Dollar to be dismissed from global oil market
The future of the U.S. currency as the stronghold of the world economy continues to blacken. The issue of the ongoing weakening of the dollar became the main subject of discussion at the OPEC summit in Riyadh. The decrease of the dollar rate has already resulted in record-high prices on oil. In November of the current year oil prices have approached the ground-breaking level of $100 per barrel.
The incessant rise of oil prices poses a serious threat to the economies of the majority of developed countries. They are forced to put forward claims to the OPEC asking the cartel to increase the volumes of oil extraction to lower the prices at least to a certain extent.
In the meantime, OPEC members continue to set out their concerns about the setback of the U.S. dollar, because oil makers and exporters continue to lose their profits because of this factor.
The leaders of the OPEC countries failed to come to agreement on whether they should take any measures in connection with the weakening of the U.S. currency. However, the two-day summit, which closed on November 18, showed that several members of the cartel would take maximum efforts to decouple oil prices from the dollar.
The presidents of Iran, Venezuela and Ecuador said during the summit that urgent measures should be taken to stave off the decline of oil-making economies because of the dollar setback. Moreover, officials from Iran and Venezuela said that they would do everything possible to remove the dollar from the structure and notion of world prices on oil. Iranian President Mahmoud Ahmadinejad referred to the dollar as “a worthless piece of paper.”
The discussion about the place and the role of the dollar on the world market of oil has not shown any influence on the documents of the summit. The leading OPEC member – Saudi Arabia – said that the West would receive the required amounts of oil from oil-makers. Saudi King Abdullah stated during the summit that oil should not be used as a tool for war.
Hugo Chavez, the restless Venezuelan President, hurried to disagree with such a remark. Chavez said that the high prices on oil were the only compensation that the West could pay for its injustice that makes the rest of the world suffer.
The OPEC resolution does not contain anything on the change of the role of the dollar in the international oil trade. However, the discussion of this subject will definitely affect the currency and the oil markets in the form of fluctuations.
The United States and China are world’s two major oil consumers. Both the USA and China are highly interested in dealing with only dollar prices on the market of oil. This initiative is absolutely clear with the USA. As for China, this country is one of the world’s largest holders of dollar assets. It goes without saying that China is least interested in ending the dollar peg on the oil market. If it happens, it will trigger a strong reduction of the dollar, which will subsequently devalue China’s dollar assets.
Furthermore, the U.S. dollar is not only the national currency of the United States , but the joint currency of world payments. The current cost of the dollar is made of virtual constituents, such as the economic (one-fifth of the global GDP), the defense and the political power of the United States. These categories are still regarded as reliable despite certain problems. That is why China does not become panic-stricken regarding the decline of the dollar and its investments in U.S. assets.
The courageous anti-dollar remarks from the leaders of Iran and Venezuela can only be considered as a part of the verbal war with the USA, which in its essence does not affect or change anything.
Translated by Dmitry Sudakov
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