Oil and the dollar, part whatever-we’re-up-to-now
This is, in all likelihood, still the tail of the story about the Saudis, keeping their interest rate steady the last time the US dropped theirs:
Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.
I don’t know about stampede – at the very least, there wasn’t one then. Saudi Arabia also has an – honestly assessed – inflation issue, with which to deal:
For Saudi Arabia, the dollar peg has clearly become a liability. Inflation has risen to 4pc and the M3 broad money supply is surging at 22pc.
The pressures are even worse in other parts of the Gulf. The United Arab Emirates now faces inflation of 9.3pc, a 20-year high. In Qatar it has reached 13pc.
Kuwait became the first of the oil sheikhdoms to break its dollar peg in May, a move that has begun to rein in rampant money supply growth.
Today, of course, oil re-entered its mischevious ways, topping USD90 per barrel (I’ve never linked to a Pravda story, before). The coincidence with the shit earnings releases was unfortunate (for most – not for the argument that excluding fuel from inflation hides the fact that incomes in the US aren’t moving; although different, it is a timely reminder that economic growth in the US is not at all what it is purported to be).
Onwards and outwards:
Iran needs to request an extra $2 billion to import petrol after its original budget allocation ran out halfway through the year, the ISNA news agency reported Monday.
The shortfall comes despite a rationing plan imposed in June that aimed to curb Iran’s massive imports of refined oil products made necessary by its frenzied consumption and lack of refineries.
“For imports of petrol and diesel in the second half of this year, we have asked [the oil ministry] for $2.3 billion,” the managing director of National Iranian Oil Products Distribution Company, Nouredin Shahnazi Zadeh, was quoted as saying.
Some $1.5 billion of that figure is needed for petrol and $830 million for gas oil, he explained.
He added that rising global market prices had already meant the budget for imports of petrol for the Iranian year to March 2008 had been exhausted.
Iran is the world’s fourth largest oil producer, but its lack of refineries and colossal consumption encouraged by a heavy state subsidy on fuels means it must import 40 percent of its petrol requirements.
If nothing else, the US is bloody fortunate it has refineries to help it keep gasoline prices down – for now – even as oil prices appreciate. If it can keep attracting sweetheart deals, all the better.
Meanwhile, though, that sinking dollar is going to bite into the oil the US can afford in some parts of the Middle East:
Kuwait’s Central Bank raised the value of the dinar by 0.53 percent against the flagging US currency Tuesday, with $1 now worth 0.27875 dinars.
The dollar previously stood at 0.28025 dinars, and Tuesday’s move marked the highest value of the dinar against the dollar in more than two decades.
On May 20, the oil-rich Gulf emirate pegged its dinar to a basket of currencies after more than four years of linking it to the dollar, in a bid to reduce inflation.
Since then, the dinar has gained 3.6 percent against the dollar.
Honestly, have these basket-case-countries never heard of core inflation? It solves everything!