Gold''s upward trend is intact, breakout likely within two months, Turk says

Putin's idea to price oil in euros may hurt dollar

By Carola Hoyos and Christopher Swann in London
and Andrew Jack in Moscow
Financial Times
Friday, October 10, 2003

a href=http://news.ft.com/servlet/ContentServer?http://news.ft.com/servlet/Cont...
pagename=FT.com/StoryFT/FullStoryamp;c=StoryFTamp;cid=1059480488580

After weeks of being battered on the foreign exchanges, the
dollar yesterday faced a new indignity.

Vladimir Putin, Russia's president, floated the idea of pricing
his country's oil in euros -- a gesture towards Europe that
could further drive down the value of the dollar and would have
significant consequences in the oil and currency markets.

quot;We do not rule out that it is possible. That would be
interesting for our European partners,quot; he said after a summit
with Gerhard Schrder, Germany's chancellor.

A German government official later told Reuters that the switch
to the euro was quot;taking on increasing significance.quot;

The US and European Union are competing for initiatives over
energy co-operation in Russia as they try to diversify supplies
away from the Middle East and build stronger economic links
with the nation, the world's second largest oil producer and its
largest holder of natural gas reserves.

Michael Lewis, head of commodity research at Deutsche
Bank and a former currency strategist, said the shift would be
a further boost to the euro.

If Russian oil exports, which average about 5.7m barrels a day,
were denominated in euros it would create demand for an
additional 144m ($171m) every day at current prices.

This is not the first time such a move has been suggested.
Saddam Hussein, Iraq's president, switched to euros as a
political slight against the US.

In the 1980s, when the dollar was weak, some Middle East
producers considered pricing the oil they sold to Asia in yen.
The idea was prompted by the weakness of the dollar at the
time.

A rise in the oil price has traditionally been positive for the
greenback -- partly because buyers of oil need to acquire
dollars. Oil exporters have historically shown a marked
preference for buying dollar assets with their oil revenues.

quot;If Russia makes this move, it will be a reorientation of its
economy toward Europe and this would add to upward
pressure on the euro,quot; said Mr. Lewis.

quot;We talked about Iraq making the shift to euros [under Mr.
Hussein] but in the medium term a Russian move would
be more significant.quot;

Culturally, a Russian switch would be a significant shift.

But Paul Horsnell, analyst at Barclays, pointed out: quot;There
have been times in the past when the oil market has
comfortably traded in lots and lots of currencies. Dollar-
denominated oil is very much a post-Second World War
phenomenon.quot;

Russian oil is becoming increasingly important in Europe
as the North Sea fields begin to mature. One Russian
oligarch has even talked about a future in which the
European benchmark crude oil becomes Russian Urals
rather than North Sea Brent.

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