It becomes clearer by the day that the days of abundant cheap oil flows are over.
Oil will now continue to be valued according to its true worth and to the extent that this true worth will be discovered, its price will rise.

Wars will again be waged for the commodity.

Oil is still being priced in US dollar.
The US dollar is a worthless piece of paper with no intrinsic value whatsoever.
However, the fact that this piece of paper is still being used as the intermediary numéraire for oil-trade settlement, as the intermediary basic “standard” by which values are measured for oil-trade settlement, gives this dollar-paper the backing of oil (an indispensable valuable).

Once oil will see no more reason to support/back the dollar, oil will “openly” shift towards GOLD and back it (through demand for gold) so as to create the new market for physical gold in association with the gold-friendly euro-numéraire.

In an article under the title “Oil price shock means China is at risk of blowing up”,
Ambrose Evans-Pritchard argues in the 7 July 2008 electronic edition of The Daily Telegraph that the pendulum will now swing back from China to America and that the mercantilists will have to re-invent themselves, it being clear that Beijing’s mercantilist policy of holding down the yuan to boost exports share has now hit the buffers, says Evans-Pritchard.
(The mercantilist theory, which formed the foundation of economic thought from about 1500 to 1800, says however, that countries should export more than they import and, if successful, would receive the value of their trade surpluses in the form of GOLD from the country or countries that ran deficits (1).)

QUOTE from Evans-Pritchard:
The great oil shock of 2008 is bad enough for us. It poses a mortal threat to the whole economic strategy of emerging Asia.
The manufacturing revolution of China and her satellites has been built on cheap transport over the past decade. At a stroke, the trade model looks obsolete.
No surprise that Shanghai’s bourse is down 56pc since October, one of the world’s most spectacular bear markets in half a century.
UNQUOTE (2)

Now we know who are the culprits for the high price of oil.
Those culprits then have to be punished through the War on Terror.
The oil hunger of India and China is a crucial element of the present decade.
The USA is put in the position to arrogate (to) itself the right to unilaterally determine geopolitics because the dollar-regime allows the USA to, as former president of the French republic, Valéry Giscard d’Estaing, recently re-explained, live with gigantic budget deficits which are covered by the annual incoming of capital from countries buying dollars, [dollars which the USA can create at will out of thin air]. (3)
Others will be called upon to pay the bill.
Thank You, Mr Evans-Pritchard, for having made this explicit.

DE-PEGGING AND FREELY FLOATING

On Monday 7 July 2008, the Financial Times reported that Abu Dhabi has reignited speculation that the United Arab Emirates may break its fixed peg to the US dollar. The UAE is one of the world’s main holders of dollar-denominated assets. In a report published at the weekend, the Abu Dhabi department of planning and economy floated the idea of tracking a basket of currencies in advance of formation of a currency union in the six-member Gulf Co-operation Council (GCC). (4)

Some bloggers were then arguing that, after de-pegging their currencies from the US dollar, the GCC states will have no need to re-peg them against a basket of world currencies.
The bloggers argued that it’s one thing to say that the GCC states need to de-peg their currencies from the US dollar.
It is however quite another thing to say that the GCC states should adopt another pegging regime.
Hence, after de-pegging from the US dollar, the GCC states should allow their currencies to freely float, with their oil and gold reserves also freely floating in the background, concluded cyberspace. (5)

The dollar-regime fully realises that the days of its exorbitant privilege, bestowed on it by oil traders, are coming to an end.

In order to prolong the exercise of this privilege, the US regulator of futures markets said on Monday 7 July 2008 that the Dubai Mercantile Exchange will have to provide more data about traders and adopt US position limits if it wants access to US customers. (6)

And on Tuesday 8 July 2008, the Financial Times surprised its readers with an editorial under the title “Dollar-pegged out” in which it argued that the Gulf needs to peg to something.
A first step (after revaluation) would be to peg to a basket of currencies that included the euro and the yen, said the editorial.

QUOTE from the Financial Times:
Countries such as the UAE cannot simply adopt a floating exchange rate, however. They are too small, and dependence on a volatile commodity makes it all but impossible to predict what their purchasing power will be the year after next, and what a sensible monetary policy might therefore be.
UNQUOTE (7)

To quote again from blogosphere:
The dollar-regime is inflating the price of oil-wealth to such an extent that price inflation in third-world countries is three times as high as in the west.
Oil-speculators are therefore not interested in the possession of oil as wealth, but only in concluding wagers over the oil price in order to tap its monetary surplus value.
Untapped oil reserves have therefore the same wealth-consolidating function as GOLD.
Hence, after de-pegging from the US dollar the GCC states should allow their currencies to freely float, with their oil and GOLD reserves also freely floating in the background. (5, again)

Or will it be argued that the Greenspan-Bernanke monetary policy was/is sensible, predictable and designed so as to fit the Gulf countries and the rest of the planet?

Ivo Cerckel
ivocerckel AT siquijor DOT ws

NOTES

(1)
Daniels and Radebaugh, “International Business”, Addison Wesley, 1995, 7th ed., p. 168

(2)
Oil price shock means China is at risk of blowing up
By Ambrose Evans-Pritchard
Last Updated: 12:33am BST 07/07/2008

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/07/ccview107.xml

(3)
ENJEUX LES ECHOS : EN COUVERTURE – ENTRETIEN – VALERY GISCARD D’ESTAING
« La crise l’a prouvé : on ne peut plus laisser la mondialisation livrée à elle-même »
Enjeux Les Echos n° 247 du 01 Juin 2008 • page 050

http://www.lesechos.fr/vg/articles/3e/3e1bce0c.html

SNIP
Enjeux-Les Echos – Cette première crise financière du xxie siècle s’apparente-t-elle à celles qui ont traversé le siècle dernier ?
Valéry Giscard d’Estaing – Cette crise est la première grande crise financière de la mondialisation. Deux composantes distinctes l’ont provoquée : l’extravagante bulle spéculative du système bancaire anglo-saxon et l’affaiblissement continu du dollar. L’once d’or a dépassé les 1 000 dollars en mars dernier, alors que jusqu’aux années 70, sa parité était fixée à 35 dollars. Ce glissement remet en cause son rôle de monnaie de réserve. La fin du règne absolu du billet vert serait un vrai bouleversement pour l’économie mondiale, équivalent à celui de la fin des parités fixes en 1973. Depuis la Seconde Guerre mondiale, le système tournait comme un système solaire autour du dollar, reconnu comme un conservateur de valeur et un instrument de règlements et d’échanges. Cela a permis aux Etats-Unis de vivre avec d’énormes déficits puisque ceux-ci sont couverts par la rentrée annuelle de capitaux des pays acheteurs de dollars. Avec la baisse de la devise américaine, c’est l’euro qui, par défaut, subit une pression à la hausse et prend progressivement la place de deuxième monnaie de réserve mondiale. Or les Européens ne souhaitent pas que leur monnaie se valorise et qu’elle appartienne à des circuits monétaires éloignés de l’économie réelle.

(4)
Gulf states urged to rethink dollar pegs
By James Drummond in Abu Dhabi
Published: July 6 2008 20:43 | Last updated: July 7 2008 18:38

http://www.ft.com/cms/s/0/43b48840-4b1f-11dd-a490-000077b07658.html

(5)
Monetary policy as tool to combating inflation: DPE weekly report
July 6, 2008 by admin

http://www.dubaichronicle.com/?p=305

Gulf must ditch dollar peg – Abu Dhabi gov’t
by Dylan Bowman on Saturday, 05 July 2008

http://www.arabianbusiness.com/523827-gulf-must-ditch-dollar-peg—abu-dhabi-govt?ln=en

No ‘magical’ cure for UAE inflation
Emirates Business 24/7
06 July 2008

http://aa.mc536.mail.yahoo.com/mc/compose?.rand=337969744&uc=0

GCC urged to reconsider dollar policy
Published: July 05. 2008 10:58PM UAE / July 5, 2008 14:58 GMT

http://www.thenational.ae/apps/pbcs.dll/news_messages?Category=BUSINESS&Profile=1001&SectionCat=NEWS&ThemeID=2564&GroupID=651323&Dato=200807052258&lopenr=543385303

(6)
US futures regulator requires more Dubai data
Reuters – USA
WASHINGTON, July 7 (Reuters)

http://uk.reuters.com/article/oilRpt/idUKWAT00973320080707

(7)
Dollar-pegged out
Published: July 7 2008 19:49 | Last updated: July 7 2008 19:49

http://www.ft.com/cms/s/0/166e1cac-4c55-11dd-96bb-000077b07658.html