Sunday, July 11, 2004

A Primer - Part IV

Dollars, Oil, and the Euro...

One of the keys to the success of the dollar is that all OPEC oil transactions must be denominated in U.S. Dollars. This creates an enormous demand for dollars as any country in the market to buy oil must sell their currency in exchange for dollars with which to buy the oil they need.

http://socrates.berkeley.edu/~pdscott/iraq.html

From the link...

"But the need to dominate oil from Iraq is also deeply intertwined with the defense of the dollar. Its current strength is supported by OPEC's requirement (secured by a secret agreement between the US and Saudi Arabia) that all OPEC oil sales be denominated in dollars. This requirement is currently threatened by the desire of some OPEC countries to allow OPEC oil sales to be paid in euros."

and...

"The United States has at present little reason to fear a challenge to the dollar from Malaysia. But Malaysia is an Islamic country; and the US has every reason to fear a similar challenge from the Islamic nations in OPEC, were they to force OPEC to cease OPEC oil sales in dollars, and denominate them instead in euros."

And here's another discussion on the threat to the relationship between the Dollar and Oil.

http://www.rationalrevolution.net/opec_iraq_euro.htm