Britain's daily "The Independent" has reported that Gulf Arab oil producers held secret talks with oil buying states on moving away from using the dollar as the sole currency for transactions.
Just hours after the story was published, Saudi Arabia denied the report. Saudi Central Bank Governor Muhammad al-Jasser said his country has held no such talks.
"The Independent" names no sources for its information and gives no details about where the meetings took place.
But it says the meetings -- which have involved central bank governors and finance ministers from the Gulf Arab states, Russia, China, Japan, and Brazil -- have been confirmed by both Gulf Arab and Chinese banking sources.
The newspaper says that the oil producer and buyer states want to move away from the dollar to a basket of currencies including the Japanese yen, Chinese yuan, the euro, gold, and a new unified currency planned by the states of the Gulf Cooperation Council (GCC, which comprises Abu Dhabi, Bahrain, Kuwait, Oman, Saudi Arabia, and Qatar).
The paper concludes that the series of alleged meetings "augurs an extraordinary transition from dollar markets within nine years."
Oil industry analysts say the report is getting much attention in financial circles today but that there is also skepticism regarding many of its details.
That is because it is not surprising that officials may be exploring alternatives to the dollar as the sole currency for oil transactions. But it would be surprising if they are making any concrete plans to imminently change the existing situation.
"I don't think that this is something that would happen anytime soon," says Melanie Lovett, financial editor for the Middle East Economic Survey, based in Cyprus. "They may be talking about pricing in different currencies but I think that always you will find that commodity exporters are examining how they do business and that would be just one aspect of this and I don't think there is any particular significance in this respect."
She notes that the same oil producers cited as holding the secret meetings are economically so strongly tied to the dollar that they can ill afford to now move away from it.
"We think that any move, on behalf of the Gulf players in particular, to move away from the dollar would be doubtful, especially given that their currencies are pegged to the dollar," says Lovett. "Even Kuwait, which isn't directly pegged to the dollar, has its currency pegged to a basket of dollar-weighted currencies."
Economic Might
Four of the biggest energy producers of the GCC -- Saudi Arabia, Kuwait, Qatar, and Abu Dhabi -- together hold an estimated $ 2 trillion in dollar reserves.
That could make them hesitate to weaken the value of the dollar by shifting toward a different oil currency standard. A weaker dollar would devalue their own holdings in dollars and weaken their own purchasing power.
China, a major oil buyer, faces a similar problem. Economists estimate that more that 70 percent of its foreign-currency holdings are in U.S. dollars or dollar-denominated assets. A weaker dollar would have a direct impact on China's economic states.
Still, analysts say that there are many pressures for countries to consider alternatives to the dollars as the standard oil currency, even if any imminent move away from the dollar seems unlikely.
One reason is that the dollar's weakness in the global currency crisis is raising doubts about whether it will always be strong and stable enough to safeguard the enormous portions of their wealth that countries have invested in it.
The doubts have risen further as other major currencies, notably the euro, have gained strength in recent years.
That means that states have to balance the losses they could suffer from moving away from the dollar against still greater losses they could suffer if the dollar were to become much weaker in the future. The possibility of reaching such a so-called tipping point unprepared is something that preoccupies every government in the world.
'Changed Relations'
But for states whose currencies might be included in any new currency basket to replace the dollar as the sole standard for oil transactions, there are still other things to consider.
Oil consumers China and Japan, for example, would have to weigh how much their dollar reserves would be weakened against how much the value of their own currency might rise if it become more widely used as a tender for international trade.
Russia, an oil producer, faces still a different choice. It would have to balance any weakening of its dollar reserves against the hope that oil consumer states -- freed from the dollar -- might equally turn to ruble to buy oil, even if rubles were not included in the currency basket.
As the global economic crisis continues, it is almost certain that both oil producer and consumer states will spend a lot more time thinking about such questions.
The president of the World Bank, Robert Zoellick noted this week that "one of the legacies of this crisis may be a recognition of changed economic power relations."
Speaking at a meeting of the IMF and World Bank in Istanbul, Zoellick was not referring specifically to the oil industry. But his statement may help explain why the article in "The Independent" is catching the attention of many people.
The only oil-producer state that has moved away from the dollar in recent years is Iran, which plans to keep all its future-currency reserves in euros. But that move is widely seen by analysts as politically rather than economically motivated.
Just hours after the story was published, Saudi Arabia denied the report. Saudi Central Bank Governor Muhammad al-Jasser said his country has held no such talks.
"The Independent" names no sources for its information and gives no details about where the meetings took place.
But it says the meetings -- which have involved central bank governors and finance ministers from the Gulf Arab states, Russia, China, Japan, and Brazil -- have been confirmed by both Gulf Arab and Chinese banking sources.
The newspaper says that the oil producer and buyer states want to move away from the dollar to a basket of currencies including the Japanese yen, Chinese yuan, the euro, gold, and a new unified currency planned by the states of the Gulf Cooperation Council (GCC, which comprises Abu Dhabi, Bahrain, Kuwait, Oman, Saudi Arabia, and Qatar).
The paper concludes that the series of alleged meetings "augurs an extraordinary transition from dollar markets within nine years."
Oil industry analysts say the report is getting much attention in financial circles today but that there is also skepticism regarding many of its details.
That is because it is not surprising that officials may be exploring alternatives to the dollar as the sole currency for oil transactions. But it would be surprising if they are making any concrete plans to imminently change the existing situation.
"I don't think that this is something that would happen anytime soon," says Melanie Lovett, financial editor for the Middle East Economic Survey, based in Cyprus. "They may be talking about pricing in different currencies but I think that always you will find that commodity exporters are examining how they do business and that would be just one aspect of this and I don't think there is any particular significance in this respect."
She notes that the same oil producers cited as holding the secret meetings are economically so strongly tied to the dollar that they can ill afford to now move away from it.
"We think that any move, on behalf of the Gulf players in particular, to move away from the dollar would be doubtful, especially given that their currencies are pegged to the dollar," says Lovett. "Even Kuwait, which isn't directly pegged to the dollar, has its currency pegged to a basket of dollar-weighted currencies."
Economic Might
Four of the biggest energy producers of the GCC -- Saudi Arabia, Kuwait, Qatar, and Abu Dhabi -- together hold an estimated $ 2 trillion in dollar reserves.
That could make them hesitate to weaken the value of the dollar by shifting toward a different oil currency standard. A weaker dollar would devalue their own holdings in dollars and weaken their own purchasing power.
China, a major oil buyer, faces a similar problem. Economists estimate that more that 70 percent of its foreign-currency holdings are in U.S. dollars or dollar-denominated assets. A weaker dollar would have a direct impact on China's economic states.
Still, analysts say that there are many pressures for countries to consider alternatives to the dollars as the standard oil currency, even if any imminent move away from the dollar seems unlikely.
One reason is that the dollar's weakness in the global currency crisis is raising doubts about whether it will always be strong and stable enough to safeguard the enormous portions of their wealth that countries have invested in it.
The doubts have risen further as other major currencies, notably the euro, have gained strength in recent years.
That means that states have to balance the losses they could suffer from moving away from the dollar against still greater losses they could suffer if the dollar were to become much weaker in the future. The possibility of reaching such a so-called tipping point unprepared is something that preoccupies every government in the world.
'Changed Relations'
But for states whose currencies might be included in any new currency basket to replace the dollar as the sole standard for oil transactions, there are still other things to consider.
Oil consumers China and Japan, for example, would have to weigh how much their dollar reserves would be weakened against how much the value of their own currency might rise if it become more widely used as a tender for international trade.
Russia, an oil producer, faces still a different choice. It would have to balance any weakening of its dollar reserves against the hope that oil consumer states -- freed from the dollar -- might equally turn to ruble to buy oil, even if rubles were not included in the currency basket.
As the global economic crisis continues, it is almost certain that both oil producer and consumer states will spend a lot more time thinking about such questions.
The president of the World Bank, Robert Zoellick noted this week that "one of the legacies of this crisis may be a recognition of changed economic power relations."
Speaking at a meeting of the IMF and World Bank in Istanbul, Zoellick was not referring specifically to the oil industry. But his statement may help explain why the article in "The Independent" is catching the attention of many people.
The only oil-producer state that has moved away from the dollar in recent years is Iran, which plans to keep all its future-currency reserves in euros. But that move is widely seen by analysts as politically rather than economically motivated.