This is ominous:
Middle Eastern anger over the decision by the US to block a Dubai company from buying five of its ports hit the dollar yesterday as a number of central banks said they were considering switching reserves into euros.
The United Arab Emirates, which includes Dubai, said it was looking to move one-tenth of its dollar reserves into euros, while the governor of the Saudi Arabian central bank condemned the US move as “discrimination”.
Separately, Syria responded to US sanctions against two of its banks by confirming plans to use euros instead of dollars for its external transactions.
Forget about Syria – that poor Soviet satrap (still!) doesn’t generate enough commerce to run a small lemonade stand. But…
The UAE’s small move is a warning shot across our bow. In the worst-case scenerio, OPEC could move to the euro. The result? A dollar worth perhaps half of what it is today, along with an inflationary surge like we haven’t seen since Jimmy Carter was President. The Oil States would suffer, too, but not nearly as much as we would.
Which: A) Would explain why we’re still so nice to Saudi Arabia; and B) means we’re going to have to play even nicer for a while. Once again, Congress has passed the Law of Unintended Consequences with a veto-proof majority.
It’s nice to know that sometimes, politics still stops at the waters’ edge. Sometimes so does our long-term thinking.