The "Oil Vigilantes" and the dollar

It's not clear who first coined the term "Oil Vigilantes", but it's a safe bet that you'll hear it at least a few more times before oil is done rising in price. And it's a safe bet that oil isn't going to stop rising in price any time soon as long as it's denominated in U.S. dollars.

It's also not clear what, if anything, this story from The Economist has to do with "Oil Vigilantes", but it would seem that there are at least a few of them in OPEC countries where there is increasing talk of doing something about their U.S. dollar pegs that have served them so well for decades.

Gulf countries are rethinking their currency pact with the dollar
HARDLY a week goes by without a new reason to be gloomy about the dollar. The latest scare is that members of the oil-rich Gulf Co-operation Council (GCC) might loosen their links to the greenback, depriving the foreign-exchange markets of a reliable buyer of the troubled currency.

The United Arab Emirates (UAE), through its central bank governor, recently hinted that it would like to free itself from the dollar peg, but would prefer to do it in concert with the other GCC members—Saudi Arabia, Kuwait, Qatar, Oman and Bahrain. Last May Kuwait broke ranks and decided to track a basket of currencies. Since then, the Kuwaiti dinar has risen by nearly 5% against the dollar.

Now others might follow Kuwait's lead.
...
The immediate problem for the Gulf states is that the inflationary effects of the oil-price boom are being amplified by their yoke to a weakening currency. Inflation, which until 2003 was rarely above 3% in the Gulf, is now around double-digit rates in Qatar and the UAE (see chart). Even in Saudi Arabia, where inflation has been more muted, it picked up to nearly 5% in September. Much of the pressure is from rising world food prices, which are a bulky item in consumer-price indices.

It's still "our dollar, their problem" but it is also "their oil".

ooo

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