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Thesis & Antithesis

A critical perspective on energy, international politics & current affairs

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Location: Washington, D.C.

greekdefaultwatch@gmail.com Natural gas consultant by day, blogger on the Greek economy by night. Trained as an economist and political scientist. I believe in common sense and in data, and my aim is to offer insight written in language that is clear and convincing.

11 December 2006

Oil producers and the dollar

The Financial Times reported on Monday that, “Oil producing countries have reduced their exposure to the dollar to the lowest level in two years and shifted oil income into euros, yen and sterling, according to new data from the Bank for International Settlements.” Although this move has obvious implications for the value of the dollar, there is little doubt that we will soon hear from analysts how vulnerable the American economy remains to unstable regimes that can impose huge costs on the United States if they choose to do so; and the argument will soon convert either into a case for energy independence or a case against China who, it is assumed, holds equal leverage over the United States because it holds so much of American debt.

I thought it best to avoid both of these arguments and just append the relevant graph from the Quarterly Review of the Bank for International Settlements (look at the graph in the far right). The point that should stick out is that while the dollar holdings of oil producers have come down, they have done so from very high levels, and the dollar remains, by far, the most sought after currency for oil producers. While this does not negate the obvious implications for the dollar (which will fall as relative demand for it declines), it should put the discussion in context before jumping onto any grand geopolitical conclusions.

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