Iranian Oil Bourse And The Dollar
Is there any new info on Iran’s plan to open their own oil exchange? I thought it was supposed to happen already. What’s going on?
Q. Is there any new info on Iran’s plan to open their own oil exchange? I thought it was supposed to happen already. What’s going on?
A. The Iranian Oil Bourse, or IOB, was first scheduled to open on March 20, and then on May 20, but so far it hasn’t officially opened yet. Even so Iran is already selling oil for Euros.
Up to this point, main stream analysts have brushed aside the importance of the IOB as a “Leftist-Internet” conspiracy theory unworthy of further consideration. Now, the Associated Press has clarified the issue showing that an Iranian Oil Bourse “could lead central bankers around the world to convert some of their dollar reserves into euros, possibly causing a decline in the dollar’s value.”
In fact, since April the dollar has lost 5% of its value against the Euro and continues to decline, as China, Japan, Russia, Sweden, and some Middle Eastern countries gradually move away from the dollar towards the euro.
The Iranian Oil Bourse will not only reduce the power of IPE (London) and NYMEX (New York), currently the only official oil exchanges, it will also influence the exchange rate between dollars and euros. If oil becomes cheaper in euros, there will be a rush on euros. And of course, that means some dumping of dollars. The US and EU both see the IOB as a risk.
According to some experts, there are practical reasons to see the Iranian threat is an empty one. Iran is not a very attractive site for a market, given the volatile nature of its politics, the U.S. sanctions against it and the lack of a fair legal system. Also, there is no indication that the European Union is interested in becoming the world’s central bank, which requires a willingness to run large currency deficits.
For the U.S., becoming the world’s reserve currency has meant allowing cheap imports to undermine the strength of some major industries, including textiles, autos and electronics manufacturing, and contributes heavily to our enormous trade deficit.
But now Russia has jumped on 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. And Venezuela is said to be mulling over whether to follow suit.
Together Iran, Venezuela and Russia control 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.
The above is a summary of articles I’ve collected from various sources since March. When I first wrote about it, I said this attack on the dollar could take a while to materialize. It now looks like we’re beginning to see the initial impact.
