Iran to base oil revenues on Euros

[J]

Bloomberg news blurb

Iran to Calculate Oil Revenue in Euros, Not Dollars (Update1)

By Ladane Nasseri and Marc Wolfensberger

Dec. 18 (Bloomberg) -- Iran, the world's fourth-largest oil exporter, will calculate its fuel and other overseas revenue in euros rather than dollars, the Oil Ministry said.

``All oil and foreign revenue will be calculated in euros,'' the ministry said in a report released through its in-house press agency Shana. ``It has also been decided that future accounts of various executive organizations will be based in euros.''

Iran has repeatedly said it would increase use of euros in international trade. Hojatollah Ghanimifard, executive director for international affairs at National Iranian Oil Co., the state- run monopoly producer, reaffirmed today all its sales contracts are still quoted in dollars. The U.S. is pressing the UN to impose sanctions against Iran because of its nuclear program.

The statements from Iran are ``not very clear,'' said Amelia Torres, spokeswoman for European Union Monetary Affairs Commissioner Joaquin Almunia, in a daily briefing in Brussels.

Iran's Central Bank Governor Ebrahim Sheibany didn't return calls seeking comment. Deputy Governor Mohammad Mojarrad's office said he was out of the country and couldn't take questions.

National Iranian Oil President Gholamhossein Nozari, who last week said Iran was selling 57 percent of its crude in euros, wasn't available to comment, his office said.

The Tehran Times on Dec. 6 said Iran had started switching euros for dollars in its oil sales, citing an unidentified person at the Oil Ministry. Iran Daily reported Iran wanted to cut its dollar-based transactions to a minimum, citing Minister of Economy Davoud Danesh-Ja'fari.

Euro Clause

The country's oil-export contracts for months have included a clause that allows the nation to seek payment in the euro and other currencies.

``All our contracts are based on dollar quotations,'' said Ghanimifard in Tehran. ``Banks of the buyers and sellers can arrange for the payment to be in any other currency.'' He declined to comment on the share of Iranian oil that's paid for in euros.

The dollar has slipped 9.5 percent against the euro this year and may weaken further as oil producers including the United Arab Emirates, Venezuela and Indonesia plan to put more of their funds into the European currency.

Banco Central de Venezuela has slashed the percentage of its $35.9 billion worth of reserves invested in dollars and gold to 80 percent from 95 percent a year ago, said Maza Zavala.

The country, the world's fifth-largest oil supplier, has boosted its euro holdings to 15 percent, from less than 5 percent in the same period.

Bank Indonesia is boosting euro holdings, said Senior Deputy Governor Miranda S Goeltom in a Dec. 13 interview in Jakarta. Indonesia has $39.9 billion in reserves. Sultan Bin Nasser al- Suwaidi, the governor of the Central Bank of the UAE, last month said he was considering when to shift as much as 8 percent of the nation's $24.9 billion in reserves into euros.

So you're probably wondering about the significance of this. For many years now, almost all oil transactions on the market have been based on the US dollar, which is great for the US and pretty unfair for oil exporting countries. By keeping the value of its currency fairly low, the US has been able to buy oil for bargain prices while producers get shafted, and with the continued and accelerating decrease in value of the USD in recent years, the producing countries are getting into a bad financial situation.

Ever since the Euro established itself as a legitimate currency for international trade, there have been quiet talks and mumblings in OPEC to use the Euro as the new currency for conducting trade in oil. In recent years they've experimented with the Euro, just a few small accounts to test out the market. Now Iran, one of the founding OPEC members and among its most influential has decided to make a wholesale switch to Euros, and it's quite possible that other members will follow. If that happens and the world's oil is traded in Euros instead of greenbacks, things will become very interesting.

[SirNitram]

Every major commodity which moves from the Dollar to other currencies makes the dollar a little creakier.

[J]

With oil being the most actively traded commodity in the world markets a shift to the Euro will have ugly effects on the US dollar. I don't think we'll see total financial ruin, but a fall in US markets similar to the one following 9/11 is quite possible.

[Stark]

I don't really understand economics, but how much of a currency's value is based on what people trade in it? I mean, the US would still be economically powerful without people using dollars to trade oil, wouldn't it?

[SirNitram]

I don't really understand economics, but how much of a currency's value is based on what people trade in it? I mean, the US would still be economically powerful without people using dollars to trade oil, wouldn't it?

Here we enter into the strangest part of economics: Where a currency is strong because people think it's strong. It's bizarre, but that's currency valuation at it's least complex. A big part of what's made the dollar strong is that it's the currency for transactions. As that whittles down, it's value will be questioned.

[Stark]

Ah, so people want to buy dollars to trade in oil, which drives up it's value across the board? Heh, I wasn't thinking of 'dollars' as like any other commodity.

[Lord Zentei]

I don't really understand economics, but how much of a currency's value is based on what people trade in it? I mean, the US would still be economically powerful without people using dollars to trade oil, wouldn't it?

The US would indeed still be powerful if people stopped trading in dollars, since its internal production is second to none. However though, the strength of the dollar is dependant on its popularity and influence. If enough people dumped the dollar, that could lead to problems for the US, moreso since there are large amounts of dollars in circulation abroad.

[Lord Zentei]

Well, looks like I was too slow on the draw, there.

[SirNitram]

Ah, so people want to buy dollars to trade in oil, which drives up it's value across the board? Heh, I wasn't thinking of 'dollars' as like any other commodity.

You have to remember that dollars.. Indeed, all money.. Functions as a placeholder. It's an extremely useful placeholder, it makes civilization work, but when you say 'I'll sell you this barrel of oil for sixty dollars' you're also saying 'I'll buy those sixty dollars for this barrel of oil'. The equation works both ways.

[TheMuffinKing]

The solution for the U.S. would be to adopt the Euro as currency, thus undercutting any money based schemes and sticking it to the whole world...

[TheMuffinKing]

Ghetto edit: There's been speculation on this very situation for the past four or five years if I remember correctly!

[aerius]

The solution for the U.S. would be to adopt the Euro as currency, thus undercutting any money based schemes and sticking it to the whole world...

That's about as likely as Canada invading the US and making them into our 11th Province. Most Americans are apathetic idiots, but they will riot and string up the government from lamp posts if they dared to fuck with the greenback.

[TheMuffinKing]

The solution for the U.S. would be to adopt the Euro as currency, thus undercutting any money based schemes and sticking it to the whole world...

That's about as likely as Canada invading the US and making them into our 11th Province. Most Americans are apathetic idiots, but they will riot and string up the government from lamp posts if they dared to fuck with the greenback.

When it gets right down to it, I'm sure some sort of propaganda blitz will change my fellow citizens minds. You're probably right though, I have given my fellow citizens too much credit before.

[Spin Echo]

Ever since the Euro established itself as a legitimate currency for international trade, there have been quiet talks and mumblings in OPEC to use the Euro as the new currency for conducting trade in oil. In recent years they've experimented with the Euro, just a few small accounts to test out the market. Now Iran, one of the founding OPEC members and among its most influential has decided to make a wholesale switch to Euros, and it's quite possible that other members will follow. If that happens and the world's oil is traded in Euros instead of greenbacks, things will become very interesting.

I remember rumblings of Russia considering switching over its oil revenues from dollars to euros. Did anything ever come of that?

[K. A. Pital]

I remember rumblings of Russia considering switching over its oil revenues from dollars to euros.

Yeah. Still want to. But then, we decided to open a rouble-based oil exchange in the SCO-Europe space to trade oil.

Most oil producers know that the dollar will have problems if exchanges in other currencies start popping up. The US has spammed the world with dollars in outrageous amounts, so if other currencies start to take it's place on oil exchanges, it won't be good... for the US.

[Alan Bolte]

What effect do you think this will have on countries which own a lot of our debt? I assume our debt is counted in dollars, rather than the currency of the holding country.

[Lord of the Abyss]

Ghetto edit: There's been speculation on this very situation for the past four or five years if I remember correctly!

I recall that. I remember some people claimed that the reason that Bush wanted to invade Iraq right now was because Saddam was considering going to the euro for his oil transactions. True or not, the idea has been kicking around at least that long.

[Stuart Mackey]

What effect do you think this will have on countries which own a lot of our debt? I assume our debt is counted in dollars, rather than the currency of the holding country.

I havent seen the figures but I think that a lot of US debt is held by Asian countries particult China and Japan, major markets for the US and athe world as well as OPEC. I think the question will be if OPEC nations switch to the euro for trading purposes in oil what will that do to worldwide confidence in the US Dollar and economy as a whole.

[Surlethe]

Ah, so people want to buy dollars to trade in oil, which drives up it's value across the board? Heh, I wasn't thinking of 'dollars' as like any other commodity.

To get in the frame of mind to consider currency like a commodity, think of inflation: it's when the value of the currency drops because the supply increases too much. Value can also decrease because of decreased demand, and if, e.g., the supply of dollars is high (like international quantities of US currency right now), the people holding the dollars will sell them off for other, more stable units of currency. This results in a downward spiral as the demand drops precipitously and people try to get rid of their holdings. Of course, this is a worst-case scenario, but you get the idea of how bad it could be.

[K. A. Pital]

Of course, this is a worst-case scenario

Routinely happens with less stable types of money. Why the US should be an exception? Or you think that capital flight from the US is not possible once the country's currency is ruined?

[TheDarkling]

Of course, this is a worst-case scenario

Routinely happens with less stable types of money. Why the US should be an exception? Or you think that capital flight from the US is not possible once the country's currency is ruined?

The US would just quickly jack up the interest rate on the Dollar, of curse this would in turn means that everybody's borrowing in the US would be more expensive (especially bad news for the US government which has a rather large debt and is constantly issuing more to cover it).

The main issue is whether people see it coming, assuming OPEC wanted to kick the US in the teeth (and given the huge amount of holdings the Saudi's have in Dollars and Dollar delineated assets I don't see much reason for them to do so, unless they decided to sell them off as well which would be a crisis in and of itself) they would spring it in a bolt from the blue and things would go wild for a time (stock markets plummeting, bonds becoming worthless, dollars becoming extremely cheap as banks flog their reserves in favour of Euro's) but things would stabilise after awhile.

The end result would be dollars having a much higher interest rate, the cost of borrowing increased in the US (with a fair degree of extra debt already taken on during the crisis) and the markets taking a nose dive.
On the other hand the worlds other markets (principley the European ones) would see massive investment, governments being able to print extra currency to write off some debt, decreased cost of borrowing and a currency that can have a much lower interest rate.

In essence the "unfair" advantage the US has had since the war would be mostly stripped away and the US would have to compete on an even playing field with everybody else (which is bad news considering the state of the US).

It is possible to envision a doomsday scenario where the US really ends up in the toilet, economic being about belief can be self feeding, but I think the US government should be able to get in front of the train and switch the tracks.

[haard]

I think the US government should be able to get in front of the train and switch the tracks

Invade Iran, anyone?

[LaCroix]

Sorry, but if I remember the statistics right, the increase in intrest would certainly bring whole districts to poverty. Especially in the "creditcard and loan" population that covers a lot of the US (and Europe, too).

Also, raising the intrest rate of the dollar would cause a MAYOR financial problem, since there is a lot of foreign investment...

Thus, taxes would have to be raised.

Well, I am awaiting the sabre-rattling against Iran to intensify right now.

[Jadeite]

I think the US government should be able to get in front of the train and switch the tracks

Invade Iran, anyone?

Well, if we just trash their refineries, we collapse their economy, and therefore they won't be doing any trading in Euros because they won't be selling oil. It'd make a nice example out of them as well.

[SirNitram]

I think the US government should be able to get in front of the train and switch the tracks

Invade Iran, anyone?

Well, if we just trash their refineries, we collapse their economy, and therefore they won't be doing any trading in Euros because they won't be selling oil. It'd make a nice example out of them as well.

Accelerating the move to catastrophic oil prices, instigating more violence against the West by confirming all Iranian propaganda, and ushering in another complete failure of a war.

What a brilliant plan, Jadeite. Say, you ever going to substantiate any of the stuff you've claimed on subjects like this?