To euro or not: Should oil pricing ditch the dollar?

To euro or not: Should oil pricing ditch the dollar?

Robert Koch, Agence France-Presse, Algiers

As the U.S. dollar continues its slide against world
currencies, should oil, the most valuable global commodity, now
be priced in euros?

The Organization of Petroleum Exporting Countries (OPEC) is
having a think about the relative merits of abandoning the
greenback for the European single currency, and some analysts
expect it to be discussed at the powerful oil cartel's special
meeting in Algiers on Tuesday.

"I would be surprised if the question was not examined" in
Algiers, a source close to OPEC said at the cartel's Vienna
headquarters.

OPEC's current secretary general, the Venezuelan Alvaro Silva,
recently indicated that the question was being mulled by the 11-
member group, which has massive influence over global oil prices
and production.

"We are speaking about negotiating for crude in euros. It is
possible that the organization will discuss this and take a
decision at a given moment", Silva said.

Qatar's energy minister, Abdullah bin Hamad al-Attiya,
admitted that oil-producing states were worried in mid-January,
when the euro hit an unprecedented high of US$1.2898. But, he
added, "the passage from one currency to another is a difficult
decision."

After its free-fall slide in January, the dollar has recovered
slightly to hover around 1.27 to the euro, but countries are
still reeling from the currency instability while exporters who
price their goods in dollars have complained of continued drop in
profits.

At OPEC's last meeting, held in Vienna in December, the member
states -- responsible for one-third of the world's oil production
-- complained that their oil profits were down 25 to 30 percent
due solely to dependence on the dollar.

Adopting the euro, the currency of 12 of the European Union's
15 current members, would call for a major overhaul in world oil
trading, but the idea has been circulating since before its
introduction in 2002.

At a conference on the "hidden threats of currency crises"
back in March 2001, Venezuela's ambassador to Russia Francisco
Mieres-Lopez first publicly evoked a possible switch.

"With all this talking, the euro makes slowly and
surreptitiously its way in the price fixing mechanism," an
analyst at the Dresdner-Kleinwort-Wasserstein brokerage firm in
London said.

"What's more, Russia, one of OPEC's competitors, has been
threatening for several months now to switch its oil market to
euros", the source said.

The question has now built into a behind-the-scenes battle of
minds at OPEC, which groups Algeria, Kuwait, Indonesia, Iran,
Iraq, Qatar, Libya, Nigeria Saudi Arabia, the United Arab
Emirates and Venezuela.

Post-war Iraq remains outside of the cartel's quota system,
which has currently fixed the group's output at 24.5 million
barrels per day.

Saudi Oil Minister Ali al-Nouaimi, whose country is considered
the cartel's heavyweight, OPEC Secretary General Purnomo
Yusgiantoro of Indonesia and Algerian Energy Minister Chakib
Khelil have ruled out switching to the euro.

Their OPEC partners, however, are not as categorical.

b"If the dollar/euro value remains the same in 2004 as in
2003, prices will climb to unrealistic levels," said Hojjatollah
Ghanimifard, acting deputy for international affairs at the
National Iranian Oil Company.

A trader at the Rothschild bank in London added: "Trading in
petrol involves enormous sums of money. If the dollar loses its
role as a currency of reference, the United States, the world's
largest oil importer, will no longer be able to have outside
countries finance its abyssal trade deficit."

He said it was unlikely that the price of crude would be
quoted in euros in the near future but down the line prices could
be fixed in line with a "basket" of currencies -- "dollar, euro
or yen".