How Important Is The Currency Of Oil Exchange? (1 Viewer)

[Monk-Eye]

"How Important Is The Currency Of Oil Exchange?"

What would the economic fallout be for the US if the oil exchange currency was shifted from the US dollar to the euro?

As a secondary issue, please speculate on the necessity of US imperialism towards oil in the war of Iraq and other countries.

The following article and excerpts do not answer the scientific questions in
economics. So, economics majors, put on your thinking caps.

Revisited - The Real Reasons for the Upcoming War With Iraq: A Macroeconomic and Geostrategic Analysis of the Unspoken Truth by William Clark Original Essay January 2003 -Revised March 2003 -Post-war Commentary January 2004

Summary
Although completely unreported by the U.S. media and government, the answer to the Iraq enigma is simple yet shocking -- it is in large part an oil currency war. One of the core reasons for this upcoming war is this administration's goal of preventing further Organization of the Petroleum Exporting Countries (OPEC) momentum towards the euro as an oil transaction currency standard. However, in order to pre-empt OPEC, they need to gain geo-strategic control of Iraq along with its 2nd largest proven oil reserves. The second coalescing factor that is driving the Iraq war is the quiet acknowledgement by respected oil geologists and possibly this administration is the impending phenomenon known as Global "Peak Oil." This is projected to occur around 2010, with Iraq and Saudi Arabia being the final two nations to reach peak oil production. The issue of Peak Oil has been added to the scope of this essay, along with the macroeconomics of `petrodollar recycling' and the unpublicized but genuine challenge to U.S. dollar hegemony from the euro as an alternative oil transaction currency. The author advocates graduated reform of the global monetary system including a dollar/euro currency `trading band' with reserve status parity, a dual OPEC oil transaction standard, and multilateral treaties via the UN regarding energy reform. Such reforms could potentially reduce future oil currency and oil warfare. The essay ends with a reflection and critique of current US economic and foreign policies. What happens in the 2004 US elections will have a large impact on the 21st century.
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Synopsis
It would appear that any attempt by OPEC member states in the Middle East or Latin America to transition to the euro as their oil transaction currency standard shall be met with either overt U.S. military actions or covert U.S. intelligence agency interventions. Under the guise of the perpetual `war on terror' the Bush administration is manipulating the American people about the unspoken but very real macroeconomic reasons for this upcoming war with Iraq. This war in Iraq will not be based on any threat from Saddam's old WMD program, or from terrorism. This war will be over the global currency of oil. A war intended to prevent oil from being priced in euros.
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[gynks2001]

to me the argument makes no sense for a few reasons.
1) The US recieves most of its oil from not Saudia Arabia, not Iraq, not Iran, but from Canada.
2) If this war on terror was a war for oil, explain why Bush's first choice of action was in Afghanistan, where there are almost no oil exports?
3) If invading Iraq was about Oil, we wouldn't be so focused on securing the Iraqi people. Instead we'd have some troops remain to protect the oil and the rest would be back home preparing for the next military campaign...

 

[Monk-Eye]

Alternative Considerations

"Alternative Considerations"

I have begun to look for answers in the Petrodollar - link.

As noted by Cóilín Nunan, "A move away from the dollar towards the euro could have a disastrous effect on the US economy" because the US's negative balance of trade is largely offset by its role as a reserve currency. On the other hand, the demand for petrodollars is a significant factor in increasing the US' trade deficit in the first place, and it also increases inflation. Given the general tendency for crude oil prices to rise and become more volatile in recent years, it may even be argued that crude oil trading may, in the long term, be a significant liability for the stability of the currency in which the trade is conducted.

Information under Reserve Currency - link might indicate that US trade deficits are a significant concern.
This permits the issuing country to purchase the commodities at a marginally cheaper rate than other nations, which must exchange their currency with each purchase and pay a transaction cost. (For major currencies, this transaction cost is negligible with respect to the price of the commodity.) It also permits the government issuing the currency to borrow money at a better rate, as there will always be a larger market for that currency than others.

The United States dollar is the most important reserve currency in the world today. At the start of 2006, 66.3% of the identified official foreign exchange reserves in the world were held in United States dollars, 24.8% in euro, 3.4% in Japanese yen, and 4.0% in pound sterling, according to the IMF. [1]. For this reason, the US dollar is said to have "reserve currency status", making it possible for the United States to run significant trade deficits (financed by seigniorage) with limited economic impact (see currency crisis) as long as the major holders of reserve currencies do not issue public statements suggesting otherwise.

Currency crisis -link

 

[Monk-Eye]

Dear Dr. Dollar: Trade Deficit And Account Deficit

"Dear Dr. Dollar: Trade Deficit And Current Account Deficit"

What happens to those dollars we've sent overseas?

If Americans collectively import more goods and services from foreigners than we export, we are said to have a trade deficit. Paying for the things we import accounts for most of the flow of dollars out of the United States. However, money flows out of the country for other reasons as well. The U.S. government provides foreign aid and supports overseas military bases; immigrants to the United States send dollars back to their families; foreigners who own U.S. businesses or financial assets take income out of the country.

When these factors are added to the trade deficit, the net outflow of dollars is called the current account deficit. In 2002, the U.S. trade deficit amounted to $418 billion, and the current account deficit totaled $480 billion. Data for 2003 is not yet available, but preliminary reports indicate the current account deficit will be at least $550 billion.

Once the dollars leave the country, three things can happen.

The article is copyright and is not much longer than several paragraphs.
The quoted introduction is definitional and explains trade deficit and current account deficit and prompts the remainder of the article.

But a third possible consequence of the massive U.S. current account deficit is that foreigners will lose confidence in the U.S. economy and stop purchasing U.S. assets. If this happens, the supply of dollars in the global banking system will exceed demand and the exchange value of the dollar will fall.
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Over the past few years, the dollar lost about one-third of its value relative to the euro. This could signify that foreigners are shifting from U.S. to euro-based assets


Consequences are given in the article, my inference is that the trade deficit must be paid via Purchasing Power Parity Exchange Rate and would imply a devalued dollar could have a negative cumulative effect in the ability to pay the trade debt.

 

[Monk-Eye]

Catching On

"Catching On"

to me the argument makes no sense for a few reasons.
1) The US recieves most of its oil from not Saudia Arabia, not Iraq, not Iran, but from Canada.
2) If this war on terror was a war for oil, explain why Bush's first choice of action was in Afghanistan, where there are almost no oil exports?
3) If invading Iraq was about Oil, we wouldn't be so focused on securing the Iraqi people. Instead we'd have some troops remain to protect the oil and the rest would be back home preparing for the next military campaign...

I presume you have the point of the thread after my last two posts.
It was not a battle for oil.
It was a battle to stave off transition from a US reserve currency to a euro or to a petroeuro reserve currency in which oil would be exchanged.