EU Seeks to End Dollar ‘Monopoly’ in Oil Trade
Brussels has set up a working group to “challenge the dominance of the dollar.”
The European Union wants to challenge the longstanding dominance of the U.S. dollar in oil trade, the French broadcaster EuroNews reported. Brussels has created a working group comprising of representatives from European trade and industry to “challenge the dominance of the dollar” in energy trade and promote the use of euro to price oil imports, the broadcaster said.
The move is directly connected to the U.S. sanctions on Iran’s energy, shipping, and banking sectors, the news report confirmed. The U.S. decision to withdraw from the 2015 nuclear deal and hit Iran with wide-ranging sanctions had irked German Chancellor Angela Merkel and other EU leaders, who remain committed to keeping the Obama-era agreement alive.
In the post-war era, the dollar established itself as world’s pre-eminent reserve currency chiefly because of the central role played by the U.S. economy. Most oil exporting nations still prefer trading in U.S. dollar. Out of 300 billion euros worth of oil imported by the EU countries since 2014, 85 percent was paid in the dollar, the official EU statistics say.
The EuroNews reported the details of the EU’s latest initiative:
The European Union has convened a wide-ranging industrial group to work on promoting the euro and fighting the monopoly of the U.S. dollar in oil and commodities trading, reflecting broader tensions with Washington over trade and sanctions.
The group, which involves executives from European oil firms such as OMV and Eni and gas and power firms such as Fluxys and Engie , will meet behind closed doors in Brussels under the auspices of the European Commission on Thursday.
The workshop is part of an EU push to challenge the dominance of the dollar, with an EU official saying such a shift must be market-led.
Participants are invited to dig into “constraints on (market-initiated) alternatives to the use of U.S. dollar through wider use of the euro, in spite of the benefits of such a change”, the Commission said in materials prepared for the meeting.
The meeting, part of a consultation process until mid-2019, is expected to provide new input to EU plans for promoting the euro in energy trading.
The initiative coincides with the EU’s efforts to set up a special-purpose vehicle (SPV), a non-dollar trading mechanism, to bypass U.S. sanctions. The SPV, essentially a bartering system, seeks to trade goods made in EU countries in exchange for Iranian oil, thereby shielding the sanction-busting European firms and banks from prosecution in the United States.
Despite the impending British exit from the union, the EU is redoubling its efforts to position itself as a major power player on the global stage. Last month, German Chancellor Merkel and French President Emmanuel Macron signed a “friendship pact” calling for the creation of a “common military culture” that will “contribute to the creation of a European army.” A German-led EU army will inevitably rival the U.S.-led NATO alliance, much to the dismay of the eastern European countries.
In August, German Foreign Minister Heiko Maas called for the creation of a “new financial infrastructures to free [the EU countries] from US domination.” Maas proposed the formation of a “European” SWIFT to rival the existing world-wide payments system. Writing for the German business daily Hendelsblatt, the minister justified his ambitious plans by claiming that “it was right to protect European companies legally from [U.S.] sanctions. It is therefore essential that we strengthen European autonomy by establishing payment channels independent of the US, a European monetary fund and an independent SWIFT [payments] system.”
While the EU throws a lifeline to the faltering regime in Tehran, the Iranian oil trade continues to finance Lebanon’s Hezbollah and Iran’s Islamic Revolutionary Guard Corps (IRGC), both designated as terrorist organizations by the United States and other western countries. Instead of putting pressure on the Mullah regime or standing with the freedom-loving people of Iran, the European political class is standing firmly on the side of Islamic fanaticism and terrorism.
European Union steps up plans to circumvent US Iran sanctions
[Cover image via YouTube]
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Comments
“Good luck” with that.
If you wanted to use the Euro as a World Currency you should not have taken money out of Euro bank deposits to pay for the Cypriot bailout.
Before they just took money out of people’s accounts, the Euro was becoming a major trade currency. Since then, the number of accounts settled in Euros has dropped by 60%.
NATO allies: “Pay us or else!”
More EU nonsense. A spiraling economy making demands “just becuz”. The US earned the advantages of the petro-dollar because of being by far the most robust and stable major economy. There are more dollars around the world than everything else combined. Is everyone now going to have to start amassing Euros to satisfy an economically inferior purpose? Just try and make us! Or else… what?
Yes, it is unfair for the currency of the only real economy on the planet to be so dominant. Better to depend on a volatile and manipulated “Tower of Babel” currency exchange system or to introduce a rival reserve currency in the form of the Chinese Clam backed by a house of cards economy. Wah-wah-wah-wah!!!!
The IMF provided an excellent example for what happens to artificial basket currencies when it added the “Chinese Miracle” clam to its SDR a few years ago. The US$ accounted for 50% of the value before the move. Then having been diluted by adding the currency of the “fastest growing economy in the world”, the Chinese Clam, the US$ naturally “plummeted” to 50%. LOL! What does that tell us?
Another example of “no-score” soccer where everyone feels entitled to win a participation trophy.
Here is the Irony. The US is functionally energy independent. We import some oil from Alberta, a little from Mexico and some from Venezuela (because no one else can refine nasty, nasty Orinoco crude)
So, we don’t buy Middle Eastern or Russian Crude. But, those groups still insist they be paid with dollars. Ha ha ha!
There is no alternative to the US$ as reserve currency. The IMF has been trying to build up the SDRs as an alternative without success.
We mostly import Venezuela crude for home heating oil. Years ago, one of the Kennedy boys, I think it was Robert Jr, cut a deal with Chavez who gave us a very low price to but only available to poor families. Every time I see that Citgo sign behind the “big monster” at Fenway Park, I am reminded of that.
Venezuela also has to import light sweet crude to blend with their goop just to thin it down and make it transportable to US refineries. When looking at net import/export figures, it is hard to work out crude we import for processing and then export, product “exported” from Houston and then “imported” by NJ, and other oddities that make it look like we are still a net importer. We are energy independent if you define “we” as North America.
Given the current state of the EU, it is beyond unlikely that the Euro – which may cease to exist shortly – would be adopted as a substitute for anything other than kleenex.
“Instead of putting pressure on the Mullah regime or standing with the freedom-loving people of Iran, the European political class is standing firmly on the side of Islamic fanaticism and terrorism.”
One wonders the motivation of this stance. Is it their innate anti-Americanism, their fascistic globalization desires, or a desire to placate their growing Islamist population. I would guess it’s an all of the above situation. At any rate, good luck with that, as Exiliado posted.
Dear Mister Juncker.
You have three significant hurdles to overcome with regards to that prospect.
First – The total percentage of oil output that is either the US or heavily dependant upon the US is a massive proportion of the market.
Second – The Eurozone economy isn’t doing so well, and the stability of the currency isn’t assured.
Third – The EU itself is starting to come apart at the seams, meaning the potenial exists that the Euro will end up being the currency of Belgium, or maybe Germany, and nowhere else.
And then what happens when the EU wants to trade with the US (especially when mechanisms are being put in place to trade with the Enemies of the West)?
The problem for the EU is that ANYONE wanting to trade with America MUST abide by their rules (which is fair enough). If the EU goes ahead with their plan to undermine America by trading with the enemies of the West then this is going to have consequences for other countries wanting to trade with America too.
how about the ‘tulip economy’ ?
https://en.wikipedia.org/wiki/Tulip_mania
If the EU wants to put in place the Euro for holding a international bargaining chip on the production and availability of this natural resource at a time when the United Kingdom is pulling back if not all the way out, how does this reconcile with the fact that the majority of the producing wells and reserves are located in the North and South Seas of the UK. Germany does have production wells and reserves but no where near UK. The path for UK walking away in March seems more favorable with this in play by the EU. They’re being used.
Find a way to financially punish EU ringleader countries for this.
This is nonsense. The FX markets are completely liquid between dollar and EURO to the tune of immense dollars, an average of 575 billion dollars DAILY.
Why does it matter and how does anything change based on the denomination that appears on a deal?
It’s not the currency that matters … the SWIFT system comments make slightly more sense.
That will give rise to EU banks that can work trades that do not require access to SWIFT. Existing banks still won’t touch it because they can get cut off from SWIFT potentially but a new financial institution can then not worry about the impact.
In this case, someone can do a EUR denominated deal. Ultimately if you want to spend that money you need to launder the money between those involved in the Iran – EU transaction.
This is all to just make it harder to sanction.
Legal money laundering for illegal or sanctioned transactions is what the EU wants.
They want to watch everything everybody else does but not be watched themselves so their precious little export businesses can sell to Iran.
But that doesn’t sell to the voters – but “overthrow that dang American dollar as a reserves currency” appeals to every anti-American voter in Europe (which is most of them)
Do they not have to have the production and reserves located in the UK allocated to the EU in order to put the Euro in play?