- President Vladimir Putin said Thursday Russia could switch
its trade in oil from dollars to euros, a move that could have far-reaching
repercussions for the global balance of power -- potentially hurting the
U.S. dollar and economy and providing a massive boost to the euro zone.
"We do not rule out that it is possible. That would be interesting
for our European partners," Putin said at a joint news conference
with German Chancellor Gerhard Schroeder in the Urals town of Yekaterinburg,
where the two leaders conducted two-day talks. "But this does not
depend solely on us. We do not want to hurt prices on the market,"
- "Putin's putting a big card on the table,"
said Youssef Ibrahim, managing director of the Strategic Energy Investment
Group in Dubai and a member of the U.S. Council on Foreign Relations, an
influential body of leading world thinkers thought to help set the United
States' foreign policy agenda. "In the context of what is happening
worldwide, this statement is very important," he said.
- Putin's words come in the wake of a protracted drive
by the EU to attract more countries' trade and currency reserves into euros,
in a bid to chip away at U.S. hegemony over the global economy and money
- A move by Russia, as the world's second largest oil exporter,
to trade oil in euros, could provoke a chain reaction among other oil producers
currently mulling a switch and would further boost the euro's gradually
growing share of global currency reserves. That would be a huge boon to
the euro zone economy and potentially catastrophic for the United States.
- Dollar-based global oil trade now gives the United States
carte blanche to print dollars without sparking inflation -- to fund huge
expenses on wars, military build-ups, and consumer spending, as well as
cut taxes and run up huge trade deficits.
- Almost two-thirds of the world's currency reserves are
kept in dollars, since oil importers pay in dollars and oil exporters keep
their reserves in the currency they are paid in. This effectively provides
the U.S. economy with an interest-free loan, as these dollars can be invested
back into the U.S. economy with zero currency risk.
- If a Russian move to the euro were to prompt other oil
producers to do the same, it could be a "catastrophe" for the
United States, Ibrahim said. "There are already a number of countries
within OPEC that would prefer to trade in euros." Iran, the world's
No. 5 oil exporter, has also openly mulled a move into euros. And after
the war in Iraq, there is growing debate in the United States' traditional
ally Saudi Arabia on a switch too, though its government has not come down
firmly on one side, Ibrahim said. "There is a revision going on of
its strategic relationship with the United States. Already, they're buying
more [French-made] Airbuses," he said. "The Saudi Crown Prince
[Abdullah Bin Abdul Aziz Al-Saud]'s visit to Russia was of great significance
and the regime is talking about closer cooperation with LUKoil and other
- Under Saddam Hussein, Iraqi oil was traded in euros.
"This was another reason [why the U.S. attacked]," Ibrahim said.
"There is a great political dimension to this.
- Slowly more power and muscle is moving from the United
States to the EU, and that's mainly because of what happened in Iraq,"
- Putin had previously brought up the proposal to switch
to euros as prime minister in October 1999, at a meeting of EU leaders
in Helsinki. Then, in an attempt to forge a new bloc to counterbalance
the United States, he made the proposal alongside calling for closer cooperation
between Russia and the EU, including on security issues. Since then, however,
Russia's ties with the United States have warmed considerably -- and it
is unclear whether Putin would risk damaging that relationship by going
ahead with the euro move, analysts said.
- "Putin is very much interested in changing the structure
of OPEC and he cannot do that without the United States," said Alexander
Rahr, an expert on Russia at the German Council on Foreign Relations. "He
can only get a foothold for Russia in the Middle East with [U.S. help].
And, he wants to get contracts for the Russian oil industry in Iraq --
for this, too, he needs the United States."
- But there will be great opposition to this from the United
States." He said that while a switch would have no direct impact on
the Russian economy, it would give a great boost to the euro zone. Lukoil
vice president Leonid Fedun said Thursday that he saw no problem in the
euro switch and that payments for such transactions would be minimal, at
just 0.08 percent. "There is no problem ... If the state decides to
do this, then we will support this initiative. From the point of view of
the economy, there's no difference," Interfax quoted him as saying.
But even Fedun could not help putting a political price tag on the move.
"We are ready to move to the euro if the country will be included
in a visa-free regime with Europe," he said. Rahr agreed that the
timing of the statement seemed calculated to extract political concessions
from the EU. "It's a bargaining chip," he said. Gavrilenkov suggested
Putin was also angling for EU concessions on other issues discussed in
Yekaterinburg, such as terms for Russia's WTO accession.
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