Ditch the dollar. That’s what Iranian President Mahmoud Ahmadinejad urged his fellow OPECers to embrace. It’s a move that makes the Financial Times‘ editorial board think that Iran’s strategy is to hit the United States’ “soft underbelly”: the dollar. “They get our oil and give us a worthless piece of paper,” Admadinejad told reporters after the summit.
It’s a good thing this man is pulpit puppet. He would have the get the Saudis to turn the key. That would be like asking them to cut off the leg that’s still holding their kingdom up: American power. So says the FT. Because,
Iran can invoice its oil customers in cowrie shells if it likes, but that would not change the underlying value of the product. Shifting oil markers to other currencies would only make for inefficient markets. It could potentially hit the dollar, though only through secondary effects: by knocking confidence and spurring diversification of global foreign exchange holdings.
The Saudi’s delimma:
It would have to weigh the temptation of a wholesale riyal revaluation or dumping of dollar assets against the risk of destabilising the economy of the US, which is simultaneously the world’s largest oil consumer and ultimate guarantor of Saudi’s security.
Don’t hold your breath.
Perhaps feeling left out, Venezuela’s Hugo Chavez also snipped at the States. “If the United States is crazy enough to invade Iran or attack Venezuela once again, then the price of oil will not stay at 100 dollars a barrel, but may rise to 200 dollars,” he declared.
Whether it’s dump the dollar or not, silence about the potential dollar/oil crisis seems a bit dated. Crude is now bubbling at a cool $100 a barrel. And OPEC is refusing to pump more. Like or not one can’t deny the dollar’s slide next to the rise in the price of oil. It all makes sense really. The two most valuable things on this planet are oil and U.S. bills. One drops as the other rises. Having the Euro displace the dollar could start a global dollar sell off.
And then there’s Russia. Kommersant tells us via Interfax that Russian Finance Minister Alexei Kudrin is ready to jump on the dump the dollar bandwagon. He said it was possible to move to selling Russian oil in rubles in five years. Kudrin better sit down before he falls down. As of today, one rubles are 24 for a dollar. Euros are selling for a $1.48 each. And the dollar’s drop has given the Russians a case of inflation. Even Kudrin knows this. Read his lips: “In the short and middle term, the ruble has manifested sufficient stability and even appreciation, but we are the country yet impacted by high risks of capital movement, changes of current account, other capital indicators capable of affecting the exchange policy.”
So while “Dump the Dollar” is a good slogan for OPEC, its bad news for Russia. That said, Kurdin’s quip about joining the “D the D” club will certainly make for a nice political slogan.