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Saudis, Russians, Kuwaitis deny oil dollar-dump plan

Section: Daily Dispatches

By Camilla Hall
Bloomberg News
Tuesday, August 6, 2009

DUBAI -- Saudi Arabia hasn't held talks with China and other countries on dropping the dollar as the currency for pricing oil, Saudi Central Bank Governor Muhammad al-Jasser said, denying a report in the U.K.'s Independent newspaper.

The Independent report is "absolutely incorrect" and there has been "absolutely nothing" of that nature discussed between Saudi Arabia, the world's biggest oil exporter, and other countries, al-Jasser told reporters in Istanbul, where he's attending an International Monetary Fund summit. The dollar pared losses after his remarks.

The London-based newspaper said today that Gulf oil producers and nations including China, Japan, Russia, and Brazil had held secret talks on a nine-year plan to phase out the dollar in oil trade, and move toward pricing the fuel in a basket of currencies plus gold. It cited unidentified Gulf officials and unidentified Chinese bankers.

"I don't give credence to this story," said Simon Williams, a Dubai-based economist at HSBC Holdings Plc. "Short-term, it's highly unlikely that oil will not continue to be priced in dollars."

The dollar pared losses against the euro following al-Jasser's comments, trading at $1.4725 as of 9:40 a.m. in London, from $1.4648 in New York yesterday. It weakened to $1.4749 earlier on the Independent story. It was at 89.10 yen, from 89.53 yesterday, after falling to 88.86.

Criticism of the dollar's role as the world’s main reserve currency has grown in the wake of the global financial crisis. China and Russia in June agreed to expand use of each other's currencies in trade to reduce dependence on the dollar, and those countries plus Brazil and India -- the so-called BRIC nations -- have discussed buying each other's bonds and swapping currencies. The dollar fell to a one-year low of $1.4844 per euro on Sept. 23.

Saudi Arabia, a key U.S. ally, pegs its currency to the U.S. dollar like most other oil-rich Gulf nations, and has resisted calls for a move away from the dollar in oil pricing as the U.S. currency lost value in recent years.

Iran and Venezuela raised the proposal at a meeting of the Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world's oil, in November 2007. The weaker dollar adds to costs for OPEC members who use oil revenue to buy goods priced in other currencies.

Saudi Arabia and three other Gulf oil-producers are planning to create a shared currency that may allow them more freedom from U.S. monetary policy. As the region's economies rebound faster than the U.S. from the global crisis, "the shortcomings of the dollar peg will become increasingly clear," HSBC's Williams said.

Other countries cited by the Independent as being involved in the secret plan also denied it.

Japanese Finance Minister Hirohisa Fujii said at a news conference in Tokyo today that he "doesn't know anything about it" when he was asked about the newspaper report.

Russia's Finance Ministry isn't holding talks on replacing the dollar for oil sales, Interfax news agency reported, citing Deputy Finance Minister Dmitry Pankin. Kuwaiti Oil Minister Sheikh Ahmed Al-Abdullah Al-Sabah told reporters today in Kuwait City that Gulf Arab states have no plans to drop the dollar for oil pricing.

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