Venezuela Considers Selling Oil in Euros

President chavez suggested, while in London, that perhaps it would be a good idea for Venezuela to sell some of its oil in Euros instead of Dollars. Such a move could scare currency markets and lead to further decline of the dollar's value.

Caracas, Venezuela, May 18, 2006—Venezuelan President Hugo Chavez declared on Tuesday that Venezuela would consider putting the sale of its oil in Euros.  His comments come after Iran had announced that it too is contemplating switching to the European currency.

“That was an interesting proposal made by the president of Iran,” Chavez told Channel 4 News in London. “We are also free to choose between the dollar and the euro.  I think that the European Union has made a great contribution with the Euro.”

“In a way, what the President of Iran is saying… is recognizing the power of Europe, that they have succeed in the integration and have a single currency that competes with the dollar, and Venezuela can consider that, too, we are free to do that,”  Chavez added.

According to the BBC, Iran announced earlier this month that they supported the creation of an “oil exchange that traded solely in Euros”.  Experts have warned that such a conversion to the European currency could trigger central banks to convert their dollar reserves to euros, thus potentially worsening the already declining US currency.

Although the International Herald Tribune reported yesterday that the US dollar has rebounded this week from its recent lows against the Euro, it still stands at about $1.28 per Euro.  The value of the Euro has grown substantially against the dollar since the two currencies were equal, just before the beginning of the US invasion of Iraq.

Already last year, Venezuela made a number of financial moves towards the European currency.  In October, 2005, the Financial Times reported that Venezuela had “transferred a large portion of its $30.4 billion of foreign reserves out of US Treasuries and into banks and other financial instruments in Europe, seemingly for political reasons.”                                          

Last December, The Central Bank of Venezuela approved the use of Euros in some financial transactions in what it called, an attempt to “promote the diversification of the economic relations and international finance of the nation.” 

The conversion to Euros has been a controversial international issue because of the possible effect it could have on the US currency and international markets.  In November of 2000, Iraq switched its oil exchange to Euros, even before most Europeans where using the new currency.  Many critics of US foreign policy have pointed to this conversion as a possible impetuous for the US invasion of Iraq a few short years later.  

Possibly making the connection, President Chavez, at a speech in London on Sunday, declared that the price of oil would soar to over $100 a barrel if the United States were to declare war on Iran.  Even before Iran’s recent announcements on possible Euro conversion, the Bush Administration had been exerting increasing pressure on the oil-rich nation over the development of its nuclear program.  The Venezuelan government has publicly declared itself in support of Iran’s peaceful nuclear energy program and opposed to any military action against the middle-eastern country.