Iranian Oil Bourse Starts Trading, Sans Dollar Contracts

Follow up to the most-read post of this blog. The Iranian Oil Bourse [IOB] began trading today, according to media reports, most of them Arab sources. This is almost a year later than originally planned.

The first day of trading saw turnover of 100 tons polyethylene. Iran produces 22 million tons petrochemicals annually and claims to be the #2 producer behind Saudi Arabia.

Oil Minister Gholam Hossein Nozari said that trading in crude oil will come at a later stage with no specific date set yet. "The first phase should operate for a while and we should find out its strong and weak points in order to open the second phase. Because the second phase is more complicated," Nozari said.

No Dollars Please, We Are Iranian

The IOB accepts Iranian Rials and a host of other currencies including Russian Roubles, but no Federal Reserve Notes (FRNs). Iran has shifted all its assets out of FRN obligations in order to avoid an arbitrary confiscation by the USA.

Iran's first domestic toehold in oil trading is another blow to the ailing unbacked dollar. As more oil gets traded in other currencies, the demand for FRNs will further reduce.

The USA anxiously follows these developments that could easily spread to other commodities as well, again reducing the demand for dollars as a hitherto unchallenged currency of choice in commodities markets.

There is no sound reason why Euro countries will not prefer to settle their oil bills in their own currency, eliminating forex costs too.

OPEC has declared earlier that it too is looking into other options (OPEC mulls replacing FRNs with a basket of currencies).

The Iranian initiative opens up other scary perspectives. What if Russia and Iran team up and demand Roubles and Rial only for their energy deliveries to the West?

The Rouble has quietly become a hard currency. Russia’s gold and foreign currency reserves stood at a record $481 billion as of last week. That is about half of Japan's forex reserves.

Find more background on the Iranian Oil Bourse here, here and here. The first post has been read more than 50,000 times here and been reposted on more than 130 websites.

Comments

[Georealist]

You're seriously suggesting that the Russian Ruble is a "hard currency?"
Or that the Iranian Rial is a legitimate threat to the US $? How do you know whether the USA anxiously follows these events..or even cares?
This article is third rate hash....and just piles onto the notion the dollar is doomed because of publicity stunts like the Iranian Bourse. A Bourse MUST be based on a currency that can be translated into investments by the holding group. Tell us what you would take Rubles or Rials and invest in taht couldn't or wouldn't be confiscated at will in the countries noted.......well???

[alpha24seven]

Oh please... If the Iranians and the Russians demanded Rubles and Rials for energy delivery then the oil markets will unceremoniously collapse -- on them.

Another thing. This statement "There is no sound reason why Euro countries will not prefer to settle their oil bills in their own currency" is completely ridiculous. Oil is currently priced in USD. This means the Euro zone trades Euros at 1.47 to the dollar to buy oil. This means the Euro zone is currently buying oil at approx 47% discount PB. If oil were to reprice in Euros, the EU would suddenly be forced to buy oil at a huge price increase and would literally overnight cliff their economies. Where do you people come up with this stuff?

[MrLagom]

The russians and iranians are determined to start their own oil exchanges and together break the back of the dollar.

[SVA]

Well, Mr. Georealist, that's true - our stupid Russian government can confiscate your Ruble investments at will - it's a problem, we, former Yukos shareholders, perfectly aware of... But the problem of "quiet confiscation" of our Dollar investments by your super-clever American government is another one, isn't it? Then, why you are so much surprized that the Third World is seeking for an opportunity to spread its risks between the First and the Second ones?

[Merkhava]

I think your insights into the significance and consequences of the Iranian Oil Bourse are spot on. The current policy of the Federal Reserve to devalue the USD amounts to a global taxation upon the foreign nations who have exported real goods to America in return for FRNs. By devaluing the USD almost 40% since Bush took office, America has effective levied a tremondously onerous tax upon its "imperial provinces", aka. trading partners. The formation of the IOB and the Russian economic nationalization out of FRNs into gold and Euros is not only a predictable reaction, but a reasonable foreign response to the neocon agenda of 21st century American Empire. Since the American people are culturally predisposed towards the concepts of individual liberty and national sovereignty, the PNAC agenda is doomed to failure. If the USA quickly recognizes its brief tenure as "Sole Superpower" has run its course and that it must accommodate the new realities of rising powers in the world, then we can all proceed towards a bright future of cooperation and mutual prosperity. But if the neocons foolishly pursue a war against Iran to restore the hegemony of the petrodollar, then the escalating chaos that will come will be horrid beyond control. Such a miscalculation will not strengthen America, but will instead quickly hasten the collapse of its Empire.

[DefendingLiars Writer]

The politics of oil aren't totally captivated in this piece or the alarmism associated with either of these pieces. Consider for a moment that the United States already has a well developed exchange that has been working for a long time. As the largest consumer of energy in the world, the United States is just about everyone's (Russia, Saudi Arabia, UAE, Kuwait, Canada, Mexico, et. al) biggest customer, except Iran given their torrid history.

Consider also that the United States right now can and probably should do is rebalance its markets by creating economic haven's with a national tax credits for energy corporations which would stimulate growth in the energy sector (i.e. foreign and domestic investment) and thus move more dollars from the fleeing Middle Eastern markets to domestic markets, creating jobs, and allowing more favorable foreign investment (i.e. because the dollar is weak). This would increase domestic energy production significantly which we can do easy enough in a 3-5 year plan allowing the U.S. markets to correct themselves more gracefully. It would also normalize the energy trade making America a larger exporter of energy rather than an importer which could fix some of these small problems with people wanting to flee from the dollar.

The third aspect of this is a realignment of U.S. energy policy for conservation efforts. President Bush, to combat this threat took 5 years for the Congress to pass his energy policy but a 20 year moratorium on nuclear power was lifted. Hundreds of upgrade and expansion projects for domestic coal power production was approved and tax credits are given to homes that are embracing alternate sources of energy like wind and solar power. This is smart energy policy. When coupled with more cars using hybrid technology and more cars having access to plugging into their walls in their garage, Americans are embracing this in droves in the face of $4/Gal. gasoline.

The last thing that needs to happen is that the inflation of the currency needs to stop. The economic policies of the Fed right now in the face of the mortgage crisis and the borrowing needs to stop. Americans need to be given more incentives to invest rather than borrow. This should occur with the privatization of social security as the Chilean's have done creating another prudent economic policy that many state agencies have set up for their state employees like Firefighters and Police officers. These investment engines power the investment economy currently in the United States and social security is a drain on the U.S. economy because U.S. politicians can't do it better than Wallstreet---ever.

So all that I have to say is this...take that Iran. Stick this dollar in your Euro-wanting, Rupi-trading, Ruble-exchangin' eye. The question here is what is mightier, the dollar and the American economy or the Iranian exchange? Russia found this out the hard way during the Cold War and adopted a market economy. China learned this the hard way as well now having a MFN trading status with the U.S....300 million people will work harder, smarter and faster than any other people on earth for that almighty dollar...That is the beauty of the American economy.

The real question for Americans here then--- which Presidential Candidate will head the U.S. Energy Department to accomplish these goals and why isn't anyone in the Presidential campaign talking about this kind of stuff that matters to the average American? h-e-ll-oooooh?