PetroDollars no longer back by USD? Implications?

I wonder how much longer countries pegged to the USD can withstand the inflationary pressure? In particular the middle east oil exporters have the double whammy of huge oil $$$ revenues and exceedingly low interest rates due to the FED's actions here. If the FED cuts i-rates again these countries will have double digit inflation and may have to let their currency float and maybe switch oil sales to the Euro.

http://www.gulfnews.com/business/Economy/10199875.html

Saudi Arabia's inflation hits 27-year high

Reuters
Published: March 24, 2008, 00:43

Dubai: Inflation in Saudi Arabia surged to a 27-year high of 8.7 per cent in February as the world's largest oil exporter and its Gulf neighbours lowered interest rates to defend pegs to a tumbling US dollar.

Saudi Arabia matched the latest 75 basis point cut by the US Federal Reserve last week along with the UAE and Bahrain. Qatar, where inflation is running at 13.74 per cent, followed on Sunday.

Qatar also tightened lending curbs on banks for a third time since December, in the latest sign of the growing dilemma for Gulf Arab governments, torn between averting currency appreciation and containing soaring prices.

Qatar lowered its deposit rate by 75 basis points to 2.25 per cent but left its lending rate unchanged to avoid stoking growth in money supply in an economy flush with oil and revenues.

It also raised the reserve requirement for banks by one percentage point to 4.75 per cent.
 
Quote from Khaled187:

No man. We are there because we could never forget Sept 11
More...



The intermediate strategic reason we invaded Iraq was to demonstrate our abilities to percieved challengers

In a nutshell - we had to squash something bigger than Afghanistan so everyone would know we were serious about this

Iraq was the obvious choice
 
It really appears as though the FED's action will break the USD linkage.

Qatar may revalue riyal in weeks, says Standard Chartered
Published: Monday, 24 March, 2008, 01:49 AM Doha Time

DUBAI: Qatar may revalue its currency against the weak U.S. dollar in the coming weeks, an analyst at Standard Chartered said.
“The only adjustment we can see in the short-run is a revaluation as depegging is a very politically sensitive topic at the moment,” says Marios Maratheftis, regional head of research at Standard Chartered in Dubai.
He added that a one-off significant revaluation of 20% will be the best option for Qatar as it will replicate what a de-peg to a currency basket would have achieved and the one-off nature will make it less politically sensitive. Inflation in Qatar is at a record 14%, the worst in the region.
Meanwhile, a senior Gulf official has said that the Gulf countries will complete by the end of this year a study on whether to keep a proposed 2010 deadline for starting a monetary union.
“We are carrying out a study now to see what results we will have by the end of the year,” HE Abdul Rahman al-Attiyah, secretary general of the Gulf Co-operation Council, told reporters in Bahrain yesterday.
GCC leaders asked for the study at their summit in Doha in December, he said.
Saudi Arabia, Kuwait, the UAE, Qatar and Bahrain, are still committed to the timetable for monetary union in 2010, while Oman, which has said it can’t make the current schedule, will be able to join later, he said.
“We will start like the European Union. Those who are ready can join at the beginning, and members who aren’t ready can join later,” al-Attiyah said.
The monetary union plan is part of a common market that started on January 1. – Zawya Dow Jones, Bloomberg
 
Looks like USD will being heading back down in the very near future.

http://www.ocala.com/article/20080323/BUSINESS/803230314/1368/googlesitemapnews

......... Finance experts are divided on how big an impact de-pegging would have on the value of the U.S. dollar. Al-Mousa, the former Kuwaiti bank official, said investment flows into the U.S. economy were more important.

"Look at what is going on right now," he said. "Billions are directed to the U.S. in investments. What is more important? These billions going to the U.S. or the Kuwaiti dinar being de-pegged from the dollar?"

Reyadh Faras, an economics professor at Kuwait University, disagreed, saying Kuwait's decision to abandon the dollar was significant and similar decisions by even larger countries could seriously erode the dollar's value.

"If large countries like Saudi (Arabia) take the same step, its psychological effect will precede its actual one and it could lead to losses for the dollar," he said.
 
First, the OPEC produces only a fraction of the oil consumed worldwide.

Second, the only countries in the OPEC that want to switch to other currencies are Iran and Venezuela; both of them are quite small oil exporters.
Furthermore, their oil is sour (high in sulfur), bad oil that needs extensive refinement (only available in the US).
This oil is sold at a deep discount compared to sweet (low in sulfur) oil.
 
You must log in or register to reply here.
Back
Top