What would happen if the price of oil changed from $$$ to €€€? Why do arab nations not make the change?

Question

I know Saddam wanted the change to happen and was pushing for it in the middle east just before the Invasion. What would happen to the American economy, would us europeans enjoy cheaper fuel.

Answer 1

The demand for Euros would increase. The dollar would deflate. This certainly would not help the U.S., especially in financing the growing debt but it would not be devestating. World Fuel prices in specific areas likely would not change much. Such a change will likely not happen though. The United States is by far the worlds largest oil consumer( about a quarter of entire world demand). The dollar is already in use. Although the dollar is loosing ground to the Euro, it is still the most widely used in the world. The incentive to change currencies is simply not there.

Answer 2

To begin with Europeans enjoy cheaper fuel allready. Dollar is weaker than euro so they Europeans pay less for fule than the Americans. It is ironic isn't it?The US is making all the expences for the war in Iraq but for now Europeans benefit.

You can not predict what exactly will happen.
Firstly the dollar will lose great value. Most of the countries will sell their dollars and buy euros.

Secondly the consumption in US will drop and since the US economy is based in consumpion you will experience a recesion.

Thirdly since US is the biggest consumer in the world a recession in the world economy is possible but that depends of how much of this consumption can be replaced by India and China who increase consumption with a great pace. This is the main point you can not predict actually and is veyr hypothetical.

Fourthly the US will start producing again since it will be easier to sell abroad with a cheaper dollar. This will take time and money but eventually will stabilize things a bit.

Fifthly and this is the most scary US will have great difficulties to pay its external debt since it will have to spend more dollars to pay the same loans. It will also be difficult for US to get new loans if there is trouble repaing the old ones. That should lead you back to the second and the third point. US is borrowing money to support domestic consumption. You can understand the problems that a difficulty of borrowing will bring.

To be really honest i believe that something like that will lead to a new major war since US will face a deadend. US would have to decide between possible continual of its dominance and a great decline.

Moreover EU does not want this to happen. The Euro is allready much more expencive than the dollar and that makes EU exports difficult. EU wants a euro that is worth more or less the same with dollar and an exchange rate close to 1 to 1 with the euro to be slightly more valuable to cover the transaction fees. Finaly the US is the EU's best customer. Why to loose a customer like that?

To sum up. If the other customer find a better customer than the US (China or India) they will have no trouble dropping the dollar and that will mean the end of the US as we know it today and probably of the world since US will start a war with almost everybody. If the US continues to be the largest consumer everybody will be happy with the present situation.

Answer 3

There are many things which affect the price of gasoline at the pump probably the least of these the actual price of a barrel of oil. I'll try to simplify this where everyone can understand it. The oil companies set the price for gasoline at the pump not the service station itself. We buy oil on the world market to conserve the oil in our country. That's why we have a national reserve. Each country has it representatives which place the price on a barrel of oil. We buy the oil, and then it has to be refined. When it is refined, because of our environmental codes and laws we place detergents into the gasoline so that it will burn cleaner thus giving us a safer living environment. This is an expensive process and the cost is past on to the consumer. Then our government wants their share of the pie so they place a high tax on the gasoline. Truckers have to be hired to deliver. Then we declare war on Iraq if you check history gasoline and gasoline shortages have always been a factor during war time. When the actual reason you are fighting is over who controls the oil wells then guess what? The price of gasoline soars! There are many more factors that are added into the equation all of which cause you to have to pay a higher price at the pumps. Probably the largest reason for the high price is supply and demand. Our nation has the largest demand for the product of any nation. There are solutions which we can utilize to bring the price of gasoline down, but ultimately what ever replaces it will be what comes into demand and the business men at the top will take a look at the demand and say ok here's how we can get more money into our pocket and less into the consumers let's raise the prices. Normally the price is set by the attitude of our own country, not the price of a barrel charged by another country.

Answer 4

If oil is traded in € then it could signal a move from trading in € from US$. The most interesting effect would be that countries would no longer prefer US$ as part of their reserves (since it would be less useful to do so).

The greatest effect that would have is that US$ would basically lose the ability of running perpetual budget deficits. Since the world wouldn't be absorbing US$ anymore, consistent budget deficits would have to be financed by selling assets, the US$ would plunge, dragging the US down by quite a bit. The crucial thing to understand is the importance, to the US, of having the US$ as reserve currency by most of the world.

As far as the price of oil is concerned, then, as the US economy would go down, chances are, demand for oil by the US and a few other countries would also drop, so the price of oil would drop. The producers might wish to curtail production in response to stabilise the price.

Arab nations do not make the change because they have nothing much to gain by doing this, and politically it could be suicidal to antagonise the US to that extent; remember, a lot of the Arab (and other oil producing countries such as Venezuela) are either not democratic or have heads of state who are not well seen in the US.

Answer 5

Not much at the retail level - ie individual auto drivers.

The price of oil has little to do with the currency exchange between dollars and euros, although it does have much to do with the currency exchange rate between nations that are major importers and nations that are major exporters of oil.

Dollars and euros are so freely and easily traded that they convey purchasing price parity quite efficiently. This means that the price of a good in dollars and of the good in euros would be roughly equivalent so that there is little room for arbitrage. In other words, expect wholesale prices to be equivalent whether you pay in euros and convert to dollars, or pay in dollars and convert to euros. Note this is wholesale prices - retail prices will be different due to tax structures and local demand.

It'd be a different story if the price of oil changed to a currency not easily convertible, such as China's renminbi. Effectively, though, this would only drive up the transaction costs, and potentially expose refiners (who buy the crude oil directly from producers) to currency exchange rate risk (ie, if the renminbi appreciates dramatically).

Saddam was pushing for the conversion to euros based on flawed economics, and it would be a thumb in the face of the U.S. Even if demand for the dollar shrank, it would be imperceptible (since oil futures make up a very small portion of overall demand for the dollar), and it may be beneficial to the U.S. because it would mean exports would be favored.

Arab nations haven't made the change probably because they depend too heavily on the U.S. and don't want to upset the favorable balance of trade. There are also significant transactions costs involved, and it makes no sense for the oil-dependent nations to introduce the potential for their oil to become even more expensive to U.S. consumers (due to a decline in the dollar versus the euro) that may induce a long-term decrease in demand.

Answer 6

America would have to trade more with Europe to get hold of the Euro to buy the oil. And since Americans print the dollar they would not be able to counterfeit the Euro and I guess it would mean the dollar would become meaningless and sooner than later. Then every country would want to trade with its own currency. This will in turn give value to the most used currency and at the end Uncle Sam will get angry with everybody for not using the dollar to trade. And we shall have a new word other than terrorism.

Answer 7

It won't be long before confidence in American leadership and corruption (9/11, patriot act, afghanistan, iraq etc etc etc) dives below the acceptable level, and the word adopts another currency for trade.
When this happens, America will be fcuked and hence the bombings will begin.
Anyone in their way will get nuked until the dollar is accepted once more as the international trade currency.

SO - it will cause the end of the world as we know it, but ironicly, it's bound to happen anyway.

The day it happens, I suggest you dig a large hole in your garden and fill it with your familly and lots of pot noodles.

Answer 8

The EU was invented to counter the U.S. economic dominance/hegemony. Its value of currency could become the next global reserve currency of the future, has the GDP the size of the U.S.’s and 450 million consumers, if OPEC starts using euros instead of dollars to price oil then we are in trouble!

Answer 9

If Euros became the standard in the oil market, then many countries would dump there reserves of US Dollars to buy Euros in order to buy oil. With US Dollars flooding the market and Euros in high demand the value of the Dollar would plummet.

Answer 10

The most probably is china grows a lot selling bikes to all the world how don't have oil.