great because the greenback is used for all sorts of trade, not just oil, so 5.8% of the international oil trade is really only a small part of the bigger picture. This argument looks a bit weak if both Russia and Iran will be lowering the demand for Dollars to buy oil and gas.

In order to counter the reduced demand for US Dollars, the standard control lever available to the Federal Reserve is to increase interest rates, over and above what it was going to be doing. This has the usual unwelcome consequences of dampening the US economy, and squeezing people with mortgages, which in turn leads to rising wages, falling house prices and a slump in the construction industry.

At the same time, lower demand for Dollars will weaken its conversion rate, making imports more expensive. With rising wages, fuel bills and debt-servicing feeding through into prices for home-produced goods, the stage is set for either an inflationary spiral or a recession. In the short term, the inflationary route always looks to be the less painful, but it can only lead eventually to a crisis of confidence in US Dollars, when traders abandon the paper and rush for the exit.

Full article: http://www.energybulletin.net/16110.html

[Polly]

In case any of you do not know already, I just realised that Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates have been working to establish their own currency  :

GCC Secretariat studies integrating capital markets
An industry source said that the GCC Secretariat is studying a proposal on integrating the capital markets of the region, Bahrain Tribune reported.

The source said that a study on ways to develop and integrate capital markets in the Middle East has been submitted to the Secretariat.

The move is expected to be in line with the creation of a single currency unit for the region, which is scheduled to come into effect in 2010.

The six country grouping created a common customs union in 2003 and is expected to pave way for the creation of a common market in 2007, all in line with the common currency regime.

The integration of capital markets, according to the source, would increase financial stability in the region, and added that such a move would promote the growth of the region's economies. It could lead to more employment.

http://www.middleeastforex.com/index.php?section=252

GCC: http://en.wikipedia.org/wiki/Gulf_Cooperation_Council

[The Smoking Man]

Mercator published This Link on Shanghai-ed years ago.

I think he published it on PF too and they called him a fool.

[Heathen]

The U.S. doesn't want to be dependent on other countries for oil, so I can understand other countries not wanting to be dependent on the US$.  However, if Russia trades petrol in rubles, and Iran in Euros, and the six Arab countries in their common currency, then no one currency will dominate against the US$.  This may be a good thing for all countries in the long run.

In the short term, I would guess the Dubai Port deal may have originally been intended as leverage to keep Arab countries in line like Venezuela.  But while I feel rising wages and falling house prices are needed in the U.S., if other effects of inflation take an already strained economy into a recession it will suck of course.  Some have feared a run on the banks.  But without the gold standard, what good is it to pull out greenbacks?

About the other thread regarding gold, precious metals don't seem to be as much a hedge in a poor economy as it used to.  Many go for commodities instead--food will always be needed.  Real estate is good as long as the rate is fixed and the property isn't purchased at an artificially high price.  And once again, one always needs a roof overhead.

Oh the day when a person could just live off the land...

Mercator published This Link on Shanghai-ed years ago.

I think he published it on PF too and they called him a fool.

I know Art did, and PF ignored it.  Then I posted about it, and Polly as well, and finally a little interest.  Still, some people in the U.S. are determined to believe all is well (e.g., plenty of good jobs, etc.) and always a bright future ahead.  What, me worry?

[The Smoking Man]

[The Smoking Man]

Well, this has always been my contention regarding the 'propping up' of the Chinese currency VS the USD.

The USD is artificial too when considered against the 'petrodollar' vs the amount of internal credit abuse and the deficite.

Traditionally in the past, when the USA was pissed at a foreign nation, they would threaten to call loans.

I think the piss off now is that if they take on China head on, China would just dump t-bills and destroy the US economy by making them worthless at the same time as floating the Yuan. One would do a  lot to cancel the other leaving them poised nicely against the euro and frying the dollar.

And if 50% of the oil industry is priced against other currencies ...

WHAM!!!

America becomes an agressor nation having to in effect, invade to stay afloat.

Question is ... would that be before or after the rapture?

[Mercator]

Haha, where are the times... That's 3 years ago, amazingly.

"Speaking to British MPs, Prime Minister Tony Blair was just as explicit: "Let me deal with the conspiracy theory idea that this is somehow to do with oil. There is no way whatever if oil were the issue that it would not be infinitely simpler to cut a deal with Saddam...."

HAhaha, if only he would have had the benefit of hindsight. Or just plain good sense like the lot of us.

[Heathen]

Cheneys betting on bad news?
A look at the president and vice president's financial disclosure forms.
By Kiplinger's Personal Finance Magazine

Vice President Dick Cheney's financial advisers are apparently betting on a rise in inflation and interest rates and on a decline in the value of the dollar against foreign currencies. That's the conclusion we draw after scouring the financial disclosure form released by Cheney recently.

http://articles.moneycentral.msn.com/Investing/Extra/CheneysBettingonBadNews.aspx?GT1=8283

[Polly]

 



Haha I expected almost as much.  Either that or "Mr Cheney has a natural distain for wealth", or "Mr Cheney has no financial sense, as a matter of fact, he can bearly count to 20".  Right