[Rolo]

Now this article is from before the war in Iraq, but it brings some good points to what it means for the US economy that ithe dollar is used in oil trade, and it also gives a few good points to why dollars might be replaced by euros:

http://observer.guardian.co.uk/business/st...,900867,00.html

Here is a few quotes

The oil-dollar nexus is one of the foundations of the world economy that inevitably filters through to geopolitics. Recycling so-called petrodollars, the proceeds of these high oil prices, has helped the United States run its colossal trade deficits. But the past year has seen the quiet emergence of the 'petroeuro'.

Effectively, the normal standards of economics have not applied to the US, because of the international role of the dollar. Some $3 trillion (£1,880 billion) are in circulation around the world helping the US to run virtually permanent trade deficits. Two-thirds of world trade is dollar-denominated. Two-thirds of central banks' official foreign exchange reserves are also dollar-denominated.

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Iraqi oil, two-thirds of which is being snapped up by US companies, can only be paid for in euros.

'It was a political move on the part of the Iraqi government to show that the euro could be a substitute for the dollar in denominating the oil price,' says Fadhil Chalabi of the Centre for Global Energy Studies.

That move was made in the same week that the euro reached its historic low of $0.82 in October 2000. The subsequent 30 per cent rise in the euro has greatly helped the United Nations' oil-for-food programme in Iraq.

Soon afterwards, Jordan launched its own bilateral trade scheme with Iraq, carried out entirely in euros.

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Last year, in a little noticed Opec speech to a Spanish Finance Ministry conference, Javad Yarjani, a senior Iranian oil diplomat, said: 'It is quite possible that as bilateral trade increases between the Middle East and the European Union, it could be feasible to price oil in euros. This would foster further ties between these trading blocs by increasing commercial exchange, and by helping attract much-needed European investment in the Middle East.'

Yarjani said the 'critical question is the overall value and stability of the euro, and whether other countries within the union adopt the single currency'.

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Last year Russia entered into negotiations with Germany over the establishment of an exchange to sell oil futures denominated in euros. Russia, which on some measures is the world's Number 1 oil producer at the moment, is awash with petrodollars, but trades mainly with Europe. Russia's foreign exchange holdings recently reached an all-time high of $50bn.

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Last year the former US Ambassador to Saudi Arabia told a committee of the US Congress: 'One of the major things the Saudis have historically done, in part out of friendship with the United States, is to insist that oil continues to be priced in dollars. Therefore, the US Treasury can print money and buy oil, which is an advantage no other country has. With the emergence of other currencies and with strains in the relationship, I wonder whether there will not again be, as there have been in the past, people in Saudi Arabia who raise the question of why they should be so kind to the United States.'

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Historically, empires have been exporters of capital, rather than importers like the US. The dollar has been vital to this revolution. At the euro's launch Martin Feldstein, a Harvard economist, pointed to the possibility that the single currency could weaken the status of the dollar to the extent that it 'could complicate international military relationships'. Feldstein is an outside contender to replace Alan Greenspan at the Federal Reserve.