TEHRAN, Iran (AP) — Iran, OPEC’s second-largest producer, has stopped conducting oil transactions in U.S. dollars, a top Oil Ministry official said Wednesday, in a concerted attempt to reduce reliance on Washington at a time of tension over Tehran’s nuclear program and suspected involvement in Iraq. Iran has dramatically reduced dependence on the dollar over the past year in the face of increasing U.S. pressure on its financial system and the fall in the value of the American currency. Oil is priced in dollars on the world market, and the currency’s depreciation has concerned producers because it has contributed to rising crude prices and eroded the value of their dollar reserves.
“The dollar has totally been removed from Iran’s oil transactions,” Oil Ministry official Hojjatollah Ghanimifard told state-run television Wednesday. “We have agreed with all of our crude oil customers to do our transactions in non-dollar currencies.” Iranian President Mahmoud Ahmadinejad called the depreciating dollar a “worthless piece of paper” at a rare summit last year in Saudi Arabia attended by state leaders from OPEC countries. Iranian oil officials have said previously that they were shifting oil sales out of the dollar into other currencies, but Ghanimifard indicated Wednesday that all of Iran’s oil transactions were now conducted in either the euro or yen.
If the current administration is looking for an excuse to invade Iran, this may just be it.
Thanks Chris Vallee.
Every once in a while a miracle occurs, and in this case it is Bill O’Reilly saying something that makes sense. See #37 above.
We’ve got problems.
JVP (#31) and bobyrne (#18 & #27) have it right.
Some years ago I used to work at the Trade Department of a Bank dealing with Documentary Credits for the purchase of oil (my dept. was dealing with Russian oil but the way oil trading works applies to Iran oil as well).
When a European firm wants to buy oil, it contracts at the current world markets price which is expressed in USD. Then, to cover itself against exchange risk exposure, it takes out a foreign exchange contract or option. Basically it agrees now, what price it will pay in Euro for a set amount of USD at a future date. (Other options such as swaps exists but are too complex to analyze here).
If they can agree the purchase of oil in Euro directly with the seller, then (a) they save the exchange commissions and (b) the save the forward contract/option fees. Furthermore, they have no exposure to any adverse foreign exchange movements.
Basically this means that oil will be slightly cheaper for European oil trading companies (although I doubt that the savings will truly reach the consumers).
Trading oil is a very complex procedure. Oil may be loaded in a tanker bound for Europe, but the ownership of the oil might change multiple times (10-12 is not uncommon) during the voyage.
USA does not buy oil from Iran and very little of the Arab oil reaches the US. USA buys oil from countries like Nigeria and Canada which have an advantage in transport costs.
Arab oil is mainly exported to Europe and Asia (think China and Japan).
What matters is that the price of oil is set globally; if the price of Arab oil gets higher, Nigeria and Canada will increase their price in step with the global market.
If a domino effect takes place and more countries demand Euros in exchange for oil, this will spell trouble for the US economy.
At the same time this is not so good for the European economy; it will lead to the Euro becoming a harder currency, which will create additional inflationary pressures.
Control of inflation and price stability is the main purpose of the European Central Bank; I doubt if AT THIS MOMENT, with the USD trading so low, they would welcome the switching of the oil trading from USD to EUR. If USD was trading higher I do not doubt that they would welcome such a move.
I don’t care at all about rising gas prices. I’ve been buying my gas at the same price for years. I always just stop filling my tank when the meter shows 40 Euros. It’s as simple as that!
ok, ok, Iran blah,blah,blah. What I did notice is that Iran advocated a ‘basket of currencies’ for pricing instead of another single currency. I would have expected the Euro. Apparently this idea didn’t get much support in OPEC.
I have no doubt Iran will do anything it can to mess with the U.S. There is no love lost between our governments. Especially since he’s the same age as the students that took over the Embassy. Can you imagine that happening today???
If there was going to be a war with Iran, it would have happened already. They could have used the military involvement as an excuse. Instead, they appear to be capitulating on nuclear power.
But go ahead and keep predicting a war with Iran every few months. Maybe someday you’ll be right.
Hey, I thought we were going to war with Venezuela for dropping the dollar?
And now Drudge has a report that Kuwait might drop the dollar with the rest of the gulf states. I guess war is on with Kuwait then?
#40, please explain why I should care. It’s not like oil prices are a fixed number of dollars, in which case we would have an advantage.
Hey they are a business, and they are playing hardball with their customers. this country shoudl be familiar with that, it lets companies wreck havoc with it’s consumers. I am just glad I fixed my vespa earlier tonight. Hello 70 mpg
#48, MikeN
You should care because the dollar’s status as a reserve currency is a huge benefit to the US economy.
Consider: whenever anyone in Europe wants to buy oil, they are effectively selling Euro to buy Dollar with which to buy the oil. That is a constant flow of value from the Euro to the Dollar. (and the same goes for almost every currency in the world).
If that flow were to be interrupted, by European companies and countries buying oil in Euro, that would adversely affect the exchange rate between those two currencies. The value of the dollar would fall relative to the Euro. (and again, the same goes for any other currency that can bypass the exchange to dollar to buy oil).
As the value of the dollar falls the cost of all imports rises, the trade deficit worsens, and the US economy as a whole suffers.
So they get dollars, and our treasury is filled with Euros. These currencies are units of measurement. The dollar falls when the government prints too many.
this is a very bold step taken by the Irani president Ahmadinejad, hes our hero! to hell with dollar and USA!!
#51–Muslim==this item is 8 months old. So your assessment should be in by now. How’d that go for yah? ((Don’t care enough to find out if he “actually” did it.))
#52 Like any good muslim extremist, this guy is going backwards in time. That’s why he just noticed this old piece of news on his way to the middle ages.
Iraq Oil Trade will enable the dinar to become a widely traded currency. As more and more foreign countries buy oil from Iraq, more and more dinars will be in demand.
Iraq must protect its oil trade. It affects everything.