Saddam Hussein stopped trading his oil for dollars before Iraq was invaded. Iran gets set to open a new oil bourse and futures market that will trade in euros, while Venezuela is said to be mulling over whether to follow suit.

Now Russia has joined the bandwagon. On May 10, President Vladimir Putin announced the creation of a Russian oil and gas bourse along with his intention to convert the ruble into a convertible currency that would be used for the trade.

Russia has recently swapped some of its dollar reserves for euros.

Together Iran, Venezuela and Russia corner some 25 percent of the export market in oil. If the three countries do away with the petrodollar, this could seriously buffet the US currency, forcing up interest rates, increasing the cost of imports in the US and contributing to an inflationary economy or a recession.

William Clark writing in the Energy Bulletin says, “What we are witnessing is a battle for oil currency supremacy. If Iran’s oil bourse becomes a successful alternative for international oil trades, it would challenge the hegemony currently enjoyed by the financial centers in both London (IPE) and New York (NYMEX) . . ."

At the same time, nations in this region have been exchanging percentages of their dollar reserves for other currencies.

In March, following the Dubai Ports World debacle, the UAE Central Bank said it was considering converting 10 percent of its dollar reserves to euros. Kuwait and Qatar have hinted that they might do the same.

The Commercial Bank of Syria has exchanged all its dollar devise for euros, following a call from Washington urging US banks to cease acting as correspondents for Syrian financial institutions, ostensibly because of money-laundering concerns.

Last month, Sweden cut the dollar share of its $21 billion foreign reserves from 37 percent down to 20 percent, causing the dollar to tumble almost 2 percent in one week.

Sweden’s central bank said the switch to euros was an effort to stabilize its foreign currency reserves and reduce volatile currencies.

Iran, Venezuela and Russia are hardly on warm terms with the US government and their proposed flight from dollars is thought to be partially if not wholly politically motivated. However, if the dollar value plunges as a result, then central banks around the world will be left with devalued reserves, and may have to start switching as well.

According to David Smith, economic editor for the Sunday Times, much of the dollar plunge is further “prompted by America’s $800 billion current-account deficit.” This deficit isn’t surprising when a whopping $280 billion has gone to fund the war in Iraq and the Bush administration is bent on its policy of tax cuts, which mostly benefit mega corporations and the wealthy.

Gulf nations, in particular the UAE and Qatar, are said to be suffering inflationary pressures due to the weakened dollar and there is discussion as to whether the dirham and the riyal should be released from their longtime hinge to the greenback.

Some economists are making the case for Gulf currencies to be linked to a basket of foreign currencies instead.

In May, Kuwait revalued its dollar-pegged dinar up one percent. According to the Kuwaiti finance minister, the revaluation was meant to offset the impact of the dollar’s slide on investments and inflation.

An article posted on the Emirates Bank website, penned by its general manager, believes there is a more important question up for discussion than the pegging of GCC currencies.

“A more important question therefore, may be whether oil exports should continue to be denominated in US dollars,” he writes. “This might well be something that OPEC or OEAPC can consider as to the pros and cons but is a matter that is best decided by a dialogue between the importers of oil and the exporters.”

Washington’s erratic and aggressive foreign policies have also contributed to the rise in oil prices. In the event of a military strike on Iran or attempts to interfere in the internal affairs of Venezuela, oil could top the $100 dollar mark with severe repercussions on the US and other first world economies.

Indeed, Iran’s President Mahmoud Ahmadinejad has threatened to stop the flow of oil through the Straits of Hormuz, while Venezuelan leader Hugo Chavez says he will quit selling oil to the US if threatened with invasion.

As we know when Washington sneezes the rest of the world catches a cold and this is certainly true when related to the weakness of the US currency. Last week London Blue Chips dived on news of the dollar’s dive coupled with concerns about inflation, while Asian stocks also felt the pinch.

Washington seems unconcerned and is sending out confusing signals. For instance, Beijing was badgered to unpeg the yuan from the dollar, and to revalue the currency so as to give US exports a competitive pricing edge, but since, US Treasury Secretary John Snow has stated that a strong dollar is in the nation’s interests.

In the meantime, China is buying up Washington’s debt in the form of T-bills; some $200 billion worth.

If Beijing decided to dump US T-bills, perhaps in response to a row over Iran or more likely Taiwan, the US could find itself in trouble.

The question is how far will the dollar dive? If it ever goes into freefall, we may be all in for a bumpy ride ahead.