A Euro-Oil Peg?


Quico says: Chavez, Ahmadinejad & co. have made something of a hobby horse of it: Oil should be traded in Euros rather than sullied by association with the Grand Imperialist Greenback. But could it be that what they frame as a radical new departure is something markets are already doing on their own?

This chart from The Economist certainly suggests that, holding out the possibility that much of the recent oil boom is a kind of accounting mirage driven by the dollar free-fall. Or alternatively, the rising price of oil could be pushing the dollar down, since a depreciating dollar gives traders an incentive to horde dollar-denominated commodities.

For its part, The Economist blames the Fed, noting that lower US interest rates drive down interest rates world wide, stimulating consumption and fueling the oil boom. Which would be Exhibit Umpteen in the case that the empire unwittingly underwrites the revolution (and the mullahs as well.)

Either way, one suspects the Euro-Oil peg hits Iran harder than it hits Venezuela: they do most of their international trade in Euros, we do ours mostly in dollars. Still, it’s worth bearing in mind: the barrels we sell earn more and more dollars, but the dollars we get buy less and less stuff.

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  1. i don’t know what you mean by the euro-oil peg hurts them more — the current situation hurts arab oil states more than venezuela, by far. you are wrong when you say the dollars buy less and less stuff. inflation in the u.s. remains negligible, and most venezuelan imports continue to be from the imperio. the pain comes for arab states who sell oil in dollars while buying most of their goods in euros. that in fact is the main explanation for inflation in the arab oil countries like kuwait and bahrain these days, and inflation is very destabilizing for them. they have a lot to gain from a euro peg, but they are suffering from two things: sunk costs (they have invested zillions in dollar bonds and other securities, and they don’t want to see that money shrink) and clientelism (the u.s. has a rather large chit they can call in with the saudis, kuwaitis and others whenever they want, viz Gulf War I and the ongoing provision of governmental security for the racist saudi regime).


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