Title: Policy issues related to substitution of the US dollar in oil pricing

Authors: Musa Essayyad, Ibrahim Algahtani

Addresses: Department of Finance and Economics, College of Industrial Management, King Fahd University of Petroleum and Minerals, Dhahran 31261, Saudi Arabia. ' Department of Finance and Economics, College of Industrial Management, King Fahd University of Petroleum and Minerals, Dhahran 31261, Saudi Arabia

Abstract: This policy paper attempts to evaluate the viability of switching from the US dollar to the euro in international oil pricing. If materialised, the switch would not impact only OPEC nations but would also have ramifications for other oil exporting as well as importing nations. It would also have considerable effect on US economy and international financial system. This paper recommends that in deciding which currency to use in oil pricing, OPEC member countries should not allow their positive or negative political rapport with the US Government to distort their rational choice. Switching to euro or any other currency will not eliminate loss of revenue, as the newly adopted currency will not be immune either from the exchange rate gyrations. In fact, there is no guarantee that the euro, yen, sterling pound, or any other major currency will be immune from fluctuations. As a way out, this paper recommends three alternatives.

Keywords: portfolio choice; international financial markets; policy; regulation; international finance; foreign exchange; international monetary arrangements; financial institutions; foreign aid; oil pricing; euros; dollars; price switching; currency switching; OPEC.

DOI: 10.1504/IJGEI.2005.006411

International Journal of Global Energy Issues, 2005 Vol.23 No.1, pp.71 - 92

Published online: 03 Mar 2005 *

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