Issue of the week: Will OPEC ditch the dollar?

Just when it seemed the news about the dollar couldn’t get any worse, it got worse, said Steve Hargreaves in CNNmoney.com. At a summit meeting of the Organization of Petroleum Exporting Countries last week in Saudi Arabia, Venezuela’s Hugo Chavez and Iran’s Mahmoud Ahmadinejad raised the once-unthinkable notion of pricing oil transactions in euros rather than in dollars. U.S. buyers “get our oil,” Ahmadinejad said, “and give us a worthless piece of paper.” Chavez was even more blunt: “The empire of the dollar has to end,” he declared. Make no mistake: Severing “the historic link between crude oil and the dollar” would almost certainly send the greenback into free-fall, as oil-importing nations would have to sell their dollar reserves and buy euros.

This is not merely mischief-making by two sworn foes of the U.S., said Steven Mufson in The Washington Post. Significantly, the other leaders at the OPEC summit didn’t reject the idea out of hand. As it happened, journalists assembled at the royal conference center in Riyadh got to watch the dollar debate because a camera was left on during the supposedly closed session. “Before Saudi officials pulled the plug,” Saudi Foreign Minister Saud al-Faisal was heard saying that the currency question should be left to the finance ministers of the OPEC countries. He also said the group should not say anything about the matter, lest that drive the dollar down even further—which is just what happened when reports of the conference surfaced in the financial press.

Don’t be fooled, said Ed Crooks and Javier Blas in the Financial Times. The threats to abandon the dollar are just a smokescreen for the real issue that’s splitting OPEC: the price of crude. Ahmadinejad and Chavez, unlike most other OPEC leaders, would like to see the price of oil go higher. They “wanted to make the point that while a price for U.S. crude of about $95 a barrel might seem high, its rise has been less dramatic when measured in other currencies.” Saudi Arabia, meanwhile, “has been worried about the price reaching $80, much less $100,” because it fears that high prices will eventually drive down demand for oil. Ultimately, oil-consuming countries could benefit from the dissension within OPEC, “because the group has traditionally worked best when political divisions between its members are at their smallest.”

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Chavez and Ahmadinejad clearly are troublemakers, said Philip Thornton and Allister Heath in London’s The Business. But they’re right on one crucial point. With a new generation of economic power­houses rising in China, India, and Brazil, the dollar’s reign “as the hegemonic currency is coming to an end.” Currencies have historically risen and fallen along with their governments’ political and economic power, and “the greenback will be no different.” It won’t happen overnight, but Americans had better get used to it. “The era of the dollar’s uncontested dominance is coming to an end.”