[lit-ideas] Oil for Euros in Iran
- From: Eternitytime1@xxxxxxx
- To: lit-ideas@xxxxxxxxxxxxx
- Date: Sat, 11 Mar 2006 22:12:12 EST
Hi
I think there was a different article that I was thinking of which was more
recent-this one is from OCt. 2005. But, this statement was kind of
interesting in light of the major push of the USA towards Iran...
"One may be reminded that Saddam Hussein had entered into discreet talks
with the EU, proposing to sell his oil for euros. That was in the year before
the first oil war of this century."
Best,
Marlena in Missouri
http://www.atimes.com
SPEAKING FREELY
Killing the dollar in Iran
By Toni Straka
Could the proposed Iranian oil bourse (IOB) become the catalyst for a
significant blow to the influential position the US dollar enjoys? Manifold
supply
fears have driven the price of crude oil to its recent high of US$67.10 -
only a notch below its highest price in inflation-adjusted dollar terms. With
the world facing a daily bill of roughly $5.5 billion for crude oil at current
price levels, it becomes apparent that sellers and purchasers of the black
gold are looking into all ways that could lead to a financial improvement on
their respective sides.
Non-US-dollar holders so far have been the victim of additional transaction
costs in the oil trade. The necessary conversion of local currencies into
oil-buying greenbacks can be considered a hidden tax, charged and enjoyed by
the international banking sector. The IOB, by eliminating this transaction
cost, will become
(http://goldsea.com/GAAN/adclick.php?n=a923457d)
a factor that could unsettle the dollar's dominant position. While the
worldwide bottleneck of inadequate refining facilities and partly dramatic
declines in production - for example in the North Sea - are two factors that
cannot
be eliminated in the short term, there is one area left which could result
in smiling faces of oil producers as well as most buyers.
Oil consumers are entangled in a web of supply fears that span the globe. In
Venezuela, President Hugo Chavez threatens to divert oil supplies from the
US to China, which faces severe gasoline and diesel shortages these days.
Attacks on Iraqi oil installations have slowed exports there. Ecuador's oil
industry is still recovering from a strike, while Nigerian oil companies are
in
the middle of efforts to avoid a strike there.
Until now, oil has been solely priced, traded and paid for in the greenback
on markets in both London and New York. But monthly worldwide oil revenues
of over $110 billion (on a 20-trading-day basis) - a third of which ends up
with OPEC (Organization of the Petroleum Exporting Countries) members - raise
the question of what happens to these cash mountains. According to the most
recent data from the US Treasury Department, OPEC members have parked only a
skimpy $120 billion in direct dollar holdings, which are almost equally split
between equities and American debt paper. This is a clear indication that oil
producers are investing their windfalls elsewhere. The yield spread between
US and EU debt papers in favor of the EU is another hint where the
petrodollars might be heading.
Especially in the case of Iran, it does not make sense to accept dollars
only for its much-desired commodity. Given that Iran is seen as a hostile
country by the current US administration for its intention to build its own
nuclear
reactors, one wonders whether the new IOB will not try to attract buyers
other than Americans. Iran has recently announced that the new oil exchange
will
start up its computers in March 2006.
The proposal to set up a petroleum bourse was first voiced in Iran's
development plan for 2000-2005. Last July, Heydar Mostakhdemin-Hosseini, who
heads
the board of directors of the Iranian Stock Exchange council, said
authorities had agreed in principle to the establishment of the IOB, where
petrochemicals, crude oil and oil and gas products will be traded. The oil
exchange would
strive to make Iran the main hub for oil deals in the region and most deals
will be conducted via the Internet. Experts from London's International
Petroleum Exchange (IPE) and the New York Mercantile Exchange (NYMEX) have
reportedly confirmed the feasibility of the project.
The IOB can count on two sharp arrows in its holster. It can - and probably
will - lure European buyers with oil prices quoted in euros, saving them
dollar transaction costs. And it can strike barter deals with oil-hungry
giants
like China and India who have a lot of products and commodities to offer. One
doubts whether American hamburgers and legal services will be considered
adequate collateral for the world's most after-sought resource.
Worse than an Iranian nuclear attack?
Weaned off the almighty commodity, the US dollar can have a deeper impact on
the US economy than a direct nuclear attack by Iran. The permanent demand
for dollar-denominated paper stems substantially from the fact that until now
almost all resources of the world are quoted in it. While this led to the
eurodollar (US dollar-denominated deposits at foreign banks or foreign
branches
of American banks) market in the 1970s, the new terms of trade could ring in
the demise of the dollar as the premier reserve currency.
With the world economy depending so much on oil, the black gold itself can
be seen as a reserve currency that will be handed out against only the best
collateral in the future. Last month, the Federal Reserve Bank of San
Francisco
published a paper about the progress of the diversification of central
banks' reserves around the world. It concluded that the dollar's position is
on
the decline in many countries. China, the new industrial giant, has officially
declared that it will diversify a part of its forex holdings into oil by
building a strategic petroleum reserve. Construction of storage tanks has
begun
this year and will take several years until completion. China has not yet
said how many barrels of oil it wants to store. The implications for the oil
market can only be guessed as China wants to use its future reserves to smooth
out spikes in oil price.
Iran holds a strong hand as the No 2 producer of crude behind Saudi Arabia,
pumping 5% of the world's oil demand. Politicians there will also keep in
mind that dollar deposits might become a burden in the future, if the US steps
up its current war of words to the level of economic sanctions in the attempt
to halt construction of Iran's nuclear power plants. Money in the bank does
not help when you have no access to it. Substituting Iran's domestic oil
demand partly with nuclear power will place the country in a win-win
situation.
Cheaper nuclear energy and increases in oil exports from the current level of
roughly 2.5 million barrels a day will result in a profitable equation for
Iran.
Only one major actor stands to lose from a change in the current status quo:
the US, which with less than 5% of the global population, consumes roughly
one third of global oil production. Oil in euros would benefit millions more
in the EU and its trading partners, though. And it would loosen the grip the
US has on OPEC members. Thinking of the rapid growth of hostilities between
the US and Arab nations in recent years, a renunciation of the dollar appears
to be more than just an Arab daydream.
As this development poses a very real danger to the superior status of the
greenback and the interests of the US, the "president of war" can be expected
to take a strong line against the winds blowing from the Middle East. One
may be reminded that Saddam Hussein had entered into discreet talks with the
EU, proposing to sell his oil for euros. That was in the year before the first
oil war of this century.
The IOB could help the euro to become the interim primary reserve currency
before China and India rise to the first two slots in the global economic
ranking in the next few decades. A decline of the dollar's position in oil
trading might also open the floodgates in other commodity markets where the
dollar
is the medium of exchange but where the US has only a minority market share.
A global economy driven by tough efficiency demands in the light of thin
profit margins almost everywhere is a good primer for accounting changes in
other commodity markets as well. This process could begin in resources like
steel
and energy and spread to all other resources that are marketed globally. The
world outside the US has a lot to gain from it.
Toni Straka is a Vienna, Austria-based independent financial analyst and
portfolio manager, who worked as a financial journalist for over 15 years and
now evaluates global market trends. He runs a blog, _The Prudent Investor_
(http://prudentinvestor.blogspot.com/) , where this piece first appeared.
(Copyright 2005 Toni Straka)
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