Saddam Wanted to Sell Oil in Euros

Off Topic Politics & World Issues
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OPEC countries agree to sell their oil for dollars only. This means that oil importing countries, like Japan, needed to hold dollar reserves in order to be able to buy oil. So long as this remaines the case, the Euro is unlikely to become the major reserve currency.

There is not a lot of point to stockpiling Euros if every time you need to buy oil you have to change them into dollars. But in November 2000 Iraq switched to the euro, with potentially perilous consequences for the US. Only one country has the right to print dollars: the US! If OPEC were to decide to accept euros only for its oil, then American economic dominance would be over. Not only would Europe not need dollars anymore, but Japan which imports over 80% of its oil from the Middle East would have to convert most of its dollar assets to Euro assets (Japan is of course the major subsidiser of the US). The US on the other hand, being the world’s largest oil importer would have to acquire Euro reserves, i.e. it would have to run a trade surplus. The conversion from trade deficit to trade surplus would have to be done at a time when its property and stock market prices were collapsing and its own oil supplies were contracting. It would be a very painful conversion; potentially disastrous.

Anyone want to give their thoughts on this?

This is the reason we attacked Iraq and took Saddam down.

How about a new thread on the UNOCAL pipeline and the Taliban…

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No responses?

I asume the political ‘crips’ and ‘bloods’ knew all about this…

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The dollar is the premier currency because of the sheer size of the US economy. It is also held because it is safe. No other country threatens us or has the capability to dictate. That’s why business is conducted in dollars. Corruption in the US is also insignificant compared to many other countries.

Since we didn’t buy Iraqi oil it actually doesn’t matter how Sadaam wanted to be paid. Nobody was beating a path to his door regarding the Euro’s.

As long as the US has the largest economy and is the largest consumer of oil…we’ll tell the producers what currency we will pay for it in, not the other way around. That’s global business.

An interesting aside. The world’s oil trade and thier economies exists under the blessing of the US Navy. The US is the only naval power that can effectively blockade a region or country, including China. Oil is moved via tanker. If OPEC decided not to sell us oil, it would not take long to change their mind. The OPEC producers long ago decided not to screw with thier best customer. Nixon explained as much to the Saudi’s to end their embargo in the 70’s.

4

[quote]Marmadogg wrote:
…
This is the reason we attacked Iraq and took Saddam down.

…[/quote]

Do you honestly believe this?

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If saddam dealt in euros, it would have saved the internation community “france/germany” a step when cashing in their bribes.

They wouldn’t have had to convert Iraqi currency into Euros.

JeffR

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[quote]Marmadogg wrote:
No responses?

I asume the political ‘crips’ and ‘bloods’ knew all about this…[/quote]

You expected a response in 20 minutes? Anyway, this is old news and a plausible tale as well. The only problem for anyone trying this is that there is no one waiting in the wings to take over policing the globe as we do. Remember when the US took over from Britain? We had a Great Depression! Imagine a world with no one to take over this painfully necessary role! Unless some country has a wish to cause another depression, this won’t happen; at least until the Chinese are ready to take over the cop role (don’t count on that).

7

I posted this assertion to see what type of responses I would get.

The resident right wingnuts on this board did not try to thoughtfully debunk this assertion.

The only thoughtful response was from hedo but the point was missed. Selling oil in Euros vs. US dollars has nothing to do with embargos, blockades, nor invading Saudi Arabia like Nixon threated.

Can anyone debunk this without resorting to sarcasm?

8

[quote]Marmadogg wrote:
I posted this assertion to see what type of responses I would get.

The resident right wingnuts on this board did not try to thoughtfully debunk this assertion.

The only thoughtful response was from hedo but the point was missed. Selling oil in Euros vs. US dollars has nothing to do with embargos, blockades, nor invading Saudi Arabia like Nixon threated.

Can anyone debunk this without resorting to sarcasm?[/quote]

Marmadog

Debunk what?

Both the dollar and euro are convertible on a worldwide basis and a ready, liquid market exists for both overseen by central banks. The effect of selling in “euro’s only” would effect the seller more then the buyer.

Regardless, it would be impossible and financially foolish for a minor producer to try and dictate payment terms to a major consumer and producer.

I wouldn’t doubt Sadaam would have liked to sell his oil in Euro’s but as to it being meaningful, the answer is no. Therefore I don’t think it was an underlying reason for the invasion.

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THere’s nothing to comment on, as many of the OPEC countries had been moving toward Euros, and a lot of Asian countries, who also hold huge dollar reserves because of trade with us and because the dollar is a pegged currency in many countries over there – especially after the currency debacle back in the 90s.

And aside from that, one would have to assume that Iraq could have conceivably, by itself, set off a world-wide move away from the dollar. THere are lots of reasons to be worried about the dollar (trade deficits being the biggest), but the fact that so many countries have so much tied up in the value of the dollar makes a mass movement unlikely.

In other words, considering the sale of oil in Euros didn’t make Saddam special, or create a causus belli – either up front, or behind the scenes.

Post hoc ergo propter hoc is a fallacy. There’s nothing there to make one think of causation.

10

Yes I’ve heard of this too. The US dollar has been valued highly over the years because demand for it has been kept ‘artificially’ high. Since Bretton Woods collapsed in the 70’s the demand has been kept up by oil exporters selling their oil only for dollars.

What other reason is there for a foreign country to have dollars anyway, the US hardly produces anything anymore! If demand were to drop supply/demand says that the price of the dollar would drop and hence all of us in the US/Canada would be able to import fewer cheap foreign goods. I’d say that this petro dollar privilege is worth fighting over.

11

[quote]Loyal_Soundwave wrote:
Yes I’ve heard of this too. The US dollar has been valued highly over the years because demand for it has been kept ‘artificially’ high. Since Bretton Woods collapsed in the 70’s the demand has been kept up by oil exporters selling their oil only for dollars.

What other reason is there for a foreign country to have dollars anyway, the US hardly produces anything anymore! If demand were to drop supply/demand says that the price of the dollar would drop and hence all of us in the US/Canada would be able to import fewer cheap foreign goods. I’d say that this petro dollar privilege is worth fighting over.[/quote]

In that case you’d better take the fight to Congress, because your so-called privilege is only as good as the rate of exchange, which if you hadn’t noticed is heading South at a great rate of knots. Lack of fiscal discipline among the soi-disant ‘conservatives’ is the main reason.

Save your precious gasoline. Soak the rich.

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[quote]Loyal_Soundwave wrote:
Yes I’ve heard of this too. The US dollar has been valued highly over the years because demand for it has been kept ‘artificially’ high. Since Bretton Woods collapsed in the 70’s the demand has been kept up by oil exporters selling their oil only for dollars.

What other reason is there for a foreign country to have dollars anyway, the US hardly produces anything anymore! If demand were to drop supply/demand says that the price of the dollar would drop and hence all of us in the US/Canada would be able to import fewer cheap foreign goods. I’d say that this petro dollar privilege is worth fighting over.[/quote]

Kept high by whom?

What do you think determines the “value” of a currency against another?

13

[quote]hedo wrote:
Loyal_Soundwave wrote:
Yes I’ve heard of this too. The US dollar has been valued highly over the years because demand for it has been kept ‘artificially’ high. Since Bretton Woods collapsed in the 70’s the demand has been kept up by oil exporters selling their oil only for dollars.

What other reason is there for a foreign country to have dollars anyway, the US hardly produces anything anymore! If demand were to drop supply/demand says that the price of the dollar would drop and hence all of us in the US/Canada would be able to import fewer cheap foreign goods. I’d say that this petro dollar privilege is worth fighting over.

Kept high by whom?

What do you think determines the “value” of a currency against another?[/quote]

As I understand it, currencies float against one another in price due to supply and demand just like everything else. In the US dollars case it is easy to see the supply side of things; that is just how many dollars are in existence either in bank account money or paper money and those figures are easy to find. The harder part to see is the demand side.

People want dollars so they can buy stuff from the states or eventually trade it to someone who will buy something from the states. In the case of the arabs accepting only dollars for their oil that is a big reason for people to trade for dollars. I just find it curious as to why they don’t just trade for any currency. It sounds like a political game to me. Of course anyone who has dollars has an interest in their buying power, so its up in the air who is behind these games from that perspective.

My view of power in the US is that the elected officals do what they are told. They do what they are told because if the media turns against them then they will not be reelected. The media is owned by a handful of people. The Federal reserve is private organization owned by its member banks which are in turn owned by a handful of people. With the money and the media (tv, movies, newspapers, books, magazines, radio etc) at their disposal, these people can make the ‘government’ do anything.

14

[quote]hedo wrote:

Kept high by whom?

What do you think determines the “value” of a currency against another?[/quote]

Sigh. Time for Econ 101.

Basically, a bunch of Asian central bankers are keeping the dollar artificially high relative to their currencies, hence relative to all other currencies.

How do they do this? By using their flavor of money to buy scads of T-bills. See, if Japan converts yen to dollars and buys a bunch of T-bills, from the point of view of the value of the dollar it is as good as if they had converted yen to dollars and come over and had a good time in Hawaii, or bought a bunch of real estate, or some wood or some rice or something. It helps balance our chronic trade deficit. Without that, the dollar would be plunging even faster.

Why are they doing this? They realize that if the dollar slides too much, it will get more expensive for us to buy gym clothes and Adidas sneakers and Acuras from them, and then maybe we won’t buy so much, and then their economies will slow down.

First we had eurodollars, and then we had petrodollars, i.e. people in other countries wanted to hold dollars because they looked like a better currency.

This is no longer the case. Anybody in their right mind, if forced to take a position in currency, would rather have Euros or pounds sterling or Swiss francs than dollars, because lunatics are loose in Washington DC and the dollar is devaluing as a result.

So what we’ve got going for us now are a bunch of Asian central bankers that are trying to keep their export industries humming.

That’s what’s propping up the dollar at this time.

15

Incidentally, the fact that oil is bought and sold in dollars is not a particularly big deal. The big issue is whether the folks who sell the oil decide to deal with the proceeds as dollars. If they subsequently sell the dollars to buy some other currency they’d rather have, there is no net benefit to anyone in the United States. Some dollars got bought and some dollars got sold. End of story.

The per-barrel price of oil to us here in the states is quite sensitive to the value of the dollar relative to other currencies. When the dollar devalues, the price of a barrel of oil revalues.

This is why folks who drive SUVs should be quite concerned about the federal deficit. Strangely, they aren’t. Perhaps this is because FOX pumps stupid-gas into their living rooms.

16

Wow, totally interesting. I didn’t know people were using bags of money to buy up oil, I thought it was electronic transfers.

Why exactly would this have any effect on the value of the US dollar? The only thing that changes is the name of the supposed currency used.

The reason US currency us used is because it is a safe steady currency backed by a giant economy. Not because we get some sort of innocuous benefit.

If the government wants to increase the value of the dollar, then they tighten the supply. They do it all the time, mostly as an attempt to keep inflation in check.

This is another conspiracy theory not based in reality. The only link is the idea that Saddam was changing which currency to peg his oil at, and later we went to war. Well I bought a car and then we went to war, and these events were closer, so was there a correlation?

You need to prove a direct cause and effect for there to be any acceptance of this theory. Saying it does not make it true.

17

[quote]The Mage wrote:
Wow, totally interesting. I didn’t know people were using bags of money to buy up oil, I thought it was electronic transfers.

…

If the government wants to increase the value of the dollar, then they tighten the supply. They do it all the time, mostly as an attempt to keep inflation in check.
[/quote]

Bags of currency or electronic transfers, it’s all the same: dollars.

Monetary policy (setting interest rates) helps to tighten the supply of dollars by increasing what it costs to borrow them. This helps to control inflation as regards goods and services produced in this country. So far however the recent interest rate increases (the first in years) have not had much effect on how much money we spend on imported stuff, and so have had no effect on the value of the dollar relative to other currencies.

18

[quote]endgamer711 wrote:
hedo wrote:

Kept high by whom?

What do you think determines the “value” of a currency against another?

Sigh. Time for Econ 101.

Basically, a bunch of Asian central bankers are keeping the dollar artificially high relative to their currencies, hence relative to all other currencies.

How do they do this? By using their flavor of money to buy scads of T-bills. See, if Japan converts yen to dollars and buys a bunch of T-bills, from the point of view of the value of the dollar it is as good as if they had converted yen to dollars and come over and had a good time in Hawaii, or bought a bunch of real estate, or some wood or some rice or something. It helps balance our chronic trade deficit. Without that, the dollar would be plunging even faster.

Why are they doing this? They realize that if the dollar slides too much, it will get more expensive for us to buy gym clothes and Adidas sneakers and Acuras from them, and then maybe we won’t buy so much, and then their economies will slow down.

First we had eurodollars, and then we had petrodollars, i.e. people in other countries wanted to hold dollars because they looked like a better currency.

This is no longer the case. Anybody in their right mind, if forced to take a position in currency, would rather have Euros or pounds sterling or Swiss francs than dollars, because lunatics are loose in Washington DC and the dollar is devaluing as a result.

So what we’ve got going for us now are a bunch of Asian central bankers that are trying to keep their export industries humming.

That’s what’s propping up the dollar at this time.[/quote]

Endgamer,

Still in college? Just curious.

Your description is something that is taught in Freshmen economics with a little Anti-G8/World Bank bias thrown in.

It’s a fluid market. A bunch of “Asian Central Bankers” is kind of a naive statement. The Chinese currency is a little low right now but will find balance, as does the USD.

Oil is a world commodity and the US the largest buyer of this commodity. It only makes sense that it is bought and sold in dollars since the major US commodity markets are denominated in dollars.

If I was still on Wall St. I would trade you for all the Euro’s you have in a straight arbitrage. Been reading the paper lately? Nobody takes a big position in anything but dollars unless they are specualting on a short term currency swing. Sorry but that is the way serious people trade currency. Sorry if the prof’s aren’t teaching that. Even then you are hedging your positions with futures to minimize the risk.

Bye the way the folks who wrote your Econ 101 textbook…most likely lectured at my University.

19

As some others have posted, a good way to understand currency is to consider it as if it were any other kind of commodity, like wheat or uranium. The value depends on how useful the commodity is (demand) and on how much of it is available (supply).

The way dollars are produced is by borrowing, both by individuals and - lately massively - by the government.

The way dollars are consumed is by saving them in dollar-denominated savings accounts.

If there is too much of the former and too little of the latter, then we get an increase in the number of dollars in the world, and like any other commodity too much in supply, their value falls relative to the values of other commodities.

To the extent that the dollars are used to buy goods and services from, and make investments in, other countries, the over-supply of dollars is reflected as a worsening rate of exchange. To the extent the dollars are used to buy or invest American, the over-supply is reflected as inflation.

20

[quote]hedo wrote:
Still in college? Just curious.

…

Oil is a world commodity and the US the largest buyer of this commodity. It only makes sense that it is bought and sold in dollars since the major US commodity markets are denominated in dollars.

If I was still on Wall St. I would trade you for all the Euro’s you have in a straight arbitrage. Been reading the paper lately?[/quote]

Nah, I am far from college, and the last time I was there I studied anatomy, not econ.

Anyhow, yes that’s right: dollars are just a numeraire of convenience for oil because historically most of the oil has wanted to be bought for dollars.

You missed the point. I don’t want to sell you Euros for dollars, thanks. I’d rather sell you dollars for Euros, and then sell them back to you for more dollars than I bought them for next month.

Arbitrage is nothing but very short term trading across markets. It take advantage of minor value differences across different markets. As such, it unites those markets. Arbitrage is the reason that when the value of the dollar falls, the price of an oil contract climbs.