'Axis of Unity' Provides Dollar Dissent at OPEC Summit

By Jason Simpkins
Associate Editor

Iran and Venezuela reignited debate over the U.S. dollar at an OPEC (Organization of Petroleum Exporting Countries) summit in Riyadh over the weekend. President Hugo Chavez of Venezuela and Iran's president, Mahmoud Ahmadi-Nehjad, joined forces at the two-day conference to take potshots at the United States over its emasculated dollar.  Both leaders were blunt, if not tactless, in suggesting the practice of pricing oil in U.S. dollars is defunct and warrants revision.

"They get our oil and give us a worthless piece of paper," Ahmadi-Nehjad said at an impromptu press conference, "We all know that the U.S. dollar has no economic value."

The dollar has dropped 16% this year against a basket of major currencies, and 44% against the euro since the last OPEC summit in 2000, the Financial Times reported. 

Chavez, who recently joined Ahmadi-Nehjad in what the two dubbed an "axis-of-unity," joined his comrade in the criticism. Yesterday (Monday) Reuters quoted Chavez as saying, "Soon we will not talk about dollars because the dollar is falling in value and the empire of the dollar is crashing."

Chavez then amplified his statement saying, "Naturally, by the crash of the dollar, America's empire will crash."

Despite the emotional pleas of Chavez and Ahmadi-Nehjad, the final statement of the oil cartel's Nov. 17-18 summit was absent of any reference to the falling dollar, a possible indication that the more moderate OPEC factions anchored the conference. 

The hyperbole of Chavez and Ahmadi-Nehjad aside, a weak dollar does pose significant hurdles for the cartel and its members. The dollar's declining value drove the price of oil to a record high $98.62 a barrel on the New York Mercantile Exchange two weeks ago.

That has resulted in numerous appeals from oil consuming nations for OPEC to increase its output, even though revenue is weak.

Also, many OPEC nations - and Saudi Arabia in particular - maintain large U.S. currency reserves that suffer whenever the dollar sinks.  The International Monetary Fund (IMF) estimates Saudi reserves of the U.S. currency total $277 billion. 

Still, a change in oil pricing seems unlikely. Analyst Katherine Spector of JP Morgan Chase & Co. (JPM) told the Financial Times that pricing in non-dollar currencies has been threatened and by producer counties before, typically as a political statement.

"We continue to believe that a more widespread shift on pricing is both impractical and unlikely in the near term," Spector wrote in a report.

News and Related Story Links: