Can someone explain the oil bourse issue in simple terms?

[lectrobyte]

I like to think I'm reasonably intelligent, but I read articles like this

http://blog.lewrockwell.com/lewrw/archives/007485.html

and even with this graph, I don't see what the problem with a petroeuro vs. a petrodollar would be.

[BushOut06]

1. Sure...a bourse is a bourse, of course of cousre...

And noone can talk to the bourse, of course.

Honestly, it's all rather confusing for me also. We need an "Oil Bourse for Dummies" on this board.

[Extend a Hand]

2. this article...trading oil in euro's -- does it matter?

explains things in laymans terms.

http://www.energybulletin.net/12463.html

[tatertop]

7. That is a good article. An excellent overview in a few pages

[lectrobyte]

8. Thanks, that's a good article. I never grasped the point before about

keeping currency stable by holding dollars. If I am summarizing it correctly, it's not that oil is sold in dollars, it's that oil is sold in dollars and other countries hold them to stabilize their own currency's exchange rates.

[Sydnie]

3. The value of the dollar

is based on the need for other countries to need to acquire them to trade for oil. Once oil is not sold in dollars anymore, then there will be little incentive for other countries to continue to need to purchase dollars or hold dollars. That leaves us with two choices, inflate the dollar or deflate the dollar. Neither are good for us little people. The value of the dollar is based on the value of oil and it's sales. Don't need the dollar to purchase oil? Dollar falls as the global standard.

At least, that's how I understand it.

[quiet.american]

6. Thanks for that... I think.

:scared:

[applegrove]

4. Cause US dollars are the most acceptable in the world - and used to

trade oil - that is subsidy to the US economy.

Most countries in the world are vulneral to having their currency sold and their dollar falling when they do goofy things like grow a huge debt or if their balance of trade is out of whack (if they buy more than they sell as a country to the world).

Because so many countries have holdings in US dollars for other reasons that what the US fiscal situation is like - it acts like a subsidy.

It is as if the USA can hold 2 times more debt than anyone else (US ends up with a different set of financial & economic rules they can play with).

So this capacity for more debt went to the rich and the oil companies (who get access to Iraq oil market). But if Iran goes with the Euro - and it starts a trend - then all of a sudden - US is back to only being able to hold the debt like a normal country (or the subsidy is much less).

And then Asian dollar holders may turn in US dollars for European. And US will have to cut the debt and recession.

Recession might actually be fair for american workers as the dollar going down would make US workers more competative then they are now with the rest of the workers in China. But there would be a recession.

That ability to hold debt, and the neocons jumped into that, was used to fight a war and give tax breaks to the rich. If the US was going to have this "extra ability to hold debt" - they could have used it to reform health care or schools.

IMHO

[lectrobyte]

9. but it seems like all this deficit spending and trade imabalance

can't go on forever, even if we bomb everone who even thinks about opening a bourse in Euros...

Isn't the bill going to come due at some point? I wish I had a better sense of economics, it just seems like random BS to me most of the time.

[applegrove]

14. Don't know what the future will hold. What currency in the end will become

the world currency? Or will people always have currency based on country - because that allows for monetary policy tools to help jumpstart and sluggish economy?

I have no idea.

Yes - of course - going to war to protect the ability to hold debt, and using up that capacity to pay for the war... seems very odd.

Except that the oil companies (thus wealthy stock holders) will benefit from any success in Iraq over the long term. And there are other issues tied to it. Like terrorism (not the type Bush & Rummy have invented but the type that is real).

I don't know. But I think it is better when all parts of the country sacrifice to make the whole better and I'd like to see the elites do their part somehow. Cause right now transformation is all on the backs of the worker.

[applegrove]

15. Most of the world's trade is in dollars. Not just illegal stuff. I mean -

most of the world's trade where international fiat currency is required.

So what we are talking about with the bourse would be a change in percentage that trade would be in US dollars. I would not go to zero. US would still be the most held currency in the world. It is just that massive change to Euros or whatever - would change the playing field all of a sudden.

[RufusEarl]

5. Here's my blue collar take on it

The greenback is the currency of the planet. Oil is traded and always has been traded in greenbacks. Iraq was going to change that once US embargo was lifted, some believe thats why US Bu$h went to war. Now Iran is planning on using Euros to trade for oil, this in some opinions will destroy the US green back and result in world wide depression.

[lastknowngood]

10. Much of the world's reserve currency is in dollars because oil is sold

in dollars.If they sell oil in euros then the reserves will switch to euros. Understand that every dollar kept as "reserver currency" i.e. emergency cash is in effect an interest free loan to the U.S.
If they don't need them then the market will be flooded with dollars and the value of the dollar will crash.

[muriel_volestrangler]

11. No, no-one can, because we don't know what will happen

(a) We don't know if the Iranian oil bourse is going to use euros or not (Oil bourse not to use euros in Iran: TSM chief is the last official pronouncement, bu that's 5 months old now)

(b) We've never had a situation where the world's most important commodity is traded in 2 different, but themselves tradable (at variable exchange rates), currencies. It's all conjecture - and personally I think economists can't predict themselves out of a paper bag if they don't have real life examples to work from.

[Sgent]

12. One problem with that argument

The daily amount of oil sold is approximately 100 million barrels worldwide. So assuming all of it is traded on a spot price (most isn't) -- that means about $5.5 billion dollars change hand daily for the purchase / sale of oil.

That sounds like a lot of money, until you realize that about 2 TRILLION dollars are exchanged each day on the forex market.

Oil isn't a major part of most economies today (including ours). Even at currently high prices, oil makes up less than 6% of our economy.

[WCGreen]

13. Don't forget that most of the

Worlds nefarious, underground economy, is transacted in dollars....

Drugs, sex trade, smuggling, you name it... It's conducted in Greenbacks....

Plus all the investment within the US....

That will cushion the blow somewhat if Oil suddenly is traded in Euros or any other currency...

[jmowreader]

16. I'll try

http://www.masternewmedia.org/news/2006/01/23/the_iranian_oil_exchange_proposal.htm

In the 1972-73 timeframe, the United States government changed its currency from the Gold Standard to the Oil Standard. They did this by brokering a deal with the House of Saud: we shall recognize the legitimacy of your regime in exchange for your accepting only US Dollars as payment for your oil. The rest of OPEC followed suit; in the 1970s, the only people who had oil in the ground were the United States (who obviously accepts the US Dollar as payment for its oil), OPEC (who, following the lead of the House of Saud, only accepts the US Dollar) and a buncha commie bastards we didn't give a shit about anyway.

If you want oil you need dollars; if you have oil you can always get dollars for it; dollars are a good respectable currency honored the world over. You can go to Mr. Lee's Yakimandu Stand in Ulsan, Korea, where there is no US presence, pull out a fistful of dollars and get some Yakimandu. You can go to a snack bar in Miedzyrzecz, Poland, and eat for dollars--and the only American in Miedzyrzecz would be you. You can...you get the idea. The US dollar is the world's reserve currency. Anyone will accept it. But to get it, you have to sell something directly to a dollar-using country, sell to a middleman country or enter the currency market--which, thanks to commissions and fees, is the least-desirable way of doing it.

A Euro-denominated oil bourse (bourses are commodities exchanges; the big ones are the London International Petroleum Exchange and the New York Mercantile Exchange) would destroy this dynamic. A country whose native currency was Euro would be able to buy oil without incurring exchange fees. A country whose native currency was neither dollars nor Euro would be able to trade in the currency whose exchange rate was the most favorable on the day the oil was purchased. Basically, two currencies on the oil standard would damage them both.

Bush isn't worried about the Euro bourse's effect on the Euro, though; he's worried about its effect on America. He's right to worry; the four wealth-creating industries (mining, forestry, agriculture and manufacturing) are all hurting because of things like the Least Expensive Country economic system. Unfortunately, how he's going to keep the dollar from crashing is not the long, painful process of re-establishing a manufacturing base in the US; he's going to go to war against Iran.

[lectrobyte]

17. Thanks -- great link with a lot of links to more background.