Foreign Correspondence

[Amaunet]

Oil for Gold

The use of e-dinars, while still very small at this time, is likely to grow rapidly as doubts over the US dollar's value grow. In January 2004, Malaysia's former Prime Minister Mahathir Mohamad visited Saudi Arabia and encouraged the country to begin pricing its oil in gold (dinars) since he felt the Saudi's were being shortchanged due to the slide in the US dollar. (It should be noted that in 2003, Malaysia was the first country to introduce the dinar as a form of settlement for international trade.)

I am rather confident that several Muslim countries will price their oil in gold before the end of this decade since the oil exporting world is quickly recognizing that the world is awash in dollars and there are no acceptable alternatives outside of gold. The implications of this change for oil, gold and the US dollar are enormous. Look for the price of oil and gold will skyrocket and the US dollar to crumble once one oil exporting nation prices its oil in gold.


Bill Powers
Editor Canadian Energy Viewpoint
www.canadianenergyviewpoint.com

There has been a great deal of attention given to the impact of high oil prices on the US economy in recent months. We have seen nearly every media outlet carry a story about how high gasoline prices are taking money out of consumer's pockets and how this will lead to slower economic growth. What the media is once again failing to understand is the simple fact that climbing energy prices will accelerate the downward spiral of the US dollar. The collapse of US dollar hegemony will be felt in nearly every corner of world over the next decade. Perhaps no other industry will be impacted more by the dollar's decline than the energy industry.

Since the signing of the Maastricht Treaty, which created the Euro zone in 1992, there has been much speculation that the oil exporting world would one day consider pricing oil in euros. The world did not have to wait long after the birth of the euro in 1999 to witness Iraq's pricing its oil in euros. Australian environmentalist Geoffrey Heard provided some unique insight into fellow OPEC members' reaction to Iraq's decision to price its oil for export in euros in a 2003 article entitled "Not Oil, but Dollars vs. Euros":

"In 1999, Iraq, with the world's second largest oil reserves, switched to trading its oil in euros. American analysts fell about laughing; Iraq had just made a mistake that was going to beggar the nation. But two years on, alarm bells were sounding; the euro was rising against the dollar, Iraq had given itself a huge economic free kick by switching.

Iran started thinking about switching too; Venezuela, the 4th largest oil producer, began looking at it and has been cutting out the dollar by bartering oil with several nations including America's bete noir, Cuba. Russia is seeking to ramp up oil production with Europe (trading in euros) an obvious market.

The greenback's grip on oil trading and consequently on world trade in general, was under serious threat. If America did not stamp on this immediately, this economic brushfire could rapidly be fanned into a wildfire capable of consuming the US's economy and its dominance of world trade."

After the US invasion of Iraq, the country's oil exports were priced in US dollars. While Mr. Heard may have overestimated the role of the euro in the war in Iraq, there is no doubt that the falling US dollar has raised concerns over whether it is prudent for oil exporting countries to price a significant portion of their GDP in a depreciating currency.

While many have argued that pricing oil in euros will lead to higher oil prices, not much attention has been given to the possibility of oil being priced in gold. While this might seem like a fringe idea to the masses, those who have an appreciation for gold's place in many Muslim oil exporting countries believe the pricing of oil in gold is inevitable.

The launch in late 2000 of the e-dinar, a Muslim currency that is backed by gold held in a vault in the Dubai International Airport, has allowed many Muslims an alternative to Western currencies. The e-dinar program is an electronic form of the historic Muslim gold dinar. The gold dinar dates back as far as 700 A.D. and was in circulation until 1924 A.D. when the Ottoman Empire collapsed.

One e-dinar is backed by 4.25 grams of 24K gold. E-dinars account holders can have their account balances exchanged into any major currency or take physical possession of an equivalent amount of gold. To learn more about the e-dinar program, visit website www.e-dinar.com. What I found most educational about the site is its extensive history of the dinar in Muslim society. The following was copied from the website's "history of the dinar" section:

"Since paper-money is a promise of payment, can it be permitted to trust the issuers while they hold the payment (our property) outside our jurisdiction? History has also demonstrated repeatedly that paper money has been a permanent instrument of default and cheating the Muslims. In addition, Islamic Law does not permit the use of a promise of payment as a medium of exchange."

The use of e-dinars, while still very small at this time, is likely to grow rapidly as doubts over the US dollar's value grow. In January 2004, Malaysia's former Prime Minister Mahathir Mohamad visited Saudi Arabia and encouraged the country to begin pricing its oil in gold (dinars) since he felt the Saudi's were being shortchanged due to the slide in the US dollar. (It should be noted that in 2003, Malaysia was the first country to introduce the dinar as a form of settlement for international trade.)

I am rather confident that several Muslim countries will price their oil in gold before the end of this decade since the oil exporting world is quickly recognizing that the world is awash in dollars and there are no acceptable alternatives outside of gold. The implications of this change for oil, gold and the US dollar are enormous. Look for the price of oil and gold will skyrocket and the US dollar to crumble once one oil exporting nation prices its oil in gold.


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