Should oil be priced in euros?

As the US dollar continues its slide against world currencies, should oil, the most valuable global commodity, now be priced in euros? The Organization for Petroleum Exporting Countries (OPEC) is having a think about the relative merits of abandoning the greenback for the European single currency, and some analysts expect it to be discussed at the powerful oil cartel’s special meeting in Algiers.
"I would be surprised if the question was not examined" in Algiers, a source close to OPEC said at the cartel’s Vienna headquarters.

OPEC’s current secretary general, the Venezuelan Alvaro Silva, recently indicated that the 11-member group, which has massive influence over global oil prices and production, was mulling the question.
"We are speaking about negotiating for crude in euros. It is possible that the organization will discuss this and take a decision at a given moment", Silva said.
Qatar’s energy minister, Abdullah bin Hamad al-Attiya, admitted that oil-producing states were worriedin mid-January, when the euro hit an unprecedented high of $ 1.2898. But, he added, "the passage from one currency to another is a difficult decision."

After its free-fall slide in January, the dollar has recovered slightly to hover around 1.27 to the euro, but countries are still reeling from the currency instability while exporters who price their goods in dollars have complained of continued drop in profits. At OPEC’s last meeting, held in Vienna in December, the member states -- responsible for one-third of the world’s oil production -- complained that their oil profits were down 25 to 30 % due solely to dependence on the dollar.
Adopting the euro, the currency of 12 of the European Union’s 15 current members, would call for a major overhaul in world oil trading, but the idea has been circulating since before its introduction in 2002.

At a conference on the "hidden threats of currency crises" back in March 2001, Venezuela’s ambassador to Russia Francisco Mieres-Lopez first publicly evoked a possible switch.
"With all this talking, the euro makes slowly and surreptitiously its way in the price fixing mechanism," an analyst at the Dresdner-Kleinwort-Wasserstein brokerage firm in London said. "What’s more, Russia, one of OPEC’s competitors, has been threatening for several months now to switch its oil market to euros", the source said.

The question has now built into a behind-the-scenes battle of minds at OPEC, which groups Algeria, Kuwait, Indonesia, Iran, Iraq, Qatar, Libya, Nigeria Saudi Arabia, the United Arab Emirates and Venezuela. Post-war Iraq remains outside of the cartel’s quota system, which has currently fixed the group’s output at 24.5 mm bpd.
Saudi Oil Minister Ali al-Naimi, whose country is considered the cartel’s heavyweight, OPEC Secretary General Purnomo Yusgiantoro of Indonesia and Algerian Energy Minister Chakib Khelil have ruled out switching to the euro. Their OPEC partners, however, are not as categorical.
"If the dollar/euro value remains the same in 2004 as in 2003, prices will climb to unrealistic levels," said Hojjatollah Ghanimifard, acting deputy for international affairs at the National Iranian Oil Company.

A trader at the Rothschild bank in London added: "Trading in petrol involves enormous sums of money. If the dollar loses its role as a currency of reference, the United States, the world’s largest oil importer, will no longer be able to have outside countries finance its abyssal trade deficit."
He said it was unlikely that the price of crude would be quoted in euros in the near future but down the line prices could be fixed in line with a "basket" of currencies -- "dollar, euro or yen".