Don’t expect oil to drop the dollar any time soon as its primary unit of measure.
While a few radical players may trade oil in Euros at the fringe, the major players have many reasons not the change the status quo.
It’s not just about economics. It’s about politics as well.
The Barrel: For a start, a mish-mash of currencies won’t have a name or could be used as a tradable unit — well unless they invent a new currency called the petro, which is backed by oil in the same way money used to be backed by gold in day’s gone by. Even if buyers were forced to pay in non-dollar currencies, I doubt the US-based NYMEX and ICE trading exchanges will adopt anything other than dollars as the tradeable currency.
And what about the countries themselves? Well it’s probably a non-starter without the backing of Saudi Arabia, with whom Kuwait, UAE and Qatar will fall in line. For a start, several of the Gulf States peg their own currencies to the dollar and the fabulously-rich royalty in the region probably owe the US a favour or two, although the less-wealthy residents would probably not share the same viewpoint. Something big would have to happen for the House of Saud to turn away from the US. So short of a full collapse in the dollar, triggering huge financial and geopolitical turmoil, then change is unlikely anytime soon.
Rather than change the entire system, there’s a far easier way for oil to adjust to a weak dollar – it can simply move up the price.
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