Weak Dollar Hurting Beyond Oil Economies

The weak dollar is good news for those who are planning to go on a shopping trip to the United States. It is also good news for US exporters.

However, for many Beyond Oil countries, it is bringing bad economic news.

One the one hand, the weak dollar is pushing the price of oil to new highs. While this brings more income, it is also putting more emphasis and importance on alternative energy. The problem for many Beyond Oil economies is that such investments will motivate more and more consumer countries to wean themselves away from oil, sooner rather than later.

The other problem is that many of the current Beyond Oil countries themselves are not investing enough in alternative energy resources. With the exception of Canada, Norway, US and UK, other oil producing countries are still way behind the goal of improving their alternative energy infrastructure.

As well as being unprepared for the supply of energy resources when oil runs out, the problem which this poses for such countries is that they will have no replacement for growing domestic energy needs. This means that they will have to use more and more of their own oil resources instead, thus missing out on the opportunity to export oil.

There is the problem of inflation. Many oil producing countries in the Persian Gulf region have their local currencies pegged to the dollar. This means that they also have to follow US financial policies, which currently involves cutting interest rates, in order to avoid recession. This works against the interest of Persian Gulf countries, as currently they are awash with oil money. Cutting interest rates has pushed in more money into their economies, thus increasing inflation. Some analysts have called for such countries to unpeg their currency from the dollar. For now, this seems unlikely, due to the close political and security relations between them and Washington.

So far, OPEC countries have refused to cut production, because as far as they are concerned, it is the weak dollar which is pushing up the price of oil, and not oil supplies. This illustrates short sightedness on their behalf. The reason behind the weak dollar is that the US economy is nearing recession.

If OPEC does not try to work with the US to avert this crisis, it could be losing valuable business from one of its biggest customers. This will not only have economic repercussions for OPEC countries themselves, it could have political ones too. With elections looming, recession could put many US plans in jeopardy, including possible withdrawal from Iraq.

End of Analysis