Dollar Danger: Iran's Oil Bourse Steps Up Activity

As Obamacare dominates the American lamestream media, the fundamentally most important news for oil and the dollar was to be found first in the Tehran News on October 27. The Iranian Oil Bourse was finally inaugurated last Monday, after such a statement was already made in February 2008, leaving room for confusion.

According to the Tehran Times:

The Iranian Oil Bourse was inaugurated on Monday in the Persian Gulf island of Kish as a venue to export oil and petrochemical products.

National Petrochemical Company's Managing Director Adel Nejad-Salim said in the opening ceremony that all petrochemical products will be gradually offered on the market, IRNA news agency reported.

The oil bourse is intended as an exchange market for petroleum, gas, and petrochemicals in various currencies, primarily the euro and Iranian rial, and a basket of other major currencies.

On February 4, 2008 the Iranian Cabinet approved the creation of the oil bourse in two stages - first for crude and second for oil byproducts transactions.

Iran, having the world’s second largest gas reserves and third largest oil reserves, is trying to play a more active role in oil and petrochemical transactions in international markets.

These reports show that Iran is far slower progressing in its strategy to shift its oil trade from Federal Reserve Notes (FRN) to other currencies, predominantly the Euro. Iran has been selling oil in long term contracts to European buyers in Euros. Read this report from April 2006 on the Iranian Oil Bourse here that described a much more dynamic timeline.

OPEC members are required to settle oil trades in FRNs but most member states recognize the vulnewrable position of FRNs as the world's reserve currency. Any decrease in demand for FRNs will hurt the whole world - and there will be no painless way out of the current mega-giga-mess.

Comments

[Chris Cook:]

It's interesting to see this meme is still around.

The Iran Oil Bourse was my idea, back in 2001, although the idea then was for a Middle Eastern benchmark price and exchange. In 2004 - once the Saudis withdrew initial opposition - I was asked to put together a consortium for what became known as the Iran Oil Bourse.

It became clear over a couple of years that the Oil Ministry was quite happy with existing oil trading arrangements and the project was quietly neutered and kicked into the long grass (well there isn't much grass on Kish). It is essentially a mechanism for registration of spot petrochemical deals, and nothing more.

As for the currency of transactions - that was not even remotely a consideration at the time I was involved, and has only assumed prominence in Iran since the current meltdown. Although it was the subject of Internet myth and conspiracy theory before then, most of the Iranians who called the shots were quite happy with the dollar.

There are IMHO two principal reasons why Iran has got out of the dollar:

Firstly, dollar balances are increasingly subject to US sanctions.

Secondly, the Iranians are far more US friendly than press coverage would have us believe, although they greatly distrust the Brits, and I don't blame them. But the Lehman collapse was an event which has irreversibly damaged their faith in the dollar.

In that context it was a subject of much amusement in Tehran last October, when I met several of the relatively few economic decision makers, that the financial sanctions aimed at damaging Iran had actually been instrumental in protecting them from the credit crunch.

Nov 01 09:08 AM

[Old Trader:]

Mr. Cook,

Is the Iranian mistrust of the British due to the fact the Brits were the main Western influence in the region for a greater period of time than the US, in your opinion?

Nov 01 09:30 AM

[User 357705:]

This action by Iran is the real reason Duhmerica is hell bent on attacking Iran.

Nov 01 12:28 PM

[Dave Wrixon:]

They don't need to mistrust the Americans, they know they will do them over!


On Nov 01 09:30 AM Old Trader wrote:

> Mr. Cook,
>
> Is the Iranian mistrust of the British due to the fact the Brits
> were the main Western influence in the region for a greater period
> of time than the US, in your opinion?

Nov 01 12:35 PM

[Darrell:]

I don’t think that the Iranian Bourse would have open for business if the owners did not think they could make a profit operating the business. Being in the digital age, and being located in an area where most of the world’s oil and gas is produced, one wonders why it told them so long to begin the business.

I wish them the best.

Nov 01 01:17 PM

[Chris Cook:]

@Old trader

Clearly the distrust has historical roots in respect of Perfidious Albion which go back a long way.

I think the US has tended to be more open in their self-interest - at least in terms of energy security - than the Brits. Even though I am a Brit myself, I recognise that if there were an Olympic gold medal for dissimulation and hypocrisy, we would win it out of hand.

@User 357705

I think that the US, under Bush, fully intended to bring democracy to Iran, after Iraq. Real Men Go To Tehran etc etc

But post Fallujah they recognised their mistake, and the 'nuclear threat' (not visible anywhere before Fallujah) was created as a justification for a strategy to bomb Iran (but not its oil fields) back to the Stone Age, leading to regime change at best and a failed state at worst.

I think that in mid 2007 the Chinese asserted themselves for the first time, and pulled the plug on Bush's adventurism. I see that point as the "Suez Moment" for the US. ie In the same way that a US threat to pull the economic plug forced the Brits and French to pull out from Suez, so the Chinese probably 'persuaded' the US to give up any idea of bombing Iran.

So in summary the US will not bomb Iran - period - without Chinese agreement, I think, which would only be forthcoming if the Iranians went mad. And whatever the propaganda view of Iran may be, my view, having met some of the Iranian decision makers, is that the top level Iranians are anything but mad.

So to bomb Iran that leaves only Israel, and - putting the issue of US permission/approval to one side - I think it suits Israel to demonise Iran, to distract from their settlement agenda, in the same way that it suits Ahmadinejad to demonise Israel as a distraction from a failing economy.

Nov 01 02:13 PM

[adan:]

there's been numerous articles, check out mish on minyanville for example :

www.minyanville.com/ar...
"Ten Reasons to Ignore the Hype Over Secret Oil Meetings"

and

www.minyanville.com/ar...
"Why Would Anyone Want to Hold Dollars?"

that seem to present a good argument why whether iran prices its oil in dollars or euros actually matters that much - interesting perspective....

besides, all those value swings that may be caused by wild price swings in oil, wouldn't that then affect the "new" currency of choice? i don't know, but i wonder....

Nov 01 02:45 PM

[Keer-eh Khar:]

Down with the Theocratic Fascist mullah turds regime in Iran!
Long live secular democracy in Iran!

Nov 01 07:55 PM

[Gary A:]

Ah, Fallujah, the hidden massacre. Just another war crime from Bush and Cheney. I agree that China has put the breaks on. If their oil gets disrupted, they will sell treasuries like no tomorrow. And if there is to be a world recovery, China is crucial to that recovery.

On Nov 01 02:13 PM Chris Cook wrote:

> @Old trader
>
> Clearly the distrust has historical roots in respect of Perfidious
> Albion which go back a long way.
>
> I think the US has tended to be more open in their self-interest
> - at least in terms of energy security - than the Brits. Even though
> I am a Brit myself, I recognise that if there were an Olympic gold
> medal for dissimulation and hypocrisy, we would win it out of hand.
>
>
> @User 357705
>
> I think that the US, under Bush, fully intended to bring democracy
> to Iran, after Iraq. Real Men Go To Tehran etc etc
>
> But post Fallujah they recognised their mistake, and the 'nuclear
> threat' (not visible anywhere before Fallujah) was created as a justification
> for a strategy to bomb Iran (but not its oil fields) back to the
> Stone Age, leading to regime change at best and a failed state at
> worst.
>
> I think that in mid 2007 the Chinese asserted themselves for the
> first time, and pulled the plug on Bush's adventurism. I see that
> point as the "Suez Moment" for the US. ie In the same way that a
> US threat to pull the economic plug forced the Brits and French to
> pull out from Suez, so the Chinese probably 'persuaded' the US to
> give up any idea of bombing Iran.
>
> So in summary the US will not bomb Iran - period - without Chinese
> agreement, I think, which would only be forthcoming if the Iranians
> went mad. And whatever the propaganda view of Iran may be, my view,
> having met some of the Iranian decision makers, is that the top level
> Iranians are anything but mad.
>
> So to bomb Iran that leaves only Israel, and - putting the issue
> of US permission/approval to one side - I think it suits Israel to
> demonise Iran, to distract from their settlement agenda, in the same
> way that it suits Ahmadinejad to demonise Israel as a distraction
> from a failing economy.

Nov 01 09:02 PM

[Dave Wrixon:]

You would still have it if the Americans had not put the Shah in power.


On Nov 01 07:55 PM Keer-eh Khar wrote:

> Down with the Theocratic Fascist mullah turds regime in Iran!
> Long live secular democracy in Iran!

Nov 02 05:01 AM