A report in the Independent newspaper in the U.K. Wednesday states that finance ministers and central bankers from the Middle East are holding secret talks with their counterparts from Russia, China, Japan and Brazil to replace the US dollar as the trading currency for oil. Related: The end of the dollar...
The paper said its Gulf Arab and Chinese banking sources in Hong Kong confirmed the plans, adding that this development may help to explain the sudden rise in gold prices.
The paper said the Americans are aware that the meetings have taken place but don't know the details.
It quotes Sun Bigan, China's former special envoy to the Middle East, as warning of a risk of deepening divisions between China and the U.S. over influence and oil in the Middle East.
"Bilateral quarrels and clashes are unavoidable...We cannot lower vigilance against hostility in the Middle East over energy interests and security," the paper quoted him as saying, attributing the comments to the Asia and Africa Review.
The Independent said, "This sounds like a dangerous prediction of a future economic war between the U.S. and China over Middle East oil – yet again turning the region's conflicts into a battle for great power supremacy".
It said Chinese banking sources say the transitional currency in the move away from dollars may well be gold. The Gulf States of Abu Dhabi, Saudi Arabia, Kuwait and Qatar together hold an estimated US$2.1 trillion in dollar reserves.
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The paper said the decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick.
"One of the legacies of this crisis may be a recognition of changed economic power relations," he said in Istanbul ahead of meetings this week of the IMF and World Bank.
The Independent said what has prompted the latest discussion involving Gulf States is China's "extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America's power to interfere in the international financial system."
It said Brazil as well as India have shown interest in collaborating in non-dollar oil payments and China appears to be the most enthusiastic of all the financial powers involved.
China imports 60 per cent of its oil mainly from the Middle East and Russia. The Chinese have oil production concessions in Iraq and since 2008 have held a US$8B agreement with Iran to develop refining capacity and gas resources.
China also has oil deals in Sudan and has been negotiating for oil concessions with Libya, where all such contracts are joint ventures.
According to the Independent, Chinese financial sources believe U.S. President Barack Obama is too busy fixing the domestic economy to concentrate on the extraordinary implications of the transition from the dollar. The current deadline for the currency transition is 2018.
Iran announced late last month that its foreign currency reserves would be held in euros rather than dollars.
This currency shift would have significant implications for all oil exporting nations, including minor global players like Trinidad and Tobago, which has its currency and foreign reserves in US dollars.
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