(OPE-L) euro vs dollar

From: gerald_a_levy (gerald_a_levy@MSN.COM)
Date: Sun Oct 12 2003 - 23:21:29 EDT

Putin: Why Not Price Oil In Euros?

 By Catherine Belton, Staff Writer
Friday, Oct. 10, 2003. Page 1
The Moscow Times

 President Vladimir Putin said Thursday Russia could
switch its trade in oil from dollars to euros, a move
that could have far-reaching repercussions for the
global balance of power -- potentially hurting the U.S.
dollar and economy and providing a massive boost to the
euro zone.

 "We do not rule out that it is possible. That would be
interesting for our European partners," Putin said at a
joint news conference with German Chancellor Gerhard
Schroeder in the Urals town of Yekaterinburg, where the
two leaders conducted two-day talks.

 "But this does not depend solely on us. We do not want
to hurt prices on the market," he said.

 "Putin's putting a big card on the table," said Youssef
Ibrahim, managing director of the Strategic Energy
Investment Group in Dubai and a member of the U.S.
Council on Foreign Relations, an influential body of
leading world thinkers thought to help set the United
States' foreign policy agenda.

 "In the context of what is happening worldwide, this
statement is very important," he said.

 Putin's words come in the wake of a protracted drive by
the EU to attract more countries' trade and currency
reserves into euros, in a bid to chip away at U.S.
hegemony over the global economy and money supply.

A move by Russia, as the world's second largest oil
exporter, to trade oil in euros, could provoke a chain
reaction among other oil producers currently mulling a
switch and would further boost the euro's gradually
growing share of global currency reserves.

 That would be a huge boon to the euro zone economy and
potentially catastrophic for the United States. Dollar-
based global oil trade now gives the United States
carte blanche to print dollars without sparking
inflation -- to fund huge expenses on wars, military
build-ups, and consumer spending, as well as cut taxes
and run up huge trade deficits.

Almost two-thirds of the world's currency reserves are
kept in dollars, since oil importers pay in dollars and
oil exporters keep their reserves in the currency they
are paid in. This effectively provides the U.S. economy
with an interest-free loan, as these dollars can be
invested back into the U.S. economy with zero currency

If a Russian move to the euro were to prompt other oil
producers to do the same, it could be a "catastrophe"
for the United States, Ibrahim said. "There are already
a number of countries within OPEC that would prefer to
trade in euros."

 Iran, the world's No. 5 oil exporter, has also openly
mulled a move into euros. And after the war in Iraq,
there is growing debate in the United States'
traditional ally Saudi Arabia on a switch too, though
its government has not come down firmly on one side,
Ibrahim said. "There is a revision going on of its
strategic relationship with the United States. Already,
they're buying more [French-made] Airbuses," he said.
"The Saudi Crown Prince [Abdullah Bin Abdul Aziz Al-
Saud]'s visit to Russia was of great significance and
the regime is talking about closer cooperation with
LUKoil and other Russian companies."

 Under Saddam Hussein, Iraqi oil was traded in euros.
"This was another reason [why the U.S. attacked],"
Ibrahim said. "There is a great political dimension to
this. Slowly more power and muscle is moving from the
United States to the EU, and that's mainly because of
what happened in Iraq," he said.

 Putin had previously brought up the proposal to switch
to euros as prime minister in October 1999, at a
meeting of EU leaders in Helsinki. Then, in an attempt
to forge a new bloc to counterbalance the United
States, he made the proposal alongside calling for
closer cooperation between Russia and the EU, including
on security issues.

Since then, however, Russia's ties with the United
States have warmed considerably -- and it is unclear
whether Putin would risk damaging that relationship by
going ahead with the euro move, analysts said.

 "Putin is very much interested in changing the
structure of OPEC and he cannot do that without the
United States," said Alexander Rahr, an expert on
Russia at the German Council on Foreign Relations. "He
can only get a foothold for Russia in the Middle East
with [U.S. help]. And, he wants to get contracts for
the Russian oil industry in Iraq -- for this, too, he
needs the United States."

 Some analysts said that the statement appeared to be
aimed at boosting Russia's global clout on the world
stage. "Putin is trying to create a position for Russia
as an independent player. But his aim is not to
undermine relations [with the United States]. He just
wants to boost Russia's position up from being a junior
partner," said Dmitry Trenin, geopolitical analyst at
the Carnegie Moscow Center.

Yevgeny Gavrilenkov, chief economist at Troika Dialog
and an earlier architect of the Putin government's
first economic plan, said debate is growing on a move
to the euro as Russia mulls siding with the EU. "Such
an idea is really possible," he said. "Why not? More
than half of Russia's oil trade is with Europe. But
there will be great opposition to this from the United

 He said that while a switch would have no direct impact
on the Russian economy, it would give a great boost to
the euro zone.

 LUKoil vice president Leonid Fedun said Thursday that
he saw no problem in the euro switch and that payments
for such transactions would be minimal, at just 0.08

 "There is no problem ... If the state decides to do
this, then we will support this initiative. From the
point of view of the economy, there's no difference,"
Interfax quoted him as saying.

 But even Fedun could not help putting a political price
tag on the move. "We are ready to move to the euro if
the country will be included in a visa-free regime with
Europe," he said.

 Rahr agreed that the timing of the statement seemed
calculated to extract political concessions from the
EU. "It's a bargaining chip," he said.

Gavrilenkov suggested Putin was also angling for EU
concessions on other issues discussed in Yekaterinburg,
such as terms for Russia's WTO accession.


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