Gulf officials moved on Tuesday to assure markets they were not planning to abandon the dollar as the established currency for trading crude oil.
Muhammad Al Jasser, the Saudi central bank governor, told reporters in Istanbul, where he is attending the Annual Meetings, that a report in Tuesday’s London-based Independent was “absolutely incorrect”.
The newspaper claimed there had been “secret meetings” of oil producers involving the Gulf states, China, Brazil and Russia aimed at replacing dollar denomination with a basket of currencies by 2018.
Al Jasser denied Saudi Arabia, the world’s largest oil exporter, had been in any such talks. Meanwhile, the United Arab Emirates Central Bank said that oil exporters would “stay with the dollar”.
Al Jasser, the Saudi governor, told Emerging Markets in an interview on Saturday that the dollar had “served our interests well”.
“One hundred per cent of our exports are in the dollar, more than 70% of our imports are denominated in the dollar. Why would you want to give up such a natural hedge without a better alternative? Right now I don’t see one.”
Saudi Arabia – like all Gulf Co-operation Council countries other than Kuwait – pegs its currency to the dollar. Al Jasser said this was due to pragmatic considerations: “It’s not like we adopt a system and go to sleep. We worry about all these things, we analyse, and take action where necessary.”
Yesterday’s report apparently sparked a fall in the dollar in early trading against 15 of its 16 most-traded counterparts. But following further comments from Gulf officials, the dollar rallied, reversing losses against the Euro in trading in London.
The governor of the Iranian Central Bank of Iran, Mahmoud Bahmani, told Emerging Markets on Monday that Iran was “steering clear” of the dollar in its oil sales.
But Iran began to avoid the greenback at least two years ago, partly in response to US banking sanctions. While sales remain set in dollars, as is the norm of the international market, Iran has been receiving payment in other currencies.
Oil traders have generally preferred the simplicity and clarity of the dollar rather than the alternative of denominating in a basket of currencies. Oil exporters are also sensitive to anything that could provoke further instability in a market where oil fell dramatically from highs near $147 a barrel in mid-2008 to under $40 earlier this year, before recovering to around $70 today.