Qatar may be a little nation, but it is the world’s largest natural gas shipper. So when it says it will sell gas in euros rather than dollars if requested by a customer, it may well be a strong indication that confidence in the dollar is rapidly eroding.
In an interview February 9, Qatar’s finance minister said the reason for such a move would be to diversify the country’s foreign currency reserves (Gulf Times, February 10). Qatar is just one of several nations that have lately signaled a reluctance to hold as many U.S. dollars in reserves as they have in years past.
In December, the United Arab Emirates announced that it would convert 8 percent of its dollar holdings into euros by September this year. Central banks in other countries including Italy, Sweden and Russia have also taken similar action.
Natural gas sales by Qatar alone pose little threat to the dollar. However, the challenge to the dollar is in the precedent that would be set. If other nations follow Qatar’s example and begin selling gas, oil and other commodities for euros or other currencies, the dollar would be hit with a giant vacuum of demand.
Global trade of commodities priced in dollars increases the demand for the U.S. currency, thus keeping the dollar strong. Robust dollar demand is something the U.S. economy has become dependent on and is what allows U.S. monetary authorities to aggressively expand the dollar supply without causing the economy to suffer from inflation.
Although large-scale non-dollar oil and gas sales have not been confirmed, Venezuela, Russia, Iran and Indonesia have all publicly telegraphed their desire to sell commodities in currencies other than the dollar in the near future. Since none of these countries is considered an American ally, their announced intentions are likely more than just currency diversification—but really veiled jabs at the greenback.
Time will tell if non-dollar gas, oil and other commodity sales become more commonplace. If so, expect international demand for the dollar, and consequently the dollar’s value, to wane. Similarly, also watch for inflationary pressures within the U.S. to build.