The Opec oil cartel has finally begun talking about pricing crude oil outside of the US Dollar...
AND SO IT HAPPENED at last!
Behind closed doors, at a meeting closed to the public, ministers attending the Opec oil cartel's weekend summit in Riyadh discussed whether to price oil in a basket of currencies instead of just using the late, great US Dollar.
The conversation was supposed to be private. But audio and video facilities were left running in the conference suite. Thus the world's media had a chance to hear Saudi foreign minister Al Faisal say:
"Just indicating that we have charged finance ministers with studying this issue...would mean a decision taken by Opec would have the opposite effect and the media would pick up on this point."
Boy, was he right! The media had a field day reporting the feud between Opec's largest producer (Saudi Arabia) and Opec's largest provocateurs (Hugo Chavez of Venezuela and Mahmoud Adhmadinejad of Iran).
This was better than reality TV show. And there's a lot more at stake!
Al Faisal, according to the Reuters' translation, said that making public OPEC's concerns about a weak Dollar would have a negative affect. "And then perhaps we would find that the Dollar had collapsed, instead of us having done something in the interest of our countries."
"They get our oil and give us a worthless piece of paper," countered Iranian President Mahmoud Ahmadinejad in public. "The Dollar has no economic value."
His sidekick in Latin America, Hugo Chavez – the lumbering socialist buffoon from Venezuela who's expertly monopolized his country's oil wealth and turned it into a political war chest – added that Opec should "set itself up as an active geopolitical agent".
Note to Chavez: OPEC has always been an active geopolitical agent, you moron. Oil wealth has turned the nomadic tribes of the Arabian deserts into massively wealth investors with leverage over the entire global economy.
Saudi King Abdullah realizes that what is good for global growth is good for Opec. And he also knows that $200 oil would not be good for global growth. It would not, therefore, be good for Opec.
The King said in a speech that: "Oil is an energy that is about construction and development and should not be turned into a tool of dispute and whimsy." Paper currencies are for whimsy. Tangible goods like oil are essential to the global economy.
During its rise, Opec's influence over the oil price was even greater than it is today. Now Opec controls 40% of world oil production and nearly 75% of oil reserves. But Opec can't single-handedly swing the price of oil higher or lower by raising or lowering production, even if its influence remains massive.
What will the oil cartel do about the US Dollar's decline? It poses a real problem. Sooner or later Opec will have to switch to a basket of currencies that stabilizes the oil price in something other than a depreciating currency. For now, however, the weak Dollar is passing inflation on to all those currencies that are linked to it.
When the Fed cuts, the Dollar peggers must cut too. And that's unleashed a tide of rising prices that has made the finance ministers of the world's 20 largest economies – the so-called G20 – very concerned.
Representing two-thirds of the world's population, along with 90% of its gross domestic product and more than 80% of global trade, "Rising energy and food prices will remain an important source of price pressures," says the G20, according to the newswires, in a draft statement.
But the G20 also said that "an orderly unwinding of global imbalances, while sustaining global growth, is a shared responsibility." Naming no names, it points to China, blaming it for pegging its Yuan to the US Dollar and forcing other export-economies – including Russia, the EU and Brazil – to take the strain of the crumbling greenback.
"Times have changed," says Dominique Strauss-Kahn, head of the International Monetary Fund. "Some emerging countries have much more economic influence than they had."
And some currencies – such as the US Dollar – have notably fewer buyers and willing takers than they had, too.