[thor]

Russia wishes to curb oversupply, not just supply. It seems that Putin is playing some geochess, nothing special. There are numerous EU developments on natural gas and oil with Russia. So don't you worry mate, the EU is paying top dollar for its energy and Putin has vowed to continue energy supply to Europe in his recent visits to Europe.

Besides, there is a pipline coming on stream from Russia to Germany, so everything looks peachy for you.

[EnergySpin]

This is actually good news ..... for Europe.
Now it is time to realize that relying on the Ruskies for hydrocarbons (oil and NG) will prove to be a big mistake in the near future.
I hope the EU leaders realize what's at stake here....

[Jake_old]

Gordon Brown has just downgraded his forcast for growth to 1.75%, originally the forcast was 3.5%. I wonder if it was due to this news or in spite of it. It doesn't feel very good being dependent on a dependent, IE relying on europe for energy who in turn rely on Russia.$this->bbcode_second_pass_quote('', 'I') hope the EU leaders realize what's at stake here....

[EnergySpin]

$this->bbcode_second_pass_quote('RedJake', 'G')ordon Brown has just downgraded his forcast for growth to 1.75%, originally the forcast was 3.5%. I wonder if it was due to this news or in spite of it. It doesn't feel very good being dependent on a dependent, IE relying on europe for energy who in turn rely on Russia.$this->bbcode_second_pass_quote('', 'I') hope the EU leaders realize what's at stake here....

[Jake_old]

Interesting point EnergySpin.

I wonder what we (the EU) could do that would help putin.

[Russian_Cowboy]

$this->bbcode_second_pass_quote('EnergySpin', '(')*) I wonder what is the thing that Putin really wants

[EnergySpin]

$this->bbcode_second_pass_quote('RedJake', 'I')nteresting point EnergySpin.

I wonder what we (the EU) could do that would help putin.

[untothislast]

This just turned up on the Powerswitch site: link

I'm not sure what sort of timescale is envisaged (if it happens), but it does seem to suggest that the old disputed chestnut of the 'Iranian Euro oil bourse' could have some mileage in it yet. Does anyone have any perspectives on this recent development?
$this->bbcode_second_pass_quote('', '[')b]Russia to price oil in euros in snub to US By Ambrose Evans-Pritchard in Brussels:
Russia is to start pricing its huge oil and gas exports in euros instead of dollars as part of a stragetic shift to forge closer ties with the European Union. The Russian central bank has been amassing euros since early 2002, increasing the euro share of its $65 billion (£40 billion) foreign reserves from 10pc to more than 25pc, according to the finance ministry.

The move has set off a chain reaction in the private sector, leading to a fourfold increase in euro deposits in Russian banks this year and sending Russian citizens scrambling to change their stashes of greenbacks into euro notes. German officials said Chancellor Gerhard Schroder secured agreement for the change-over on oil pricing from Vladimir Putin, the prime minister, while on a trip to Russia this week.

The two leaders have forged a close personal bond and are both keen to check American economic and diplomatic power. Mr Putin was coy about German media reports on the deal yesterday but acknowledged that Russia was exploring the idea. "We do not rule out that it is possible. That would be interesting for our European partners," he said.

A switch to euro invoicing would not affect the long-term price of oil but it could encourage Middle Eastern exporters to follow suit and have a powerful effect on market psychology at a time when the dollar is already under intense pressure. Russia boasts the world's biggest natural gas reserves and is the number two oil exporter after Saudi Arabia.

Yesterday the dollar recovered slightly against the yen and euro, but the IMF and the European Central Bank both warn that America's ballooning current account deficit, now over 5pc of GDP, will lead to further declines. Oil is seen as so central to the global power structure that the choice of currency used for pricing has acquired almost totemic significance. The switch from pounds to dollars after the Second World War has come to symbolise sterling's demise as a world reserve currency.

If the dollar were ever displaced by the euro, it would lose the enormous freedom it now enjoys in running macro-economic policy. Washington would also forfeit the privilege of exchanging dollar notes for imports, worth an estimated 0.5pc of GDP.

Maxim Shein, from BrokerKreditService in Moscow, said the switch to euros makes sense for Russia since it supplies half of Europe's energy needs. But the move is also part of a global realignment stemming from the Iraq war, which threw Russia, Germany and France together into a new Triple Entente. "Abandoning the dollar is tantamount to a curtsey to the EU," he said. For now, IMF figures show the dollar remains king, accounting for 68pc of foreign reserves worldwide compared with 13pc for the euro.

[frankthetank]

One of the reasons gold is @ a 24year high???

Dollar goes down, they all go down...so it would seem.

[untothislast]

Seems as if Powerswitch have now pulled this story.

Very strange. Either it's a trial run for their April 1st 2006 posting, or the hackers have been into their site again - this time planting fallacious news reports.

Relax everyone. My apologies to all.

[Petrodollar]

Strange...I think that article was actually run back in October 2003 after Schroder and Putin met to discuss issues like energy. Here's the article from 10-10-2003 which appears to be the article Powerswitch pulled?...

http://www.money.telegraph.co.uk/money/ ... tcity.html

[untothislast]

I've just tracked this 'story' down.

It was first run in the 'Telegraph' money section on 10th October 2003 - and, as events turned out, was either just plain wrong or purely speculative.

Realising they've been featuring an 'old news' item, Powerswitch must have decided to delete it a.s.a.p.

I must admit though, I couldn't believe it when I read it!

[Petrodollar]

BTW, this issue of petroeuros is developing...Here's the most recent news item re Russia and petroeuros...(while I don't agree with the strange "devaluation strategy" espoused by the article, as it ignores the whole macroeconomic dollar demand/liquidity issues, it ignores the obvious currency risks issues re oil priced in euros from the US perspective, and ignores the Iranian oil bourse/oil marker issues... Nonetheless, this article is worthy reading simply for its emphasis on future Russian oil trade & euros):

http://www.europeanbusiness.eu.com/feat ... oeuro.html

December 2005

The petro-euro cometh
Oil has always been bought with dollars, but with two-thirds of Russia’s oil and gas exports going to the EU, the first euro deals are imminent. By Pavel Erochkine

COMMODITY MARKETS ALL OVER THE WORLD ARE booming. Oil prices are rocketing towards record highs. Tight supply and demand are pushing the world into a lengthy commodity boom. At the same time, the era of exclusively dollar-quoted commodity prices may be coming to the end. Contrary to popular myth, oil prices are quoted in US dollars not because the US is the major consumer of oil but for historic reasons. Pricing of oil goes back to the 1920s when the US and Mexico were the two main producers and exporters of oil and most oil contracts had to be in US dollars.

The dollar’s status as the global currency would be threatened, but allowing the euro into the oil trading system may be an elegant way for the US to devalue the dollar further.

Oil pricing has always had something artificial about it. At that time the so-called “basing-point system” was used, where the bas- ing point was calculated on the basis of the price of crude oil quoted in the Gulf of Mexico plus transportation costs, irrespective of the point of origin, from the Gulf of Mexico to the point of delivery. So, even if oil was shipped from Iran to a European country, the buyer had to pay the quoted price of oil plus the cost of transport from the Gulf of Mexico to Europe. Moreover, “market” prices themselves were kept largely immune from competitive forces by large Ameri- can oil companies, the so-called Seven Sisters.

This system survived the emergence of Venezuela as a major oil exporter in the late 1920s and was only changed in 1945. By that time the Middle East became a significant exporter, and England as well as other European countries thought it was unfair for them to pay extra, phantom, transport costs from the Gulf of Mexico for Middle-Eastern oil.

In the 1940s the US decided to start limiting its oil production in order to conserve it for future use. Thus, the US voluntarily agreed to a new system in which buyers of Middle-Eastern oil would pay market price for oil in the Gulf of Mex- ico plus actual transport costs. This arrangement made Middle-Eastern oil competitive and also allowed London to gradually become a major oil-trading centre.

KEY FACTS
- Oil is historically traded in dollars because the first oil came from the US and Mexico
- Russia is likely to be the first oil exporter to trade in euros with the EU. However, this market has no existing price benchmarks. {that is percisely why we should watch the Iranian oil bourse...which I think the Russians/Putin is welcoming...}

IT WOULD BE NATURAL FOR EUROPE-BASED EXCHANGES to start making oil contracts in both euros and dollars. The US dollar remains the only currency for settlement of oil contracts on world markets, which makes the EU and Russia dependent on the dollar. However, many central banks in OPEC and non-OPEC countries are switching their reserves from the dollar to other currencies. In 1975, the dollar accounted for 76% of official reserves held by IMF countries. By 2005 it has fallen to below 65%. The main alternative to the dollar is the euro and the next logical step would be for oil exporting countries to start quoting prices in euros.

Russia is likely to be the first major oil-exporting country to start trading oil in euros. The EU is Russia’s neighbour and main trading partner. Two-thirds of Russia’s oil and gas exports go to the EU. {Actually I think its about 80 or 81% - a bit more than 2/3rds...} This step does not need to be taken by the state. It would only take one, or several, of Russia’s vertically integrated oil companies to start trading with their European counterparts in euros to set the ball rolling. The main problem is the complete absence of past precedents and appropriate price benchmarks. {Here again, this is what makes the Iranian oil bourse critically important}

If this happens, the dollar’s status as the unchallengeable global currency would be threatened. History suggests that the US may find such arrangements in its own interests. President Nixon set the precedent by unpegging the dollar from the fluctuating gold standard, thus allowing its value to fall. Devaluation of the dollar helped to reduce oil prices and helped the US to adjust. {that is a serious mis-reading of petrodollar recycling during the 1970s...}

HIGH OIL PRICES ARE STARTING TO HURT THE AMERICAN economy quite seriously again. It has taken several hits already. But the problems are much more fundamental than that: the US current account deficit has reached 6%, the budget deficit is not being dealt with, the saving rate is low, the housing market is in a classic bubble and the demographic situation is becoming ever more challenging.

Allowing the euro into the oil trading system may be an elegant way for the US policy makers to devalue the dollar further to ease the adjustment costs. This is not an unlikely scenario. American unilateralism in foreign affairs has always been accompanied in its policy towards exchange rates and history tends to repeat itself.

PHOTO GETTY

[Leanan]

Interesting article. It seems to think that the death of the petrodollar will be in the U.S. interest.

[untothislast]

Good posting Petrodollar. This is, as you suggest, a live issue - and one worth tracking.

Before Powerswitch yanked the item off its pages, I took their advice and followed through on the 'Petrodollar' article on Wikipedia. Well worth a read.

[untothislast]

Postscript:

I should have realised this story was a dud - it didn't even refer to Angela Merkel (new German chancellor).

If Russia DOES start trading oil and gas in euros, I'll let somebody else post the news!

[Petrodollar]

...just an fyi...

http://www.mehrnews.com/en/NewsDetail.a ... sID=260851

December 2, 2005

Preparatory measures taken to sell oil in euros

TEHRAN, Dec. 2 (MNA) - The Chairman of the Majlis Energy Commission, Kamal Daneshyar said here, on Friday, that preparatory measures have been taken to sell oil in euros instead of dollar, adding that such a measure is quite positive and should be taken as soon as possible.
Speaking to the Persian service of Iranian Students News Agency (ISNA), he went on to say that Iran should at the first phase sell its oil in both Dollar and Euro, and then gradually move toward Euro as the mere source.

As for the probable consequences of such a decision, Daneshyar said that when such a measure is taken, the United States would soon realize that it is not the one who can always inflict economic damages on the Islamic Republic and that Iran can also get even with it.

Daneshyar who also represents Mahshahr in the Majlis noted that prior to this the way was not paved for undertaking such a program, adding that fortunately the present government possesses the necessary management bravery to prepare the ground for taking such a measure.

[untothislast]

$this->bbcode_second_pass_quote('Petrodollar', '[')b]Preparatory measures taken to sell oil in euros

[hull3551]

I think the Sino/EU/Russia/Iran relationship is becoming more and more cozy. I do not see how the US – especially with its military stretched thin – can launch another “pre-emptive” strike against another sovereign nation. Especially after the walk in park victory the Iraq War II was.

[smiley]

From what I understand our bilatoral trade agreements for natural gas are already in Euros. I suspect it is the same for oil.

The effects would be mostly symbolic.