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| German Sources Say Russia Might Price Its Oil in Euros |
| 2003-10-09 |
| YEKATERINBURG, Ural Mountains -- Russia is increasingly looking at pricing oil sales in euros instead of dollars, reflecting the euro’s growing role as a reserve currency, German government sources said Wednesday. "The question is taking on increasing significance," a person travelling with German Chancellor Gerhard Schroeder on an official visit to Russia said. A switch into euros by Russia, the second-biggest oil exporter behind Saudi Arabia and holder of the world’s largest natural gas reserves, would represent a major shift in the balance of currencies behind the world’s most traded commodity. European leaders have long expressed interest in seeing energy contracts priced in euros rather than dollars to promote the currency and boost price stability in the European Union. This in turn would hurt the stability of the dollar and put downward pressure on. Short term perhaps good for our balance of payments, but long term bad. Most energy contracts are settled in dollars, meaning that for European buyers, trade in gas and oil is subject not only to fluctuations in their market prices but also to variations in the value of the U.S. currency. In 1999, just after Vladimir Putin became prime minister, he laid out a proposal to move Russia’s trade out of dollars and into euros. Vlad, our old friend. A Russian Energy Ministry official said he could not confirm the report. "We cannot confirm this information. No talks are taking place on the issue. The ministry draws up export timetables, but does not deal with financial issues on oil supplies," the source said. "I can say no more!" |
| Posted by:Steve White |
| #10 That puts pressure on the Treasury to hike its interest rates to attract buyers, and that puts upward pressure on interest rates in general, an economy-killer. US equities also become less attractive, so the NYSE declines some. Any foreign investors invested at the time of a decline in the dollar's value will lose money. But it's a one-time hit - the portfolio managers who lost money will be booted, and the new managers will continue to invest in American securities. That's the thing with markets - securities become more attractive when they fall, not when they become more expensive. And the US labor will become more, not less competitive, with a decline in the dollar. This is why the Chinese, the Japanese and the Europeans are frantically trying to prop up the US dollar against their own currencies. Take it from me - they're not buying dollars because they like Americans. In the natural order of things, the more they export to us, the less the dollar should be worth in comparison to their currencies. As the dollar weakens, their plants become less competitive, triggering job losses. This is why they're buying dollars, to stave off job losses domestically. Bottom line - they get low unemployment (while the US unemployment worsens) and we get lower prices on imports (while they pay higher prices). If they stop buying dollars, and the dollar falls, Americans will get lower unemployment (while employment outside the US falls) and higher import prices (while import prices outside the US fall). European unemployment is skyrocketing - they can't afford to lose jobs to the US - if the exchange rate moves against them (i.e. the euro rises), they are going to go on a dollar-buying binge to ensure their products remain price-competitive in global markets. Same with China and Japan. This is why Putin's talk about switching to euro-pricing betrays a basic misunderstanding about the nature of the global economy - pricing commodities in US dollars is not a free ride for Americans - this is a Marxist view that Putin seems to have had trouble repudiating. |
| Posted by: Zhang Fei 2003-10-9 11:44:48 AM |
| #9 However (as I understand it, and please remember that the Nobel committee for the economics prize did not call me this week), long-term as the dollar declines overseas investors will be less willing to hold them, and less willing to buy dollar-demoninated debts, such as US Treasury bonds, bills and notes. That puts pressure on the Treasury to hike its interest rates to attract buyers, and that puts upward pressure on interest rates in general, an economy-killer. US equities also become less attractive, so the NYSE declines some. Actually, in the short run, Treasury bonds will fall, meaning interest rates will go up. Once exchange rates stabilize, US interest rates will stabilize as well. For example, in 1972, the US dollar used to buy 308 yen. Today, it buys only about 110 yen - roughly a 2/3 reduction in the dollar's value vs the yen. And yet interest rates are at historic lows. Or better still, take the example of Mexico, a not particularly well-run economy* with few of the strengths of the US economy (namely, good infrastructure, a well-educated work force, strong momentum in technological fields, innovation in every other field). It has devalued repeatedly - and each time it devalued, interest rates spiked, and then settled down. Even Russian debt, whose fluctuations triggered the Long Term Capital disaster, has recovered to reasonable levels, meaning interest rates on it are nowhere near the exorbitant levels seen during the peak of the LTCM meltdown. Neither economy is as healthy as it should be - but the problem has nothing to do with devaluations of their exchange rates - corruption, incompetence and over-regulation are to blame. * due to an excess of government regulations covering every segment of the economy |
| Posted by: Zhang Fei 2003-10-9 11:24:31 AM |
| #8 Yank, Zhang is right in the short term. However (as I understand it, and please remember that the Nobel committee for the economics prize did not call me this week), long-term as the dollar declines overseas investors will be less willing to hold them, and less willing to buy dollar-demoninated debts, such as US Treasury bonds, bills and notes. That puts pressure on the Treasury to hike its interest rates to attract buyers, and that puts upward pressure on interest rates in general, an economy-killer. US equities also become less attractive, so the NYSE declines some. Having the dollar as the universal exchange for world commodity goods puts the US squarely in the middle of the action. Paying for oil with euros, in the long-term, puts Europe in the drivers seat. |
| Posted by: Steve White 2003-10-9 10:59:11 AM |
| #7 Zhanag...thanks for the excellent explanation. Be that as it may, I still suspect those currently in power are less concerned with doing anything good for the EU economy or stabilizing the Euro, than they are with their ability to manipulate the money to help them maintain that power. Maybe I'm just to cynical for my own good. |
| Posted by: B 2003-10-9 10:02:01 AM |
| #6 Yank...I had the same question. I think Stephen hit the nail on the head. If you want to launder money (conterfeit or no) it would certainly be easier to work with Chirac, Schroeder and the new Euros than it would with GW and the stable dollar. We know that they do it. It's not really a question if they do it, only how. I guess I'm not smart enough to understand why we would want them to do it in dollars. |
| Posted by: B 2003-10-9 9:51:57 AM |
| #5 The anti-American mob* keeps on talking about how using some other country's currency to price commodities is going to bring about American collapse. If oil starts getting priced in euros, the demand for euros will go up, meaning that the euro will strengthen relative to the dollar. European companies are already screaming about how the strong euro is killing their competitiveness with respect to their challengers worldwide. I really fail to see how pricing oil (or any other commodity) in euros is going to do anything good for the EU's economies. * I use the word mob because they have different agendas, but are temporarily united to cause trouble for the US. |
| Posted by: Zhang Fei 2003-10-9 9:48:39 AM |
| #4 Can someone explain, beyond perceptions, how this makes any difference. Its not as if they buy oil with suitcases of money. Its all electronic transfers, etc, which can be converted to Pesos if desired. All of those sales in EUROS might help stabalize the EURO but its hardly enough to destabalize the Dollar. Whole lot of nothin if you ask me. |
| Posted by: Yank 2003-10-9 9:11:15 AM |
| #3 And wouldn't it be funny if they did... and then the Euro was eventually dropped as the EU dissolved back into the mass of squabbling mini and micro states it has been since they learned to stand upright on hind legs... the majority of them learned this trick, anyway. 'Course they might all then opt to use those gold-colored foil "coins" made of chocolate. At least they're edible... They could put Chirac's head on one side and Shroeder's on the other. Or not. |
| Posted by: .com 2003-10-9 3:21:17 AM |
| #2 Not sure if this is wishful thinking on the Germans' part, or another case of the Russians trying to play "let's make a deal". They are still torked about the refusal to uphold contracts made with Saddam for Iraqi oil, so maybe they want to see what concessions they can wring out of America? But then again, Stephen could be right. |
| Posted by: Baba Yaga 2003-10-9 2:33:16 AM |
| #1 Looks like Russia has discovered how to counterfeit Euro's and needs to wash them. |
| Posted by: Stephen 2003-10-9 2:24:51 AM |