GCC oil exporters denied a report from the UK that they were negotiating with China, France, Japan and Russia to move away from pricing oil sales in the dollar.
GCC oil exporters stand behind dollar pricing
GCC oil exporters yesterday dismissed as untrue a report from the UK that they were negotiating with China, France, Japan and Russia to stop pricing oil in the beleaguered US dollar. Citing unnamed sources in Hong Kong and the Gulf, The Independent, a London-based newspaper, reported that secret talks between several Gulf states, Russia and the three oil importers had resulted in a plan to price oil against a basket of currencies that included the Chinese yuan, the yen, the euro, gold and an eventually unified GCC currency. "We have never heard of this or discussed this, not even secretly," Abdullah al Attiyah, the Qatari oil minister and the deputy prime minister, told Dow Jones Newswires. "We did not discuss this at all," said Dmitry Pankin, the Russian deputy finance minister, on the sidelines of an IMF conference in Istanbul.
The report added to a number of factors that helped lift oil prices towards $72 a barrel yesterday, and gold to a record US$1,038.75 per ounce, while sending the dollar lower against other currencies. The dollar has been in a steady swoon this year as concerns mount that efforts to revive the US economy by borrowing money and printing dollars are undermining the currency's value. The greenback has fallen 14 per cent against the Japanese yen so far this year. The decline of the dollar has intensified a long-standing debate over whether it should remain the world's dominant currency of trade. Not only are oil and most other internationally traded products priced in dollars, but exporting nations such as China and the UAE also accumulate US dollars in their massive trade surpluses.
A weakening dollar undermines the value of these reserves, which are typically invested in the US and US dollar-denominated securities. China has the world's largest pile of foreign exchange reserves - more than $2.1 trillion (Dh7.71tn) at last count - and has become the largest foreign creditor to the US government. Beijing has therefore been vociferous in expressing its anxiety about the dollar's health. China has moved to widen acceptance of the yuan in foreign trade, selling yuan-denominated bonds in Hong Kong, convincing trading partners to accept yuan for their exports and buying the IMF's own virtual currency, all while calling for an alternative to the dollar as the world's reserve currency.
In March, the governor of the People's Bank of China, the country's central bank, suggested a new currency reserve system controlled by the IMF. Many consider a shift away from the dollar inevitable and even desirable. Last week, Robert Zoellick, the president of the World Bank, said that the dollar was likely to lose some of its status as the world's reserve currency to the euro and the yuan as the balance of economic growth and power shifted away from the world's largest economy. And despite assurances from the US Treasury secretary Timothy Geithner this week that Washington supports a strong dollar, the US seems prepared to let the dollar share the spotlight. But most analysts and economists say that while China, the Gulf and other exporters are undoubtedly trying to diversify away from the dollar, replacing the US currency in international trade is impractical in the short term, particularly for oil.
"There's no reason a buyer in Europe couldn't agree to pay euros for oil. But how would they price it?" asked John Calverley, the head of North American research for Standard Chartered Bank in Toronto. Oil markets still price the essential commodity in dollars and indeed most of the world's largest markets - whether in commodities, bonds or stocks - price their securities in dollars. "The dollar is the only currency which we can work 24 hours in all five continents," said Fatih Birol, the chief economist of the Paris-based International Energy Agency. "To change from the dollar to anything from one day to another would be very challenging."
The debate about pricing oil in something other than dollars is not new. Russia and the OPEC members Iran and Venezuela have in the past suggested shifting oil away from the dollar. Iran now requires payment in euros or yen for its crude shipments to overseas refiners. The Saudi central bank governor, the oil minister of Kuwait and a UAE Central Bank official joined counterparts in denying the existence of any re-pricing talks. In addition to the practical difficulties posed by adopting a basket of currencies for pricing oil, analysts were also sceptical that the parties reportedly involved would be able to agree on such a change. Gulf states, especially Saudi Arabia, are "extremely conservative", said Robin Mills, a Dubai-based petroleum economist. The Saudis, for example, will not list their crude oil on the Dubai Mercantile Exchange, the main regional platform for international commodities trading.
It is also unclear why the Saudis would agree to a change supported by Iran, its regional rival, or why the kingdom would put the value of its large dollar-denominated currency reserves at risk while risking the ire of its chief military ally. email@example.com firstname.lastname@example.org