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According to articles like this there seems to be a move towards Europe saving billion dollar deals with Iran by switching to Euro for crude purchases. Apparently to avoid dollar sanctions on Iran having an impact on these deals, and to help save the Iranian nuclear deal.

In my opinion the importance of OPEC's USD trade exclusivity is grossly underestimated by most. Without the OPEC oil prop, and Sunni dominance of this arrangement, the entire global order is threatened.

Central banks must maintain dollar reserves to purchase energy and oil for manufacturing. Without that incentive, dollar demand drops. This would, for a while, be absorbed by the effective 'Quantitive Tightening' currently being executed at the Fed. This could result in artificially diminished effects of dollar liquidity drainage from the global system. A 'kick the can down the road' effect might happen. On the other hand, the Fed's insistence on draining dollars out of global circulation would be facilitated by any European endeavours to enhance the status of Euro as a reserve petro-currency.

Historically, any attempts to switch off the USD have been met with overt and covert hostility (Venezuela, Russia, Iran, Iraq, Libya). However, US domestic policy (Fed tightening) and foreign trade policy (reduce Asian exporter trade balances) seem to be in line, at least temporarily, with what Europe allegedly aims to do. The current US administration seems to be in favour of reversing globalization, bringing manufacturing back home, avoiding overseas military expansion, and focusing on domestic development. Is this now a strategy/direction being supported by Europe? Or is this a challenge that will result in some dramatic modifications to US foreign policy towards Europe and the world?

  • IMHO,US energy policies is supporting US dollar, not the opposite. Indeed, it is battle of energy , not battle of US dollar. – mootmoot May 16 '18 at 13:22
  • @mootmoot Care to elaborate? Imho energy policy and dollar policy are sort of inseparable in the US. Also do you mean dollar value or long viability of US as dominant reserve currency. – Sentinel May 16 '18 at 13:29
  • First, your example of "switch off USD" is not valid as those country fail are mostly due to its own internal mismanagement. Even without the invasion (as in Ira , Libya), nobody will buy oil using those country currency as nobody able to hedge the risk, it is same for Russia. China "coming back" to the world economy stage has proof your example wrong(China also has a huge cache of oil) . What I mean of US energy policies, is about using innovation and cut down oil price to geopolitical keep Russia at bay. – mootmoot May 16 '18 at 14:30
  • @mootmoot In the case of those countries the proposal was/is to sell in Ruble or Euro. Now to a limited extent petro-yuan. I am not sure how exporting fracking-energy or other innovation supports long term viability of dollar as reserve. I would need to some analysis there. – Sentinel May 16 '18 at 15:11
  • World economy is a mixture of everything, the world still export product to US since it is still the world largest consumption country, and it still host the world largest amount of technology pioneer companies. – mootmoot May 16 '18 at 15:21
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I think it is a part of new European strategy. Angela Merkel and Jean-Claude Juncker claimed, that EU should be more independent from the US (source: https://www.reuters.com/article/us-usa-trade-eu/eu-should-defend-itself-against-u-s-trade-measures-germany-france-britain-idUSKBN1I00GP).

Independent not only in military aspect (there was another Merkel speech about switching from NATO to EU army, which is now in project), but in economics too. This currency change from USD to EUR is a part of preventing US from blocking these trade routes.

What effect can be on US policy? US can make pressure on European banks providing such trades.

Some time ago, there was a situation when US just closed some Lithuanian offshore, just by its wish - to prevent contestance for US offshore-states like Nevada. Of course, German and French banks are much more cool, than Lithuanian, but here we talk about switching from dollar in oil trades - and this is critically important for US I think.

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  • It would be fascinating to collate evidence in support or against this. I think if this is what is happening, we will witness great economic turmoil and great changes in the world order. – Sentinel May 16 '18 at 11:01
  • @Sentinel, I was choked when heard first time about such EU speeches. I used to think, that west countries are a monolite block. They opposed east as a monolite block. But times has changed, I think. – user2501323 May 16 '18 at 11:03
  • Comments deleted. If you would like to talk about world history, please use history.stackexchange.com – Philipp May 16 '18 at 12:58
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    Angela Merkel is widely reported as saying that Europe can no longer rely on the USA. – RedGrittyBrick May 16 '18 at 15:19
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    @RedGrittyBrick: This follows after a US president shouted "America first!". – Martin Schröder May 18 '18 at 21:12
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You're missing the fact that trade is bidirectional. You focus on oil buyers which need USD; the reverse is also true. There are oil sellers which have excess USD. The latter typically import lots of basic goods, from food to furniture. And of course, they'd happily pay for those imports in USD.

You could even barter, there's strictly speaking no need to actually exchange any currency at all. The USD just happens to be convenient. But if the US tries to make it less convenient, it's likely all USD trades worldwide would become less convenient which affects the US itself the most.

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  • I would say that the latter typically use those current account surpluses to a) via SWFs reinvest the dollars in order to have a diversified portfolio, b) swap the paper for US-made military hardware as part of the agreement that oil be traded in USD. The present policy in the US is that QE be reversed to drain X trillion dollars out of the system (quantitative tightening). This simply makes dollar availability a general problem, meaning that both for buyers and sellers the amount of USD held will decrease. Yes, agreed, the US is facing recession as a result as economic activity will drop. – Sentinel May 17 '18 at 9:26
  • ...but if eg Europe switch off USD for crude purchases, the quantitive tightening effect will be temporarily diminished as dollar demand would drop. i.e. central bank holdings for energy/manufacturing would diminish. This would offset the complications caused by Fed policy to some extent. Question is what extent, and whether or not it is enough to affect foreign policy. Does it make sense? – Sentinel May 17 '18 at 9:31
  • @Sentinel: Since the USD is so liquid, non-US arms dealers will also take USD, and those SWF can invest dollars into non-US equities as well. Yes, there's a small decrease in USD demand if this would change to EUR, but that's fairly small. – MSalters May 17 '18 at 9:54
  • I don't think USD is that liquid! foxtrotalpha.jalopnik.com/… These sorts of arrangements are about propping up the USD explicitly so that they can be swapped for the output of a minority set of elite interests! – Sentinel May 17 '18 at 10:28
  • Only 110 billion? The Forex market size is 5 trillion dollars per day. – MSalters May 17 '18 at 10:54
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IMHO, it will not affect current US policy. Once Russia learn how to convert the oil-dollar to their advantage, USA can no longer use the yesteryear dollar-oil dominance policy.

In fact, Russia is the biggest benefactor of US 2008 economy meltdown fix with QE speculation that jack up the oil price, it is cheap free US dollar-forex flow to Russia, which Russia can flex its arm using dollars gains from oil export, instead of relies on its own Rubles. This is somewhat funny that US policy maker did not anticipate, thus US Fed stop the QE that fuel Russia growth, even the Wallstreet want it to continue.

After Russia economy rise up, USA government has spend great effort to enact policies to bring down the oil price in the long term. So it is not a joke that some OPEC country like UAE put a great interest to reform their oil output economy. Russia intervention in Syria is not a simple geopolitical power struggle against the west, it is also mean to "strengthen" the oil price (though Syria is not a major oil producer). It is similar card that USA play in the past with the oil-dollar peg.

Now USA just switch their ground towards dollar-consumption policy. Globalisation must continue, because it is too costly for USA to geopolitical curtails Russia itself. Even Trump can do nothing to "jack up" the price of the oil, the last thing USA want to do is strengthen oil-dollar.

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  • I will think about this and get back. – Sentinel May 16 '18 at 20:38
  • Can you provide sources for any of this? – Gramatik May 17 '18 at 16:02
  • @Gramatik : I afraid you need to do your own research on geopolitics, start from Alfred Thayer Mahan Sea power. en.wikipedia.org/wiki/Geopolitics – mootmoot May 18 '18 at 9:43
  • @mootmoot let me rephrase that - you've made a lot of wild claims that sound like a combination of rehashed RT headlines and a persecution complex, and you've provided no sources for these claims. As it is, this is not a logical, researched answer but instead a conspiracy theory. – Gramatik May 18 '18 at 17:48
  • @Gramatik The ideas here are worth looking into. I am going to try and look for supporting/contradicting evidence on some of the points when I get time. The US stopping QE is economic suicide, so there has to be some explanation beyond incompetence. The anti Russian propaganda in US media at the moment does point towards a new anti Russian policy, for example. – Sentinel May 19 '18 at 5:56

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