In today’s world economy the hot money is betted over crude oil. It is a daily necessity of all economies as it is the lifeblood for them. Crude oil prices behave much as any other commodity with wide price swings in times of shortage or oversupply. The crude oil price cycle may extend over several years responding to changes in demand as well as OPEC and non-OPEC supply.
The three current oil markets are all US dollar denominated: North America's West Texas Intermediate crude (WTI), North Sea Brent Crude, and the UAE Dubai Crude. The two major oil bourses are the New York Mercantile Exchange (NYMEX) in New York City and the International Petroleum Exchange (IPE) in London. This means that if you want to buy crude oil you will have to pay in U.S $ and even sell it in exchange of the same. Since, crude-oil cannot be bought or sold in any other currency every nation has to buy U.S $ and gear up their dollar holdings first. The demand for crude oil transforms into demand for U.S $ reserves across the world. From that point, every nation that needed to buy oil had to firstly hold US dollars, which meant that they exchanged their goods and services for dollars, which the Americans just printed.
There is no serious indication that the countries of the world, including the oil exporting countries are ready to accept a Euro based oil market. Since 1986 the oil prices are determined according to complex tables and spot changes in the New York and London exchange markets. OPEC countries are not ready to change the basis for oil transactions so easily. OPEC has tried several times to change the basis for the oil prices to Euro, or Special Drawing Rights (SDRs of the IMF) or a basket of currencies and each time it has been abandoned.
Now, imagine a situation when more and more OPEC nations agree on selling crude oil in exchange of other major currencies like Euro, Yen or Pound. What if even the Americans also have to buy their oil with Euro or Ruble instead of U.S $ (which they just printed)? All nations then would not have the acute necessity to exchange their goods/services for U.S $ and thus the demand for U.S $ would go down. Also, the Americans may face the end of their ‘free lunch’ – the crude oil they bought by printing U.S $.
Professor Krassimir Petrov, from the American University in Bulgaria (his article on this subject has been used by countless sources and websites as an academic argument for the validity of petrodollar wars theory) writes: "... Bush's war in Iraq was not about existing weapons of mass destruction, about defending human rights, about spreading democracy, or even about seizing oil fields. It was about defending the dollar, ergo the American Empire; it was about setting an example that anyone who demanded payment in currencies other than U.S. Dollars would be likewise punished....”
The three current oil markets are all US dollar denominated: North America's West Texas Intermediate crude (WTI), North Sea Brent Crude, and the UAE Dubai Crude. The two major oil bourses are the New York Mercantile Exchange (NYMEX) in New York City and the International Petroleum Exchange (IPE) in London. This means that if you want to buy crude oil you will have to pay in U.S $ and even sell it in exchange of the same. Since, crude-oil cannot be bought or sold in any other currency every nation has to buy U.S $ and gear up their dollar holdings first. The demand for crude oil transforms into demand for U.S $ reserves across the world. From that point, every nation that needed to buy oil had to firstly hold US dollars, which meant that they exchanged their goods and services for dollars, which the Americans just printed.
There is no serious indication that the countries of the world, including the oil exporting countries are ready to accept a Euro based oil market. Since 1986 the oil prices are determined according to complex tables and spot changes in the New York and London exchange markets. OPEC countries are not ready to change the basis for oil transactions so easily. OPEC has tried several times to change the basis for the oil prices to Euro, or Special Drawing Rights (SDRs of the IMF) or a basket of currencies and each time it has been abandoned.
Now, imagine a situation when more and more OPEC nations agree on selling crude oil in exchange of other major currencies like Euro, Yen or Pound. What if even the Americans also have to buy their oil with Euro or Ruble instead of U.S $ (which they just printed)? All nations then would not have the acute necessity to exchange their goods/services for U.S $ and thus the demand for U.S $ would go down. Also, the Americans may face the end of their ‘free lunch’ – the crude oil they bought by printing U.S $.
Professor Krassimir Petrov, from the American University in Bulgaria (his article on this subject has been used by countless sources and websites as an academic argument for the validity of petrodollar wars theory) writes: "... Bush's war in Iraq was not about existing weapons of mass destruction, about defending human rights, about spreading democracy, or even about seizing oil fields. It was about defending the dollar, ergo the American Empire; it was about setting an example that anyone who demanded payment in currencies other than U.S. Dollars would be likewise punished....”
9 comments:
Anirban,
What do you think would happen if the trade of crude oil starts in other currencies say pound sterling, euro, yen etc.?
Also, Would it have an effect on the Inflation Rate in India? Would it further grow or decrease ?
Regards,
Deeptaman Mukherjee
http://marketingenvironment.blogspot.com/
As the nations of the world find that they can buy oil for their own currencies instead of holding paper US dollars, more OPEC nations will abandon the dollar. The worst thing for the Americans is that eventually, they will also have to buy their oil with Euro or Rubles instead of just printing paper money to get it.
That will be the end of the American Empire, the end of funding for the US military and the destruction of the US economy.
Wait and Watch… only few years/months ahead.
Oil prices are at record levels only in US$ terms, but not in other currencies. The trend in daily oil prices in US$ and euros since the introduction of the latter in 1999 shows that while oil prices in dollars are near record levels, oil prices in euro are almost 25% lower than those that prevailed in the summer of 2000. Oil prices in dollars have been increasing since November 2003, while those in euros started to increase a few months later, in February 2004. However, oil prices in dollars have increased by 54%, while those in euros have increased by only 31%.
So you can buy oil at a cheaper rate for Euros than US$. This would definitely cut down the supply-side inflation rate in India.
I hope, its just a matter of time that Euro rocks in the global economy.
Anyways, Nice Info.
Thank you.
The last 2 major designated wars on terrorism actually took place for petro dollars. Iran is next in queue. But, i diagree that US can print dollars at will to bounce on petro dollars. Biggest holders of petro dollars are the middle east nations and the Federal Bank and IMF have been trying in vain for more than 2 decades to track their petro dollars. India is too small a spec for all this.
Checkmy blog at:
http://investorstreet.blogspot.com/
I agree with Rahul on his first statement. People do not realize the real reason for the Iraq war and the current war threat against Iran by USA.
It's not the nukes, it's not the terrorism and it's not the oil. It's all about the protection and propping up of the greatest con-job in recent history, the US Petrodollar Scam.
Now on to his second statement; back in 1971, the USA printed and spent far more paper money than it could cover by gold. Few years later, French demanded redemption of its paper-dollar holdings in gold. But the USA rejected as it actually didn't had enough gold for the dollars it had already printed and spent all over the world (to finance Vietnam and LBJ's Great Society), thus committing an act of bankruptcy.
In 1971, as it became clearer and clearer that the U.S Government would not be able to buy back its dollars in gold, it made in 1972-73 an iron-clad arrangement with Saudi Arabia to support the power of the House of Saud in exchange for accepting only U.S. dollars for its oil. The rest of OPEC was to follow suit and also accept only dollars. Because the world had to buy oil from the Arab oil countries, it had the reason to hold dollars as payment for oil. Because the world needed ever increasing quantities of oil at ever increasing oil prices, the world's demand for dollars could only increase. Even though dollars could no longer be exchanged for gold, they were now exchangeable for oil.
Dollarisation of the oil markets is one of the key drivers for this, alongside, in recent years, the performance of the US economy. The majority of countries that require oil imports require dollars to pay for their fuel. Oil exporters similarly hold, as their currency reserve, billions in the currency in which they are paid. Investing these petrodollars straight back into the US economy is possible at zero currency risk.
So the US can carry on printing money - effectively IOUs - to fund tax cuts, increased military spending, and consumer spending on imports without fear of inflation or that these loans will be called in. As keeper of the global currency there is always the last-ditch resort to devaluation, which forces other countries' exporters to pay for US economic distress. It's probably the nearest thing to a 'free lunch' in global economics.
Well According to me, I have no doubt that Americans are enjoying "free lunch". They have been printing dollars at their own will which is clearly visible in the war they did against IRAQ on the grounds that the latter possessed nuclear weapons (by the way where are those nuclear weapons??). The fact was that Saddam caught hold of the US printing dollars at will and asking OPEC countries to trade in dollars so that they can sell those atwill printed dollars at the market price of the dollar and back their much hyped and appreciated US army funding and production of weapons for mass destruction and threatening weaker countries.
The twin tower drama is no longer the mystery.The attack was incredibly blamed on IRAQ.
Another incidence of this petro-dollar scam will be visible when US will attack the country which will violate US dollar trading for crude oil. The possible country we all know is IRAN.
Countries will realise it sooner or later.
printing dollars was easy then. not now. IMF monitors global dollar pool now.
In his address before the House of Representatives Hon. Ron Paul of Texas (on February 15, 2007) had vehemently denounced U.S Fed's fiscal policies.
His complete speech is available at: http://www.house.gov/paul/congrec/congrec2006/cr021506.htm
Despite of IMF's surveilance measures [IMF Standards for Data Dissemination], the grain of doubt still remains. Rahul, you would not agree less with me if you refer to Ron Paul's speech where he went on to say "... For the most part the true victims aren’t aware of how they pay the bills. The license to create money out of thin air allows the bills to be paid through price inflation. American citizens, as well as average citizens of Japan, China, and other countries suffer from price inflation, which represents the “tax” that pays the bills for our military adventures. That is until the fraud is discovered, and the foreign producers decide not to take dollars nor hold them very long in payment for their goods. Everything possible is done to prevent the fraud of the monetary system from being exposed to the masses who suffer from it. If oil markets replace dollars with Euros, it would in time curtail our ability to continue to print, without restraint, the world’s reserve currency."
And this is reason enough to raise our brows against the activities of Bernanke's brigade too.
god help Pickens then.
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