Tuesday, May 04, 2004

Dollar hegemony doesn't hold oil

The notion that the USA invaded Iraq to bolster dollar hegemony by ensuring Iraq wouldn't price in Euros is baseless. Witness the grumblings out of OPEC from January 12:

Several members of the Organization of Petroleum Exporting Countries are seeking formal talks on using the euro, as well as the U.S. dollar, when determining price targets for crude, a senior oil minister within the cartel said Monday...
Mr. Ramirez did not specify which OPEC members are pushing the proposal, but much of the impetus is believed to come from Persian Gulf producers.
They have seen their purchasing power in Europe pinched as the U.S. dollar loses ground against the euro — including touching a record low Monday.

Clearly, invasions don't eliminate the fundamental economic incentive to price oil in Euros, spurred by the decline of the US dollar relative to the Euro. You can't fight the market.

This gold bug site noted that the price of crude oil has been steady against the Euro from 2001-2003. (It's also worth observing that while gold may be appreciating against the US dollar recently, it's been essentially range-bound against the Euro during that same span.)

The market has a simple message: that Euro has dictated the effective price of oil and gold since 2001, not the US dollar. The Euro is a price-stabilizing influence in the global economy, evidence of its emergence as an economic locus.

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