Saudis Nix Official OPEC Mention of Concern About the Dollar

Due to a mishap, some supposedly closed-door OPEC discussions were aired. Perhaps the most telling remark was the Saudi insistence that the dollar not even be mentioned in OPEC communiques, since any indication that the member states were talking about it would drive the currency lower.

Nevertheless, as we discuss below, OPEC members are keenly worried about what posture to adopt relative to the plummeting dollar, and it appears that the Gulf states may revalue their currencies. All this confirms that unless the dollar gets back on track (unlikely), its days as a reserve currency are numbered.

First, on the unintended peep into OPEC deliberations, from the Guardian:
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‘Kill the cable, kill the cable,’ shouted the security guard as he burst through the double doors into the media room at the Intercontinental Hotel in Riyadh, followed by Saudi police. It was too late.

A private meeting of Opec leaders, gathered this weekend in Riyadh for the cartel’s third meeting in its 47-year history, had just been broadcast to the world’s media for more than half an hour after a technician had mistakenly plugged the TV feed into the wrong socket. The facade of unity that the cartel so carefully cultivates to a world spooked by soaring oil prices was shattered.

Sometimes, such innocent mistakes can have far-reaching economic and political consequences. Commodity and currency traders said this weekend that oil prices would surge again tomorrow – possibly breaking the $101 per barrel record set in the late 1970s – while the already battered dollar would fall further on the back of the unintentional broadcast.

On Friday night, during what the participants thought were private talks, Venezuela’s oil minister Venezuela Rafael Ramirez and his Iranian counterpart Gholamhossein Nozari, argued that pricing – and selling – oil using the crippled dollar was damaging the cartel.

They said Opec should formally express its concern about the weakness of the dollar when the cartel makes its official declaration at the close of the summit today. But the Saudis, the world’s largest oil producers and de facto head of Opec, vetoed the proposal. Saud al-Faisal, the Saudi foreign minister, warned that even the mere mention to journalists of the fact that leaders were discussing the weak dollar would cause the US currency to plummet.

Bloomberg reports that the Gulf States are considering revaluing theri currencies:

The states may revalue by an unspecified amount in as soon as a month’s time, the person [familiar with Saudi monetary policy], who declined to be identified because the matter is confidential, said yesterday. No decision has been made on whether to revalue, he said. The comments came as heads of state of the Organization of Petroleum Exporting Countries began a summit meeting in Riyadh.

Gulf states are facing record inflation, caused partly by the weakening dollar which has made imports from Europe more expensive. Consumer prices rose a record 4.9 percent in Saudi Arabia in August while inflation in the U.A.E. increased to a record 9.3 percent last year. Qatar has the highest inflation in the region, reaching 14.8 percent in the first quarter….

Saudi Arabia, Qatar, Bahrain and Oman have repeatedly said they have no plans to change exchange rate policies. U.A.E. Central Bank Governor Sultan Bin Nasser al-Suwaidi said on Nov. 15 the U.A.E. may drop the dirham’s peg in favour of a basket of currencies. Gulf currencies are under pressure as investors bet governments cannot manage inflation and keep their pegs.

Heads of state from the six Gulf Cooperation Council states will hold their annual meeting in Qatar on Dec. 3-4 where they will discuss monetary policy and security. The person did not specify if a decision would be made at the meeting. Evidence has been gathered and will be presented to policy makers, he said, without giving details.

The leaders will, though, take a decision on whether to abandon a proposed Gulf single currency at the meeting, Hamad Saud al-Sayari, governor of the Saudi Arabian Monetary Agency, said after a meeting of finance ministers and central bank governors in Riyadh on Oct. 27.

“It’s unlikely they are going to move to a flexible system,” Nordvig said. “If they’re going to make an adjustment, they should make one that matters. Something in the 5 to 10 percent range seems like a range that would have some impact without being overly dramatic.”

FXStreet said that other OPEC members are looking to diversify their foreign currency reserves, which now are mainly in dollars:

Al-Faisal’s comments [on the wisdom of not mentioning the dollar in OPEC statements] come after Nigeria’s finance minister joined Angola and Iraq in saying they’re considering moving part of their $80 billion currency holdings out of the dollar and into other currencies such as the Euro.

Kamal al-Basri, an economic advisor to Iraqi Prime Minister Nouri al-Maliki, told Dow Jones Newswires that he and his country’s central bank were studying the need to diversify its $23 billion in currency reserves.

He added that, though, the dollar’s weakness was “very frightening” it was probably a temporary phenomenon.

“There is concern about the weakening dollar and this is why we are looking at alternatives,” said Nigeria Finance Minister Shamsuddeen Usman. “This includes using a basket of currencies, including the euro, for our reserves,” he added.

Nigeria has some $47 billion in currency reserves, of which up to 80% is in dollars. Usman said that within six to 12 months he expected some of that holding to move into euros.