Wednesday, August 13, 2008

If OPEC Dumps the U.S. Dollar

Iranian President Mahmoud Ahmadinejad dropped a bombshell. He stated on the record at a rare gathering of the heads of the Organization of Petroleum Exporting Countries [OPEC] that member nations have expressed a real interest in converting their cash reserves from the beleaguered U.S. greenback to the European euro. More specifically, Ahmadinejad referred to the U.S. dollar as "a worthless piece of paper."

What makes their posturing so troublesome, however, is that for the first time there was no rebuttal, or reassuring commentary from Saudi Arabia and other key U.S. petrodollar supporters, in response.

Instead, OPEC members formed a working group to study the dollar’s effect on oil prices and to "investigate the possibility of a currency basket" as a means of offsetting declining dollar-based reserves.

Many OPEC countries presently peg their own currencies to the dollar. Should that change, this could result in dramatically higher oil prices as the bigger players squeeze the smaller producers out and the dollar falls even further in response. How high will crude oil soar? $197 a barrel is possible.

[Seeking Alpha]

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