so, is there any meat on the prophecy that a complete shift to petroleuro from petroldollar would crash the dollar?

There will not be a complete shift to Euro, so no.

A dollar crash is possible, but that has fuck all to do with Gulf currency policies. Asia is the issue.

There will not be a complete shift to Euro, so no.

Yes, the Gulf states are politically dependent on the US. This has generally worked well in the past, but it is hurting them in a big way right now. One of the (many) reasons that inflation is so high here in Dubai is that only 10% of UAE trade is with the US- the largest shares are with Europe and Asia, and the dollar-pegged UAE dirham has been losing plenty of value against their currencies, making imports more expensive. Lower dollar valuations have also lowered the purchasing power of oil revenues, but with oil at its current prices and problematically high liquidity in the region, this is less of a factor.

I would be surprised if even this 10% talk goes anywhere, despite UAE reserves being something like 90% dollar-denominated, if I remember correctly. It has only been mentioned before at the time of the DP World fiasco, and is probably just saber-rattling. The only Gulf state to revalue its currency at all has been Kuwait, which did so by just 1%. Any wholesale shifts in favor of the euro aren't likely before a common GCC currency comes about in 2010 (if it comes about at all, there has been precious little movement in that regard), and even then, I wouldn't hold my breath about immediate action.

Oh they will do it, a rebalancing is entirely economically rational and the US doesn't care about small shifts.

There are all sorts of sound reasons for shifting reserves from dollars to euros (and it was of course one of the early purposes of the euro to encourage such a shift) but it's a catch 22 for all the governments, esp oil states, that have huge dollar reserves - they realize the dollar's going down but they don't want the value of their holdings to crash. Thus the US economy rolls along on money borrowed from the rest of the world and then whines about how unfair it is that other countries have started to win at the free trade game...

Talk before hasn't led anywhere. If it does this time, great.

Things will get interesting if (when?) the dollar's decline becomes more precipitous. Will the Gulf states still hold on to their assets? If not, will they bail early or late? How large an international impact could they collectively have? Would they somehow finally decide to act in concert?

The people around me are asking some very searching questions about the impact of the US fiscal deficit, and while I'm no economist, they do seem to me to have genuine cause for worry.