Re: the first post...shades of Canuck! He has been reincarnated!
This has been talked about since 2000 and before. Depending on who is doing the talking, it is claimed as the end of the dollar and the beginning of a rapid descent into depression of the US economy coupled with the rapid ascendancy of all middle eastern Arab economies (whether they are oil producers or not). Others say that "the invasion of Iraq had less to do with any threat from Saddam's long-gone weapons of mass destruction program...than it has to do with gaining control over Iraq's hydrocarbon reserves". One so-called analyst, William Clark has written,
Quote
"
Unfortunately, it has become clear that yet another manufactured war, or some type of covert operation is inevitable under President Bush … Numerous news reports … have revealed that the neo-conservatives are quietly — but actively — planning for the second petrodollar war, this time against Iran."
http://www.cpa.org.au/garchve05/1215iran.html
Note that Clark's article is hosted on the Australian Communist Party web site.
Whichever side of the argument you come down on, the analysis is consistently...simplistic and conspiracy-theory driven.
(1) The assumptions are uniformly that the two major trading centers for oil - NYMEX and IPE - will not be able to respond in any kind of effecitve manner to a competitive threat to the markets which are their livelihood. This is a huge and mistaken assumption. These exchanges have been trading commodities for many years and have built up large coteries of traders who risk their own capital in trading commodities. They provide the liquidity that makes the markets function. These exchanges have also built large followings among the users and producers of petroleum products who trade these products as hedgers. Anyone who thinks that a start-up exchange in Tehran of all places will be able to attract trading liquidity to match the NYMEX and/or the IPE without attracting a similar trader and end-user customer base is just totally ignorant of the basics of commodity trading.
(2) The pricing of crude in euros may well lead to a increased demand at the margin for euros, but the euros received in payment for oil will still have to be invested somewhere. And, as compared to dollar-denominated investments, there are still simply relatively few opportunities for investing in euro-denominated instruments. Simply put, if an oil producer takes payment for his crude in euros, he has to put those euros to work somewhere, or let them sit idle, earning nothing (even Muslims don't like to do that). There are orders of magnitude more places to invest in dollar-denominated instruments than any other. Yes, the number of euro denominated instruments are growing, but they still lag quite far behind USD denominated instruments. The USD is still the leading reserve currency, despite all the gloom and doom of the last 5 years, when this talk started. Consequently, the oil producer that took euros in payment is likely to have to switch to dollars in order to put his oil sale proceeds to work.
There are other reasons, but these two are enough.