Some theorists have long speculated that any switch in the pricing of oil away from the dollar would represent an intolerable threat to the US-dominated international order. But what if the currency of the world’s most important commodity changed and would it matter if it did?
Headlines certainly suggest the greenback is under pressure. Brazilian president Luiz Inacio Lula da Silva called for a Brics currency two weeks ago, grouping his country, Russia, India, China and South Africa.
Last year, Saudi Arabia’s Finance Minister Mohammed Al Jadaan said that his country was considering pricing its oil sales to China in yuan. In February, Iraq’s central bank announced its intention to allow trade with China in yuan.
In March, TotalEnergies sold a cargo of liquefied natural gas from the UAE to China National Offshore Oil Company, settled in the Chinese currency. The deal was arranged through the Shanghai Petroleum and Natural Gas Exchange, whose chairman, Guo Xu, said it was, “a meaningful attempt to promote multi-currency pricing, settlement and cross-border payment in international LNG trading”.
The US’s addiction to sanctions, and its freezing of Russian foreign exchange reserves, strengthen the incentive for Russia — a leading oil and gas exporter — and China, the world’s biggest oil and gas importer, to cut dependence on the dollar.
The use of the dollar in energy trade is seen as a key part of its role as the global reserve currency — the “exorbitant privilege”, as Valery Giscard d’Estaing, then French finance minister, called it in 1965. This enables the US to run huge trade deficits and to earn more from its overseas investments than foreigners earn from lending to the US government.
Proponents of “de-dollarisation” often mix up three different things. There is the currency a transaction is settled in, the currency in which a commodity is priced, and the currency in which exporting countries hold the resulting reserves.
Certainly, China’s growing economic weight will result in more transactions being conducted in its currency. The yuan’s share of trade finance grew sharply, from less than 2 per cent in February 2022 to 4.5 per cent a year later. But it remains minor, and the gains came mostly from the redenomination of Russian dealings with China. The euro accounts for 6 per cent of world trade; the dollar for 84 per cent.
The currencies of the most important global oil exporters — the GCC countries and Iraq — are pegged to the dollar. A wholesale shift to another currency would expose them to exchange rate risks. They often run sizeable trade surpluses with China, so there is a limit on how much bilateral trade could be yuan-settled.
When India looked for another currency for oil purchases from Russia, it chose the UAE dirham — precisely because of its peg to the dollar.
International oil is, in round figures, a $2 trillion annual market. International gas — much of which is denominated in euros — adds another $400 billion. The value of all global trade last year was estimated at $32 trillion. So even a complete, and implausible, switch in energy trade from the dollar would only dent, not end, its dominance.
Which currency is used to price energy is more strategic. We know what the oil price is in dollars per barrel — who can quickly recall the price in yuan, roubles per tonne, or the Japanese favourite, yen per kilolitre?
In March 2018, after years of delays, the Shanghai International Energy Exchange (INE) began trading a yuan-denominated crude oil futures contract, which allows mostly Middle East grades, including the UAE’s Murban and Upper Zakum, to be delivered.
But INE still attracts mostly Chinese retail investors, with the convertibility of the yuan a key risk for international players, along with other concerns such as exposure to US sanctions via the import of Iranian oil. Chinese buyers are glad to pay in yuan for Russian oil and gas, but extract hefty discounts.
The Middle East continues to rely on the well-known global dollar benchmarks, Brent and Dubai-Oman, as well as the contracts for Murban and Upper Zakum recently launched on ICE Futures Abu Dhabi. It is far preferable for their economic lifeline to be in the invisible hand of the market than an iron fist in Beijing.
When it comes to foreign currency holdings, the caprice of US policy is certainly a worry. But the US’s share of the world total, 57 per cent, has hardly budged since 2014. Other Western-bloc currencies — mainly the euro, plus the pound sterling, the Japanese yen, Swiss franc and the Australian and Canadian dollars — comprise another 37 per cent. The yuan is just 2.5 per cent.
Not surprisingly, illiquid financial markets, strict currency controls, exchange rate manipulation and exposure to Beijing’s political imperatives make it unattractive to park most national savings. China shows no inclination to rethink these policies.
Since both leading oil-exporting countries and China usually run large balance of payments surpluses, an accumulation of yuan reserves by the GCC would have to be matched by more Chinese reserves in a major capital importer — the only candidate being the US. And with much of their overseas wealth held in dollars, the main oil exporters have little interest in doing anything that would damage its value.
World energy trade will indeed become more fragmented. But this will primarily affect settlement currencies and purchases from some US adversaries, not benchmark prices. Any diminution of the dollar’s global role in favour of the yuan or another currency will be gradual, and will lead, not follow, the oil market.
Robin M Mills is chief executive of Qamar Energy and author of The Myth of the Oil Crisis
MOUNTAINHEAD REVIEW
Starring: Ramy Youssef, Steve Carell, Jason Schwartzman
Director: Jesse Armstrong
Rating: 3.5/5
The five pillars of Islam
1. Fasting
2. Prayer
3. Hajj
4. Shahada
5. Zakat
Everton%20Fixtures
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Biog
Mr Kandhari is legally authorised to conduct marriages in the gurdwara
He has officiated weddings of Sikhs and people of different faiths from Malaysia, Sri Lanka, Russia, the US and Canada
Father of two sons, grandfather of six
Plays golf once a week
Enjoys trying new holiday destinations with his wife and family
Walks for an hour every morning
Completed a Bachelor of Commerce degree in Loyola College, Chennai, India
2019 is a milestone because he completes 50 years in business
In Praise of Zayed
A thousand grains of Sand whirl in the sky
To mark the journey of one passer-by
If then a Cavalcade disturbs the scene,
Shall such grains sing before they start to fly?
What man of Honour, and to Honour bred
Will fear to go wherever Truth has led?
For though a Thousand urge him to retreat
He'll laugh, until such counsellors have fled.
Stands always One, defiant and alone
Against the Many, when all Hope has flown.
Then comes the Test; and only then the time
Of reckoning what each can call his own.
History will not forget: that one small Seed
Sufficed to tip the Scales in time of need.
More than a debt, the Emirates owe to Zayed
Their very Souls, from outside influence freed.
No praise from Roderic can increase his Fame.
Steadfastness was the Essence of his name.
The changing years grow Gardens in the Sand
And build new Roads to Sand which stays the same.
But Hearts are not rebuilt, nor Seed resown.
What was, remains, essentially Alone.
Until the Golden Messenger, all-wise,
Calls out: "Come now, my Friend!" - and All is known
- Roderic Fenwick Owen
Alan%20Wake%20Remastered%20
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UAE v IRELAND
All matches start at 10am, and will be played in Abu Dhabi
1st ODI, Friday, January 8
2nd ODI, Sunday, January 10
3rd ODI, Tuesday, January 12
4th ODI, Thursday, January 14
Company%20profile
%3Cp%3E%3Cstrong%3ECompany%3A%20%3C%2Fstrong%3EPOPC%3Cbr%3E%3Cstrong%3EStarted%3A%20%3C%2Fstrong%3E2022%3Cbr%3E%3Cstrong%3EFounders%3A%20%3C%2Fstrong%3EAmna%20Aijaz%2C%20Haroon%20Tahir%20and%20Arafat%20Ali%20Khan%3Cbr%3E%3Cstrong%3EBased%3A%3C%2Fstrong%3E%20Dubai%2C%20UAE%3Cbr%3E%3Cstrong%3EIndustry%3A%20%3C%2Fstrong%3Eart%20and%20e-commerce%3Cbr%3E%3Cstrong%3EFunds%20raised%3A%20u%3C%2Fstrong%3Endisclosed%20amount%20raised%20through%20Waverider%20Entertainment%3C%2Fp%3E%0A
From Zero
Artist: Linkin Park
Label: Warner Records
Number of tracks: 11
Rating: 4/5
Will the pound fall to parity with the dollar?
The idea of pound parity now seems less far-fetched as the risk grows that Britain may split away from the European Union without a deal.
Rupert Harrison, a fund manager at BlackRock, sees the risk of it falling to trade level with the dollar on a no-deal Brexit. The view echoes Morgan Stanley’s recent forecast that the currency can plunge toward $1 (Dh3.67) on such an outcome. That isn’t the majority view yet – a Bloomberg survey this month estimated the pound will slide to $1.10 should the UK exit the bloc without an agreement.
New Prime Minister Boris Johnson has repeatedly said that Britain will leave the EU on the October 31 deadline with or without an agreement, fuelling concern the nation is headed for a disorderly departure and fanning pessimism toward the pound. Sterling has fallen more than 7 per cent in the past three months, the worst performance among major developed-market currencies.
“The pound is at a much lower level now but I still think a no-deal exit would lead to significant volatility and we could be testing parity on a really bad outcome,” said Mr Harrison, who manages more than $10 billion in assets at BlackRock. “We will see this game of chicken continue through August and that’s likely negative for sterling,” he said about the deadlocked Brexit talks.
The pound fell 0.8 per cent to $1.2033 on Friday, its weakest closing level since the 1980s, after a report on the second quarter showed the UK economy shrank for the first time in six years. The data means it is likely the Bank of England will cut interest rates, according to Mizuho Bank.
The BOE said in November that the currency could fall even below $1 in an analysis on possible worst-case Brexit scenarios. Options-based calculations showed around a 6.4 per cent chance of pound-dollar parity in the next one year, markedly higher than 0.2 per cent in early March when prospects of a no-deal outcome were seemingly off the table.
Bloomberg
Credits
Produced by: Colour Yellow Productions and Eros Now
Director: Mudassar Aziz
Cast: Sonakshi Sinha, Jimmy Sheirgill, Jassi Gill, Piyush Mishra, Diana Penty, Aparshakti Khurrana
Star rating: 2.5/5
The studios taking part (so far)
- Punch
- Vogue Fitness
- Sweat
- Bodytree Studio
- The Hot House
- The Room
- Inspire Sports (Ladies Only)
- Cryo
The bio
Date of Birth: April 25, 1993
Place of Birth: Dubai, UAE
Marital Status: Single
School: Al Sufouh in Jumeirah, Dubai
University: Emirates Airline National Cadet Programme and Hamdan University
Job Title: Pilot, First Officer
Number of hours flying in a Boeing 777: 1,200
Number of flights: Approximately 300
Hobbies: Exercising
Nicest destination: Milan, New Zealand, Seattle for shopping
Least nice destination: Kabul, but someone has to do it. It’s not scary but at least you can tick the box that you’ve been
Favourite place to visit: Dubai, there’s no place like home
EA Sports FC 26
Publisher: EA Sports
Consoles: PC, PlayStation 4/5, Xbox Series X/S
Rating: 3/5
UAE currency: the story behind the money in your pockets
Ipaf in numbers
Established: 2008
Prize money: $50,000 (Dh183,650) for winners and $10,000 for those on the shortlist.
Winning novels: 13
Shortlisted novels: 66
Longlisted novels: 111
Total number of novels submitted: 1,780
Novels translated internationally: 66
Herc's Adventures
Developer: Big Ape Productions
Publisher: LucasArts
Console: PlayStation 1 & 5, Sega Saturn
Rating: 4/5
Name: Colm McLoughlin
Country: Galway, Ireland
Job: Executive vice chairman and chief executive of Dubai Duty Free
Favourite golf course: Dubai Creek Golf and Yacht Club
Favourite part of Dubai: Palm Jumeirah
Director: Romany Saad
Starring: Mirfat Amin, Boumi Fouad and Tariq Al Ibyari
Killing of Qassem Suleimani
WHAT ARE NFTs?
Non-fungible tokens (NFTs) are tokens that represent ownership of unique items. They allow the tokenisation of things such as art, collectibles and even real estate.
An NFT can have only one official owner at one time. And since they're minted and secured on the Ethereum blockchain, no one can modify the record of ownership, not even copy-paste it into a new one.
This means NFTs are not interchangeable and cannot be exchanged with other items. In contrast, fungible items, such as fiat currencies, can be exchanged because their value defines them rather than their unique properties.
The specs
Engine: 4.0-litre V8
Power: 503hp at 6,000rpm
Torque: 685Nm at 2,000rpm
Transmission: 8-speed auto
Price: from Dh850,000
On sale: now
UAE SQUAD
Khalid Essa, Ali Khaseif, Fahad Al Dhanhani, Adel Al Hosani, Bandar Al Ahbabi, Mohammad Barghash, Salem Rashid, Khalifa Al Hammadi, Shaheen Abdulrahman, Hassan Al Mahrami, Walid Abbas, Mahmoud Khamis, Yousef Jaber, Majed Sorour, Majed Hassan, Ali Salmeen, Abdullah Ramadan, Abdullah Al Naqbi, Khalil Al Hammadi, Fabio De Lima, Khalfan Mubarak, Tahnoon Al Zaabi, Ali Saleh, Caio Canedo, Ali Mabkhout, Sebastian Tagliabue, Zayed Al Ameri
UAE currency: the story behind the money in your pockets
Red flags
- Promises of high, fixed or 'guaranteed' returns.
- Unregulated structured products or complex investments often used to bypass traditional safeguards.
- Lack of clear information, vague language, no access to audited financials.
- Overseas companies targeting investors in other jurisdictions - this can make legal recovery difficult.
- Hard-selling tactics - creating urgency, offering 'exclusive' deals.
Courtesy: Carol Glynn, founder of Conscious Finance Coaching
