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October 10, 2003 12:18 AM   Subscribe

Russia to price oil in euros
posted by poodlemouthe (43 comments total)

 
ohfuckohfuckohfuck - there goes the us economy.

(I'm sorry for the nonconversational one liners, but I getting depressing news on a relatively crappy day)
posted by lostboy at 12:26 AM on October 10, 2003


This is excellent news. There was a suggestion that Saddam's decision to price oil in euros was one of the reasons the Americans decided Saddam had to go - and to "persuade" others in the region not to follow suit.

The world needs an alternative to the dollar. The euro is not that yet, but this is the sort of step that will help it.
posted by salmacis at 12:26 AM on October 10, 2003


good job dubyah.
posted by delmoi at 12:42 AM on October 10, 2003


So because the price it in euros does that mean they're not going to accept dollars for it.
posted by PenDevil at 12:46 AM on October 10, 2003


Okay ... imagine I know squat about international finance and economics (I actually know less). Why is this bad for the US?
posted by RavinDave at 12:48 AM on October 10, 2003


Isn't this a liberateable offense?
posted by Ignatius J. Reilly at 12:59 AM on October 10, 2003


Because the U.S. struck deals with the Saudis in the 70's to protect their regime (which they're still doing) if the Saudis would accept U.S. dollars exclusively for the oil they export. As of right now, the U.S. dollar is basically the exclusive currency for oil prices, which helps buoy the dollar's value even in a sweeping recession.

Iraq priced their oil in euros before the war (as well as their ten billion dollar a year food-for-aid program), and Iran was making rumblings of doing the same, which is some the macroeconomic reasons underlying the war. Interestingly, OPEC also made a statement recently that they wouldn't rule out a switch to the Euro in the future. It's also of note that if the U.S. pumps up oil production in Iraq from 2-3 million barrels a day to 7-8 million (as they plan), it could decrease the price of oil from $22-$28 a barrel to about $15, which would in turn decrease OPEC's power base.

Here's quote from an article I read recently (which is where I got most of this information): The US prints hundres of billion of fiat dollars, [i.e. with government backing -- not gold backing] which US consumers provide to other nations via trade when we purchase their imported goods. Hundreds of billions of these dollars then become petrodollars, when used by nations to purchase oil/energy from OPEC producers. Depending upon the price of oil, approximately $600 to $800 billion petrodollars are annually 're-cycled' from OPEC sales and invested back into the US via Treasury Bills or other dollar-demoniated assets.

Basically, it eliminates any fluctuation in America's buying power of oil (even if their dollar value drops), and since oil is the world's most valuable resource, well...

I'm no world financeer by any means (if anyone has information to contradict this, I'm all ears), but I hope that helped.
posted by The God Complex at 1:05 AM on October 10, 2003


(I don't know what happened to my italics there, but pretend they extend until the end of that paragraph in the middle.)
posted by The God Complex at 1:06 AM on October 10, 2003


From this article in The Economist:
Russia’s oil industry...has dramatically increased its extraction rate. Russia is now the world’s second-largest exporter of oil and its position now threatens the OPEC cartel, which recently said that it will not cut its production quotas any further without similar action from non-members like Russia.
Recent Forbes article on dollar policy.

Interesting times ahead. Is it me or is the world manouvering to ease the power of the USA in the oil markets following the liberation/invasion of Iraq?
posted by i_cola at 1:44 AM on October 10, 2003


If a lot of countries decided to have their currency reserves predominantly in euros rather than dollars, it could de-stabilise the dollar. (In fact, because of currency speculation, the de-stabilisation could happen just because some speculators think it might). The big problem would come if [non-US] banks stopped buying US government bonds (this is unlikely to happen, but if the dollar destabilised enough, and the euro looked strong) - at this point you would not be able to borrow enough money from foreign banks to cover the deficit spending, and things start to go horribly wrong at this point.
posted by BigCalm at 1:46 AM on October 10, 2003


As a fervent pro-European, hurrah!

As a British citizen, I am banging my keyboard against my head at the idiocy of my government, which has managed to screw us completely on this -- now there are two major world currencies for oil-trading, and we're not part of either of them. Prats. Prats. Prats.
posted by Hogshead at 1:52 AM on October 10, 2003


Yes, but with newspapers like the Daily Mirror around, I can't see the euro happening to Britain very soon.
posted by BigCalm at 1:58 AM on October 10, 2003


Interesting point, i_cola - if Putin and Schroder are working together to deliberately reign back the US, this could get seriously interesting. And if a Middle Eastern state or two makes the switch... well, the Bush administration is going to be in a sticky spot.

What's the betting that a future administration in Iraq goes Euro the minute they have the chance? Or rather, what's the betting this means the US will keep a very tight grip on Iraq?
posted by jack_mo at 2:04 AM on October 10, 2003


but with newspapers like the Daily Mirror around or The Sun, the Mail, The Express, The Star, The Telegraph..

We have to face it in the UK that any Euro debate will not centre around the economic pros and cons but simply around the fact that people wish to hang onto the pound for sentimental reasons. "If we have the euro we will be ruled by Brussels and have no national identity" blah blah blah. 'Cos the French/Germans/Spanish et al, not longer have a national identity. Yeah right.
posted by jontyjago at 2:09 AM on October 10, 2003


manoeuvring *blegh*

Hogshead: Ah well, at least we didn't blow all of the North Sea oil money...

Interesting [word of the day!]thought: Does the fact that the euro is likely to be less prone to political interferrence (harder to dick around with due to 'beaureauacracy') than the dollar, make the euro a more attractive currency for world markets in general?

Also worth noting (I nearly FPPed this): The recent ASEAN summit in Bali announcing plans for an EU-style economic community.
Comment from Indonesia's main daily, the Jakarta Post, Japan's Ashai & Singapore's Straits Times.
posted by i_cola at 2:22 AM on October 10, 2003


Currently almost all oil is purchased in dollars. This means that countries that buy oil have to first convert their local currency into dollars, and then buy the oil. That acts as a non-trivial component of international demand for the dollar, which pushes up its value. So the effect of this should be to cause the dollar to drop in the short to medium term.
Also, it's a show of no confidence. If the Russians are expecting the dollar to drop on its own, then pricing in euros will increase the number of euros they get for a barrel.

Once gold is no longer priced in dollars, the Dubya regime will have more difficulties getting the rest of the world to fund the deficit.
posted by vvv at 2:41 AM on October 10, 2003


Isn't this a liberateable offense?

Excellent.
posted by stavrosthewonderchicken at 2:47 AM on October 10, 2003


beaureauacracy?
interferrence?

Damn that 5th finger...
posted by i_cola at 3:33 AM on October 10, 2003


We have to face it in the UK that any Euro debate will not centre around the economic pros and cons but simply around the fact that people wish to hang onto the pound for sentimental reasons. "If we have the euro we will be ruled by Brussels and have no national identity" blah blah blah. 'Cos the French/Germans/Spanish et al, not longer have a national identity. Yeah right.

Whilst it's true that certain sections of the media border on xenophobia when discussing the Euro, I don't think you should see opposition to the Euro as purely sentimental . An undeniable fact of joining the euro is that you have to relinquish some of your control over your own economy, most noticeably the ability to set interest rates. There is also the stability pact dictating spending limits (although France don't seem overly concerned by such details).
posted by chill at 4:22 AM on October 10, 2003


If one were a nasty, vindictive America-hater, one might be hoping that this is the first obvious step in the America-As-3rd-World-Nation dystopic future (for Americans, at least) imagined in some works of speculative fiction.

But nobody would be both so vengeful and such a wishful thinker at the same time, certainly.
posted by stavrosthewonderchicken at 4:26 AM on October 10, 2003


Personally, I've gotten to the point where I'm kinda rooting for America to get its comeupannce -- it's bound to happen sooner or later anyway, it happened to Spain and to England, due to bad decisions. Maybe it's our turn to be a bit more humble, a bit less imperialist, and really a bit more concerned about revitalizing and reinventing the American economy again.

And, of course, if that means that we're forced to leave the rest of the world alone to sort out their own problems, then good. Things tend to change in their own time, and trying to force American-style "democracy" on other countries to get it to change more quickly isn't true progress. The US had the chance to support democratic elections in Vietnam in 1956, and we blew it, bigtime. While Iraq isn't Vietnam, things aren't really that different today...
posted by insomnia_lj at 4:35 AM on October 10, 2003


stavros: I could not believe that anyone could think such a thing. Oh no.
posted by i_cola at 4:59 AM on October 10, 2003


Actually, I think this is a good thing for the world, America included. Two legs are inherently more stable than one, so the euro acts as a kind of 'backup engine' to the dollar, making the world economy more stable.
posted by plep at 5:07 AM on October 10, 2003


most noticeably the ability to set interest rates

- true, and wouldn't it be simply awful if gordon (please let me be PM) brown were unable to set interest rates solely for the benefit of SE England, whilst shafting our shrinking manufacturing base.
posted by johnnyboy at 5:09 AM on October 10, 2003


Interest rates have been set by a Bank of England committee since Gordy took power of the exchequer.
posted by i_cola at 5:28 AM on October 10, 2003


So what's really interesting is the press coverage so far. AP reports it like it's just a after though, "Russia may eventually switch from dollars to euros in payment for its oil exports to Europe. " Short, and useless.

The Moscow Times Says this is "a move that could have far-reaching repercussions for the global balance of power." Now that's a completely different, and far more important story, and yet, it's a report on the same thing. The headline in the Financial Times, again, paints a much more interesting picture Putin's idea to price oil in euros may hurt dollar. It'll be interesting to see if the US media picks up on any of this, or if it's just not "interesting enough".

But also keep in mind, every other story reports this as an idea, NOT a done deal.
posted by Blake at 5:52 AM on October 10, 2003


A question for the more-savvy -

To some extent, would the drop in the dollar's value eventually land on the need of oil-exporting nations to have the US as a relatively healthy customer for the bulk of the oil being sold?

Seems to me potentially crippling your number one market may hurt in the long run. Could this be a bit of sabre-rattling to make sure Russia's involved in post-whatever-crops-up-as-a-government Iraq?
posted by jalexei at 6:53 AM on October 10, 2003


Current oil consumption is (well, end 2002):

North America 30.2% (US=25.4%)
S. & Cent. America 6.1%
Middle East 5.9%
Africa 3.4%
Asia Pacific 28.1%

Seriously though, has anyone ever possessed oil but couldn't find a customer to sell it to?
posted by BigCalm at 8:44 AM on October 10, 2003


What we’re seeing here, potentially, is yet another “world-test” brought to you by those who’d rather not see the US in complete control, which by all standards, is fair.

Other such “tests” include the Kyoto Protocol, 9/11, the UN bombings, etc. While most of the world knows that having the US and the lone superpower has some distinct advantages, the old maxim “absolute power corrupts absolutely” still holds water.

The EU is a potentially excellent rival to US power, but because most thinkers belong to the West, they neglect the fact that China, India, and the Asian Tigers still have the ability, albeit in the future, to rival the US (India and the Asian Tigers not so much).

What we see now, with Russia giving power to the euro, is not a paradigm switch, but more a show of power. “Hey, we have an asset that you cannot live without, and so we’ll use it as a bargaining chip.” Think back to ’98 when India and Pakistan detonated nukes.

The United States has the ability to push the ‘liberal’ envelope further in the next century, but for one reason or another, has stayed out of the international arena, until now. 9/11 has brought US foreign policy out of its shell and has made a few mistakes already, but the key is intervention. The fact is, through Clinton’s eight years we heard very little international news. Now our eyes and ears are very focused on the rest of the world, because the majority of America have finally realized, and hopefully understood, a pseudo-chaos theory within world politics.
posted by BlueTrain at 8:59 AM on October 10, 2003


Paradoxically this development, if it happens, may be harmful to the eurozone. There are pros and cons when your currency is a 'petrocurrency', pros in that you don't have to worry about exchange rate movements in your most important fuel. The cons are that the value of your currency may reflect worldwide demand for oil rather than demand for your own products.

The American recovery ('The best recovery money can buy') seems predicated on a much weakened dollar and this is happening now, much to the anger of other states. The casualty is the Euro, now trading close to its all time high. This is a very uncompetitive rate for European industry. Anatole Kaletsky, wearing an uncharachteristic pessimistic hat, discusses the nasty impact of this for Europe and its faltering recovery here. The upshot is that European industry faces a double squeeze from Asia and America. In the meantime it makes sense to put your cash in Euros, just don't go looking for a job there.
posted by grahamwell at 10:44 AM on October 10, 2003


because the majority of America have finally realized, and hopefully understood, a pseudo-chaos theory within world politics.

Not that I dispute your characterization, but wouldn't a chaos-theory framework encourage very careful decision making with attempts to account for all possible outcomes? I mean, we're a pretty large butterfly, and we've been flapping like mad. If anything, Americans have "realized" that cause and effect is less important than jingoist collective wound licking.
posted by Ignatius J. Reilly at 11:17 AM on October 10, 2003


For more info on the situation of Russia's oil, check the ASPO newsletter nº31
posted by samelborp at 11:28 AM on October 10, 2003


Not to rationalize the Bush administration's foreign policy, which has been more than questionable in the past year, I believe that our "collective wound licking" is expected and given some time, our reactions to world events will be more tempered and "careful".

Are there any developed countries in the world who have dealt with extreme violence against their people through intellectual policy-making and UN cooperation?

The biggest problem I've found with this administration is that they've abused the public's want for revenge. People in this country are asking for blood and unfortunately, instead of remaining patient and pragmatic, Bush has allowed "Let's roll" to goto his head.

But, if they had done nothing, or simply remained passive and pragmatic, Bush's re-election would have been next to impossible. He had to use his popularity and America's desire for revenge to help accomplish his own agenda, which is fair, but he's overextended. I firmly believe that both "wars" were justified, but for the wrong reasons.

But I'm rambling....

Ignatius, people want revenge. I am not a violent person, but when I saw those towers collapse, something inside snapped. An anger so great was triggered. Luckily I was able to sleep it off and begin rationale thought again. Most people, though, go with their gut, their initial emotions/reaction to guide their behavior and thought.
posted by BlueTrain at 11:36 AM on October 10, 2003


Ignatius, people want revenge. I am not a violent person, but when I saw those towers collapse, something inside snapped. An anger so great was triggered. Luckily I was able to sleep it off and begin rationale thought again. Most people, though, go with their gut, their initial emotions/reaction to guide their behavior and thought.

And that anger was not illegitimate. But are we to be ruled by emotions? If your child was run over by a drunk driver, I would have no right to tell you not to be angry, or not to seek revenge against the moron who ruined your life. But who has dealt with the situation better--someone who tracks down and kills drunk drivers who are unrelated to the kid's death, or someone who plays their part in prosecuting the proper suspect and then tries to make it something positive by starting a charity to help other families, to educate about drunk driving, etc.?

Sure, our most base actions can be justified in terms of our most base feelings. But the process of constitutional democracy is engineered toward making informed public decisions, not emotional snap judgments. That's why it was wrong for Congress to abdicate their oversight of the military and their resposnsibility to declare war, why it was wrong to rush into a war with a contrived timeframe, and why it is wrong to prosecute one part of the "war on terror" without thinking about its impact on the big picture (even professional liar Ahmad Chalabi admitted on the Frontline doc. last night that al Qaeda is active in Iraq and weren't before the war), even if it felt right.
posted by Ignatius J. Reilly at 11:57 AM on October 10, 2003


But the process of constitutional democracy is engineered toward making informed public decisions, not emotional snap judgments.

They aren't mutually exclusive. I agree with you that the US may not be the most even-handed at this point, but, as you probably already know, we won't relinquish our power to an almost ineffective international institution like the UN.

(Off-topic: Think of the US relinquishing power to the UN as the UK relinquishing power to the EU. The latter will not happen soon, for different reasons of course, but the nationalism still exists)

The only solution I see is to elect officials that care more about personal ethics/defined policy solutions than party lines. Unfortunately this country's politics are so thoroughly engrossed in parties that instead of blaming policy, we blame those darn Republicans/Conservatives.

BTW, I don't think we're necessarily disagreeing here, just addressing different issues.
posted by BlueTrain at 12:13 PM on October 10, 2003


...but, as you probably already know, we won't relinquish our power to an almost ineffective international institution like the UN.
Isn't the reason it's almost ineffective because we refuse to work with it?

And why is it "relinquishing our power" to work within an international framework? Some of us see working with and in the UN as good global citizenship, and a way to increase our power to effect change in the world, as opposed to the current unilateral decision-making.
posted by amberglow at 12:24 PM on October 10, 2003


There is quite a bit of diplomatic mobility outside the US, resulting, among other things, from the fear the US is now projecting - even to what used to be compliant allies... See for example:
"...the recent emergence of an evolving alliance between Russia, China and India, all nuclear powers, all grappling with Islamic extremism and all deeply concerned about the unilateralism of the United States and its doctrine of pre-emption..."
Or the fact that China is cooperating with the EU in the Galileo satellite navigation network, a competitor to the US GPS program, which was furiously opposed anyway by the US.
This is a vast chess game that has begun and I'm worried about who exactly are the pawns.
posted by talos at 12:28 PM on October 10, 2003


BTW, I don't think we're necessarily disagreeing here, just addressing different issues.

But we can still call each other names, if that's cool with you.

as you probably already know, we won't relinquish our power to an almost ineffective international institution like the UN.

But the UN is only "ineffective" because we made it so. The US' trash-talking before the war was largely a self-fulfilling prophecy. In retrospect, the miltary sanctions and weapons inspections in Iraq were working (I don't lump in the economic sanctions because it isn't clear they were needed, and they did so much harm), so calling the UN ineffective on its own merits is hardly warranted.

The UN, and all international institutions, are only workable so long as the superwpowers play along. This worked for a long time because American interests were seen as compatible with the tenets of internationalism. Let's not forget that we weren't exactly dragged into the UN by the Belgians or something. The whole thing that's cool about the American system of government is the procedure, the process. We had placed faith in a political process beyond our faith in individual leaders, and have now decided to throw that out as soon as the process doesn't yield the results we wanted (though it should be noted that they were right, and we were wrong). So if the UN is ineffective, it is because the US wanted it that way.
posted by Ignatius J. Reilly at 12:30 PM on October 10, 2003


Americans will stop seeing the U.N. as ineffective the longer this impasse carries on, and the more money they're forced to fork over to restructure Iraq and line the pockets of Bush & Co's corporate elite. The U.N. is far from ineffective, except insofar as it cannot physically enforce its regulations on the world's hegemon, which is fine because economic wars are going to be just as important, if not more so, in the next hundred years.

It's so tiring hearing realist continually bash any idea of global government because it just won't work, when they're the ones that continue to undermine it at every turn.
posted by The God Complex at 12:39 PM on October 10, 2003


So if the UN is ineffective, it is because the US wanted it that way.

This reminds me of a discussion I had last night. Many of my and my girlfriend's friends came from "wealth". Their parents, and mine, worked their asses off to create a proper footing for their children. They struggled through miserable jobs, horrible apartments, and very strained relationships (because of the stress) to give their children a taste of the American high life.

The effect was a rather relaxed and complacent childhood. These people are well-established (went to college, got good jobs, etc.), well-connected (through family friends and business associates), and because of their comforts of life, have no "greater glory" in their life. Since they were handed a pot of gold, they are more inclined to sit on the gold and let it grow than risk breaking the cycle of wealth.

This, I believe, is why the UN won't be recognized by the US government for quite some time. The US is perfectly content with the power it currently wields and has no real reason to risk or distribute any of it. The current government has not struggled to create the power it has now. The current government instead is reaping the benefits of past generations. Now, solve THAT problem, and the UN might be extended credibility by the US.
posted by BlueTrain at 12:56 PM on October 10, 2003


The current government instead is reaping the benefits of past generations.
Some of us would characterize it as squandering the benefits of past generations, the accomplishments of which included vast amounts of working with international allies, in WWII, and since. The current government is wholly ignoring its friends and enemies both, and that pot of gold is quickly being emptied, creating further risk.
posted by amberglow at 1:15 PM on October 10, 2003


But are we to be ruled by emotions?

As a practical matter, yes, we are. Most people weigh their emotions quite heavily in decision-making. So we, as a species, will continue to make decisions this way, because irrationality is a fundamental component of who we are.

Did you ever notice that when people talk about "what it means to be human" they always mean emotions? Yet the higher animals clearly have emotions too; it is instead our capacity for abstract reasoning that makes us unique. Despite this, "the human experience" means not merely what happens to us, but how we feel about it.

Should we be ruled by our emotions? No, probably not. Personally, every decision I've made based on emotion has resulted in much pain. Of course, from that pain has come a modicum of wisdom, which may make it worthwhile. So I won't rule out emotion entirely. If you're open to the lessons pain can teach, making decisions based on emotion can be a fine idea.
posted by kindall at 1:18 PM on October 10, 2003


But are we to be ruled by emotions?

my theory is, if a society can have something like this little fella bring in money, things are ok.

Some of us would characterize it as squandering the benefits of past generations, the accomplishments of which included vast amounts of working with international allies, in WWII, and since.

"This broadly researched book describes World War II as a process driven by the need for fuel, which was necessary to run the engines of war".

an interesting book.
posted by clavdivs at 1:44 PM on October 10, 2003


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