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Re: [casi-analysis] Op-ed on privatisation in Iraq

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Thank you, Colin.
However the reason for my euro question was having read articles such as
this back in October:

Moscow Times
Friday, Oct. 10, 2003. Page 1

Putin: Why Not Price Oil in Euros?

By Catherine Belton
Staff Writer

President Vladimir Putin said Thursday Russia could switch its trade in oil
from dollars to euros, a move that could have far-reaching repercussions for
the global balance of power -- potentially hurting the U.S. dollar and
economy and providing a massive boost to the euro zone.

"We do not rule out that it is possible. That would be interesting for our
European partners," Putin said at a joint news conference with German
Chancellor Gerhard Schroeder in the Urals town of Yekaterinburg, where the
two leaders conducted two-day talks.

"But this does not depend solely on us. We do not want to hurt prices on the
market," he said.

"Putin's putting a big card on the table," said Youssef Ibrahim, managing
director of the Strategic Energy Investment Group in Dubai and a member of
the U.S. Council on Foreign Relations, an influential body of leading world
thinkers thought to help set the United States' foreign policy agenda.

"In the context of what is happening worldwide, this statement is very
important," he said.

Putin's words come in the wake of a protracted drive by the EU to attract
more countries' trade and currency reserves into euros, in a bid to chip
away at U.S. hegemony over the global economy and money supply.

A move by Russia, as the world's second largest oil exporter, to trade oil
in euros, could provoke a chain reaction among other oil producers currently
mulling a switch and would further boost the euro's gradually growing share
of global currency reserves.

That would be a huge boon to the euro zone economy and potentially
catastrophic for the United States. Dollar-based global oil trade now gives
the United States carte blanche to print dollars without sparking
inflation -- to fund huge expenses on wars, military build-ups, and consumer
spending, as well as cut taxes and run up huge trade deficits.

____*Almost two-thirds of the world's currency reserves are kept in dollars,
since oil importers pay in dollars and oil exporters keep their reserves in
the currency they are paid in. This effectively provides the U.S. economy
with an interest-free loan, as these dollars can be invested back into the
U.S. economy with zero currency risk.____

If a Russian move to the euro were to prompt other oil producers to do the
same, it could be a "catastrophe" for the United States, Ibrahim said.
"There are already a number of countries within OPEC that would prefer to
trade in euros."

Iran, the world's No. 5 oil exporter, has also openly mulled a move into
euros. And after the war in Iraq, there is growing debate in the United
States' traditional ally Saudi Arabia on a switch too, though its government
has not come down firmly on one side, Ibrahim said. "There is a revision
going on of its strategic relationship with the United States. Already,
they're buying more [French-made] Airbuses," he said. "The Saudi Crown
Prince [Abdullah Bin Abdul Aziz Al-Saud]'s visit to Russia was of great
significance and the regime is talking about closer cooperation with LUKoil
and other Russian companies."

____*Under Saddam Hussein, Iraqi oil was traded in euros. "This was another
reason [why the U.S. attacked]," Ibrahim said. "There is a great political
dimension to this. Slowly more power and muscle is moving from the United
States to the EU, and that's mainly because of what happened in Iraq," he

Putin had previously brought up the proposal to switch to euros as prime
minister in October 1999, at a meeting of EU leaders in Helsinki. Then, in
an attempt to forge a new bloc to counterbalance the United States, he made
the proposal alongside calling for closer cooperation between Russia and the
EU, including on security issues.

Since then, however, Russia's ties with the United States have warmed
considerably -- and it is unclear whether Putin would risk damaging that
relationship by going ahead with the euro move, analysts said.

"Putin is very much interested in changing the structure of OPEC and he
cannot do that without the United States," said Alexander Rahr, an expert on
Russia at the German Council on Foreign Relations. "He can only get a
foothold for Russia in the Middle East with [U.S. help]. And, he wants to
get contracts for the Russian oil industry in Iraq -- for this, too, he
needs the United States."

Some analysts said that the statement appeared to be aimed at boosting
Russia's global clout on the world stage. "Putin is trying to create a
position for Russia as an independent player. But his aim is not to
undermine relations [with the United States]. He just wants to boost
Russia's position up from being a junior partner," said Dmitry Trenin,
geopolitical analyst at the Carnegie Moscow Center.

Yevgeny Gavrilenkov, chief economist at Troika Dialog and an earlier
architect of the Putin government's first economic plan, said debate is
growing on a move to the euro as Russia mulls siding with the EU. "Such an
idea is really possible," he said. "Why not? More than half of Russia's oil
trade is with Europe. But there will be great opposition to this from the
United States."

He said that while a switch would have no direct impact on the Russian
economy, it would give a great boost to the euro zone.

LUKoil vice president Leonid Fedun said Thursday that he saw no problem in
the euro switch and that payments for such transactions would be minimal, at
just 0.08 percent.

"There is no problem ... If the state decides to do this, then we will
support this initiative. From the point of view of the economy, there's no
difference," Interfax quoted him as saying.

But even Fedun could not help putting a political price tag on the move. "We
are ready to move to the euro if the country will be included in a visa-free
regime with Europe," he said.

Rahr agreed that the timing of the statement seemed calculated to extract
political concessions from the EU. "It's a bargaining chip," he said.

Gavrilenkov suggested Putin was also angling for EU concessions on other
issues discussed in Yekaterinburg, such as terms for Russia's WTO accession.

Has this issue been resolved?  Thanks.  pg

----- Original Message -----
From: "Colin Rowat" <>
To: "'ppg'" <>
Sent: Wednesday, December 24, 2003 11:11 AM
Subject: RE: [casi-analysis] Op-ed on privatisation in Iraq

> > Has there been legislation  directly pertaining to the oil
> > which the people of Iraq jealously regard as  their birthright?
> Not as regards privatisation.  The CPA Order that opens Iraq to foreign
> investors explicitly rules out oil.  Their website has the full text.
> > What is the present situation with regard to euro vs dollar in Iraq?
> As anywhere else, I'd imagine that one can exchange both euros and dollars
> in Iraq for something close to the market exchange rate.  Iraqis, I'd
> imagine, continue to use dollars - I'd be surprised if more than a small
> minority had seen euros.
> Best,
> Colin Rowat
> work | Room 406, Department of Economics | The University of Birmingham |
> Birmingham, B15 2TT, UK | | ( 44/0) 121 414 3754 |
> (+44/0) 121 414 7377 (fax) |
> personal | (+44/0) 7768 056 984 (mobile) | (+44/0) 7092 378 517 (fax) |
> (707) 221 3672 (US fax) |

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