The euro and the oil market

The euro has the potential to put an end to the U.S. dollar hegemony in world trade and finance, so far not disputed. The euro has, however, little chance of establishing its own hegemony comparable to that of the U.S. dollar. After a period of competitive substitution, there will be a competitive coexistence between the euro and the dollar. Oil trade could play an important part in this game, but any serious challenge to the position of the dollar raises huge risks for the oil industry. Oil producers will only have an interest in pricing their crude in euro if it appreciates against the dollar. Even if European demand does not count much in the formation of oil prices, the North Sea production and the Brent market have an important role. The Brent market largely determines oil prices in the Atlantic, the Mediterranean, the Gulf, and even Asia. For the establishment of the euro as a currency of international trade, a conversion of the Brent market to euro would be an important victory. The game is, however, as much political as economic. Within OPEC, Iran, Iraq, and Libya could have a political interest in hurting the United States by pricing their oil in euro. In the North Sea, Britain and Norway could have an economic interest in pricing their oil in euro, but their political links with the United States could weigh in the opposite direction. The stakes are enormous. The North Sea and the Gulf producers will essentially decide the outcome.