“Oil may dump US dollar”

Discussion in 'Economics' started by kelvinlam, May 15, 2007.

  1. kelvinlam


    Despite talking about the future trends of US currency or oil price, this article discuss on whether will there be an end relationship between US dollar and Oil industry.

    US have been a leading country for nearly a century, one of the important factor is that they have enjoyed inexpensive oil-based energy for very long time. Generally speaking, US have around only 5% of the world’s population, but it consumes almost 25% of the world’s fossil fuel-based energy. As US is a oil-depending economy, every increase in oil prices have caused serious inflation to US, and thus negatively affect the whole global economy.

    In 1950’s there was leading geophysicist called M. King Hubbert, he has developed a oil model curve predicting the trend of oil price and quantity through from discovery to depletion. The prediction had proved to be correct as he correctly predicted at 1970 the oil production would reach peak and start declining ever since. The most important message to point out from Hubbert’s curve is: the time of inexpensive oil has gone.

    Since 1975 when OPEC officially agreed the US dollar is the currency of choice in all global crude oil trade, US have been benefited so much ever since that moment. But for now, the oil production becoming lesser and lesser and the price would become higher and higher in future, would US currency still be strong enough to maintain the correlation between the oil price and currency? It’s a matter of fact that US dollar has been declining since 2001, and every oil export countries are trading crude oil in exchange for US dollars, so meaning that if those exporters cannot further accept declining US dollars, they will going to abandon US dollar in favor of other currency.

    Russian premier Vladimir Putin and Venezuela’s president Hugo Chavez have publicly announced of considering using euro to price oil in coming future, and even like Saudi Arabia also considering above approach. Even not abandoning US dollar, all US dollar holders from different countries would at least diversify out US dollars in case to minimize their loss. Every reaction from other countries only reflecting one thing, US dollar will become less important in oil industry. And this long time relationship will be reaching end in not long future.
  2. Inflation, GDP growth and dollar devaluation had become less dependent on oil prices, as it was 20 or 30 years ago.
  3. America will never let oil be priced or settled in another currency. It has gone to war over much less.

  4. I seriously doubt we'd attack Russia over how they decide to price their oil.

    Its in dollars because it was convenient, since we were the biggest buyer and the dollar was the world's reserve currency anyway.

    At the rate our paper money and debt is being printed/created, you can't really blame sellers for wanting to change the rules before they find themselves "bagholders".

    What can they buy with them that they need? They certainly don't want to hold them as a store of value.
  5. I think you may find it runs a lot deeper than an as a change in the pricing and settlement of oil out of the dollar would directly affect US interests and would be construed by many in the administration as an attack on US interests. I know this may sound far fetched but is it anymore so than an attack on Iraq on the basis on imaginary WMD's

  6. When the rest of the world no longer normally prices gold and oil in dollars, you'll know its no longer the world's reserve currency.
  7. That wont happen without a fight