[A-List] Petrodollar

["Yoshie Furuhashi" <critical.montages@xxxxxxxxx>]

As the house of cards that US economy has recently been gets shaken
up, the falling dollar will put pressures upon the states that are the
main exporters of petrodollars as well as those who depend on export
to the US market, though it's not clear how they will react.  As my
dear Islamic Republic of Iran gets forced by sanctions, etc. to do
many of the right things even against its Leader's will, it may very
well be one of the countries best placed to weather the coming storm.
-- Yoshie

<http://www.ft.com/cms/s/743a52a2-3959-11dc-ab48-0000779fd2ac.html>
Falling dollar puts pressure on Opec

By Javier Blas in London

Published: July 23 2007 22:01 | Last updated: July 23 2007 22:01

The falling US dollar is lowering the Organisation of the Petroleum
Exporting Countries' purchasing power by up to a third, making the
powerful oil cartel more reluctant to increase production and cut
prices.

Although oil is trading near last August's record $78.65 a barrel,
Opec calculations show that, when adjusted for the weaker dollar and
inflation, an average of the 12 Opec members' crude oil prices has
fallen in the past year.

The adjusted "Opec basket price" averaged only $43.60 a barrel in June
compared with $44.30 a barrel in the same month last year, according
to the organisation's latest monthly report.

Growing trade between Opec members, especially in the Middle East and
North Africa, and the European Union is aggravating the problem
because the pound and the euro have risen.

The dollar on Monday fell to an all-time low against the euro of
$1.3844 and a 26-year low against sterling, at more than $2.06.

Mohamed Bin Dhaen al Hamli, Opec president, said at its latest meeting
three months ago that the cartel was "concerned about the continuing
weakness of the US dollar" because "this is having a significant
effect on the purchasing power of oil producing countries".

Since then, the dollar has continued to fall against the euro and sterling.

Eric Chaney, a Morgan Stanley economist, estimates that a 10 per cent
drop in the dollar against major currencies cuts Opec's Middle East
members' crude oil purchasing power by about 5 per cent.

Adam Sieminski of Deutsche Bank said the refusal of the cartel to
increase its production to force a drop in the oil price was "more
understandable if the lower value of Opec's spending power...is taken
into account".

But the decline in the value of the dollar is insulating some
countries from high oil prices, which provides Opec with strong demand
even as oil prices soar above $75 a barrel.

Non-Opec members, such as Egypt and Sudan, face similar problems to
those of many Opec countries.

Oil prices fell on Monday on speculation that Opec would increase
production this year. Brent crude oil, regarded as the best indicator
of the global oil market, fell 83 cents to $76.81.

<http://www.reuters.com/article/bondsNews/idUSN1836248020070720>
Petrodollars to flow into US Treasuries despite Iran
Fri Jul 20, 2007 3:20PM EDT

By Lucia Mutikani

NEW YORK, July 20 (Reuters) - Iran's decision to switch some
dollar-based oil revenues to the Japanese yen was negative for U.S.
government bond market sentiment, but would not make a dent on the
flow of petrodollars into Treasuries.

Analysts said although Iran held a small fraction of government bonds,
its initiative to ditch the falling dollar was further confirmation of
diversification away from the currency and related assets.

"It's negative for Treasuries overall because it does fit with the
idea that there is a diversification away from the use of the dollar
by various means," said Tony Crescenzi, chief bond market strategist
at Miller, Tabak & Co. in New York.

Iran, the world's fourth biggest oil producer, confirmed this week it
had asked Japanese customers to pay for crude oil in yen instead of
dollars, a move it said was aimed at maximizing oil export revenue. It
is locked in a row with the United States over its nuclear program.

Foreign purchases of Treasuries by institutions such as central banks
and oil producing countries have helped keep government bonds yields
lower in recent years even as the Federal Reserve raised its benchmark
overnight lending rate to 5.25 percent.

But the dollar's poor performance has resulted in a gradual
diversification in the composition of foreign central bank currency
reserves.

"The proportion of money held by central banks in dollars is
shrinking. It was once 70 percent and now it's in the mid-60s.
Diversification is a key theme that is negative for the dollar and
Treasuries, and that has been the case this year," said Crescenzi.

IDEAglobal currency strategist David Powell estimates Iran supplies
about 15 percent of Japan's oil imports, roughly translating into $10
billion annually and suggesting little or no impact on petrodollar
flows.

"It does not have a huge implication. They probably weren't keeping
this $10 billion in Treasuries, more likely in short-term instruments.
Iran is not a country that is flush with cash as other oil producing
countries are," said Powell.

U.S. government data on Tuesday showed oil exporting nations raised
their Treasury holdings by $9.1 billion to $121.3 billion in May.

When British holdings, viewed as including Middle Eastern accounts
using London-based accounts, are factored in, about $42.2 billion
worth of petrodollars were pumped into Treasuries in May.

"That is more than four times the annual sales in oil from Iran to
Japan. Iran is not leading the trend for oil producing or Middle
Eastern countries as far as the data shows us," said Powell.

<http://www.economist.com/finance/displaystory.cfm?story_id=8380713>
Economics focus

The petrodollar peg
Dec 7th 2006
>From The Economist print edition

America should worry more about fixed exchange rates in the Gulf than
the gently rising Chinese yuan

AMERICAN politicians and businessmen view China's undervalued exchange
rate and its huge current-account surplus as the main cause of
America's vast deficit. Thus next week a high-powered delegation led
by Henry Paulson, America's treasury secretary, will fly to Beijing to
persuade China to take measures to reduce its surplus. But are they
heading to the right place? At the global level, the biggest
counterpart to America's deficit is the combined surpluses of the
oil-exporting emerging economies. They are expected to run a total
current-account surplus of some $500 billion this year, dwarfing
China's likely surplus of $200 billion (see chart).

Counting only the Middle East oil exporters, the surplus has surged
from $30 billion in 2002 to an estimated $280 billion this year. One
reason why this gets much less attention than the smaller $160 billion
increase in China is that only a fraction of it has gone into official
reserves, which are publicly reported. Most of it is stashed in
government oil-stabilisation or investment funds, such as the Abu
Dhabi Investment Authority, which are much more secretive than the
People's Bank of China—but which probably hold just as many dollar
assets.

"Surplus to Requirements: Current-Account Surpluses"
<http://www.economist.com/images/20061209/CFN623.gif>

One big difference is that China is now allowing the yuan to rise
against the dollar. The exchange rate is up by an annual rate of
almost 7% since September. In contrast, the six members of the Gulf
Co-operation Council, or GCC (Saudi Arabia, United Arab Emirates,
Kuwait, Bahrain, Oman and Qatar), which account for virtually all of
the Middle East's surplus, still peg their currencies firmly to the
dollar. This is partly in preparation for the GCC's plan to adopt a
single currency by 2010. But the bizarre result is that over the past
four years of soaring oil prices, their real trade-weighted exchange
rates have fallen.

The Gulf economies are running an average current-account surplus of
30% of their GDP, well in excess of China's surplus of 8%. Oil
exporters cannot spend their windfall overnight and it makes sense for
them to run a surplus when oil prices rise, as a buffer for when oil
prices fall. Even so, one can have too much of a good thing.
-- 
Yoshie