Iran oil bourse
http://www.economy.com/dismal/pro/blog.asp?cid=24501
Iran, the Dollar and the Euro
Iran’s antics in its nuclear negotiations and its role in goading
Hezbollah in the current Israeli-Lebanese conflict are hogging all
the attention. However, other news from Iran has gotten less air
time, but is quite interesting. The first is the near completion of
an Iranian Oil Bourse (IOB) being built on the Iranian island of Kish
in the Arabian Gulf, which aims to be the center of oil trading in
the Middle East. Most significantly, this exchange will trade oil in
euros, not dollars. Further, the Iranian president announced this
morning, according to some news sources, that starting in July Iran
would only accept payments for its oil in euros not in dollars. Both
are largely political moves and we do not believe either will result
in a large-scale devaluation of the dollar, as some have predicted.
Still, it is an interesting notion to consider.
Certainly, the price of a euro-denominated barrel of oil has risen by
less than that of a dollar-denominated barrel over the past three
years. This divergence has been more stark this year, as a weakening
in the dollar has helped buffer the euro zone and some other large
consumers, like China, from the full extent of the price increase in
the dollar-denominated price of oil. At such times, talk of a shift
to euro-denominated oil always gains momentum. Recent evidence of
central banks divesting their reserves in favor of the euro affirms
the slow but steady march in this direction.
Still, the Iranian efforts will not change matters significantly.
First, the Iranians will have to construct and operate this
technically challenging exchange and then build up its credibility
enough to attract buyers and sellers for euro-denominated oil
contracts. For a country that can barely keep up its oil production,
this seems a tall order. The threat of sanctions against Iran will
also keep most important players in the global arena wary. Finally,
Iran is not Saudi Arabia; while it has the second largest reserves of
conventional oil, its production levels are still fairly small when
taken on a global basis. Unless Saudi Arabia and the rest of the Gulf
countries jump aboard the petro-euro train, it is difficult to see
this effort posing too significant a threat.