Many analysts have been warning for some time that the dollar rides on unstable economic fundamentals, in particular the colossal US current accounts deficit. This may be just the opportunity that oil importing countries, particularly Europe, need to diversify their foreign currency holdings away from the US dollar, which currently dominates the global oil trade. Russia is the world's second largest oil producer after Saudi Arabia, producing some nine million barrels a day, or about ten percent of the world's total.Ĭombined, Russia and Iran account for fifteen percent of global oil production. Depending on how Russia is prepared to go in its requirements for selling oil, this could prove far more damaging to the global market for petrodollars. In related news, Russian President Vladimir Putin has announced a similar plan: he is calling for Russia to establish an oil exchange denominated in rubles. (All oil production figures cited from the CIA World Fact Book.) Iran currently produces just under four million barrels of oil per day, about five percent of the world's total. It's too early to say what firms will trade on the IOB, but Iran's decision to require all oil purchases to be made in euros certainly creates a natural market for a euro-denominated exchange. Instead, anyone who wants to buy oil from Iran will have to pay for it in euros.Ĭoming on the heels of the Iranian Oil Bourse (IOB), an energy exchange Iran just registered on the Island of Kish on May 5, this looks like a calculated effort to undermine the US dollar. Iranian President Mahmoud Ahmadinejad just announced that starting this July, Iran will stop trading oil for dollars.

Geopolitics The Deep Breath Before the Plunge

The deep breath before the plunge