BusinessDay... the voice of business: Nigeria, others insist on dollar pricing for oil

Nigeria, others insist on dollar pricing for oil
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Olusola Bello,  Riyadh, Saudi on 20 November, 2007 01:00:00
 
Nigeria and a few other members of the Organisation of Petroleum Exporting
Countries (OPEC) have resisted pressure from Iran and Venezuela to drop the
pricing of oil in US dollars.
OPEC  resisted the call and asserted that it would continue to supply the world
with "economic and reliable oil" notwithstanding the pressure on it to become a
more active geopolitical and financial organisation.
The currency in which a country gets much of its trade revenue determines the
denomination of its reserves. A decline in the value of the dollar has,
therefore, meant an erosion in the purchasing power of the reserves kept in that
currency. For Nigeria, which gets the bulk of its foreign revenue from oil,
therefore, in dollars, the slide of the dollar has meant an erosion in the value
of its reserves.
The two countries expressed their interest to convert their cash reserves into
a currency other than the depreciating US dollar, which they insisted was the
cause of the escalating crude oil price.
President Mahmoud Ahmadinejad of Iran and President Hugo Chavez of Venezuela,
who blamed the weakness of the US dollar for high oil prices, are seeking the
trading of oil in a basket of currencies to replace the historic link to the
dollar.
Although Iran and Venezuela have antagonistic relationships with the US,
suggesting that their proposals may have a political motivation, the Iranian
leader’s comments were believed to have been fuelled after US ally Saudi
Arabia was reluctant to mention concerns about the falling dollar in the
summit’s final declaration.
Ahmadinejad’s comments also highlighted the growing challenge that Saudi
Arabia, the world’s largest oil producer, faces from Iran and its ally
Venezuela within the OPEC.
"They get our oil and give us a worthless piece of paper," Ahmadinejad told
reporters at the end of the summit," even as he blamed President George Bush’s
policies for the decline of the dollar and its negative effect on other
countries.
"Oil is priced in US dollars on the world market, and the currency’s
depreciation has concerned oil producers because it has contributed to rising
crude prices and has eroded the value of their dollar reserves.
"All participating leaders showed an interest in changing their hard-currency
reserves to a credible hard currency. Some said producing countries should
designate a single hard currency aside from the US dollar ... to form the basis
of our oil trade," he bluntly said.
His Venezuela counterpart in a rather sentimental statement had implored OPEC
to set up its own bank and become more politically active in "demanding respect"
for its members. Apparently eluding the statement to US threats against Iran and
his own country, the Venezuela leader predicted that prices would rise to $200 a
barrel if the United States were "crazy enough" to strike at Iran , or even at
his own country.
"The empire of the dollar has to end. Don’t you see how the dollar has been
in free-fall without a parachute?" Chávez said, calling the euro a better
option.
Iran and Venezuela have proposed trading oil in a basket of currencies to
replace the historic link to the dollar, but the two antagonists of the US had
not been able to generate support from most OPEC members, including Saudi Arabia
, a staunch US ally.
However, Saudi Arabia’s King Abdullah who tried to direct the focus of the
summit towards studying the effect of the oil industry on the environment said
the OPEC stood for moderation and wisdom.
But reacting to the call, OPEC’s secretary-general,  Abdullah El-Badri, in
his closing remarks at the summit held at King Abdullah’s conference palace,
declared that "our organisation is well-positioned to continue to meet a
substantial share of the global petroleum need," adding that the organisation
has resolved  to "continue providing adequate, timely, efficient, economic and
reliable petroleum supplies to world markets."
The OPEC secretary-general also stated that the organisation would continue the
process of coordination and consultation with other petroleum-exporting
countries, in the interest of all petroleum producers, as well as strengthen and
broaden the dialogue between energy producers and consumers through the
international energy forum and other international and regional fora, for the
benefit of all.