In a stunning example of a stopped clock being right, Iran’s President Ahmadinejad assails the dollar, suggesting OPEC should break the petrodollar link:
“They get our oil and give us a worthless piece of paper,” Ahmadinejad told reporters after the close of the summit in the Saudi capital of Riyadh. He blamed President Bush’s policies for the decline of the dollar and its negative effect on other countries.
Oil is priced in U.S. dollars on the world market, and the currency’s depreciation has concerned oil producers because it has contributed to rising crude prices and eroded the value of their dollar reserves.
“All participating leaders showed an interest in changing their hard currency reserves to a credible hard currency,” Ahmadinejad said. “Some said producing countries should designate a single hard currency aside from the U.S. dollar . . . to form the basis of our oil trade.”
He was unsurprisingly echoed by statements from Mini-Mahmoud, Venezuelan dictator Hugo Chavez.
This expands an already wide rift within OPEC, as several states (most notably Saudi Arabia) are allies with the United States. They fear that dropping the dollar will also destroy any semblance of friendly relations between their governments and Washington. Many of their regimes could face internal resistance if American backing disappeared, and given some of their internal policies, it’s not likely that they’ll be peacefully overthrown.
Quite honestly, this has been on the horizon for a long time. Our own Federal Reserve and politicians, in an effort to keep the American economy moving (and themselves from political harm), have engaged upon a credit glut that has covered the world with American paper. And the world is slowly starting to realize that this paper is becoming worthless. To a large extent, they were still stuck with the dollar, as there wasn’t an alternative large and stable enough to be an alternative. With the growth of the Euro, though, the dollar no longer has a monopoly position in the world market.
A global dollar crisis is a nightmare for the entire world. But it’s becoming increasingly likely, and while Ahmadenijad might be crazy, he’s not stupid. He knows that his best option for getting rich on the back of the falling dollar is to get on the leading edge and ditch it before the crisis materializes. And if divesting of the dollar manages to cause that world panic after he’s complete, all the better to damage “the Great Satan” and turn him into a hero to the extremists at home.
To the vast majority of Americans, the “high price of oil” is OPEC’s fault. But in reality, how much of the high price is a reflection of the weakness of the dollar instead of a short supply? The vast majority of Americans see “crazy Mahmoud” spouting off, but I guarantee the prospect of oil being sold in euros rather than dollars is a prospect keeping many folks in Washington awake at night.