Iranians To Commence Quoting Oil In Euros

#1
From the "Mehr News Agency."

"The Chairman of the Majlis Energy Commission, Kamal Daneshyar said here, on Friday, that preparatory measures have been taken to sell oil in euros instead of dollar, adding that such a measure is quite positive and should be taken as soon as possible.
Speaking to the Persian service of Iranian Students News Agency (ISNA), he went on to say that Iran should at the first phase sell its oil in both Dollar and Euro, and then gradually move toward Euro as the mere source.

"As for the probable consequences of such a decision, Daneshyar said that when such a measure is taken, the United States would soon realize that it is not the one who can always inflict economic damages on the Islamic Republic and that Iran can also get even with it."


"Preparatory measures taken to sell oil in euros"
http://www.mehrnews.com/en/NewsDetail.aspx?NewsID=260851
 
#4
Iranians To Commence Quoting Oil In Euros

So what?

To you and me, it makes fcuk all difference whether they quote the price of oil in dollers, euros or plutonian zobs!

For the Iranians Energy Ministry, it means they will either have to a) constantly keep changing the price (in euros) of their oil if they want it to remain at a constant price compared to others, or, b) they accept that the price of their oil will fluctuate compared to others and sometimes be lower, and sometimes higher priced. Doesn't affect me!

International oil traders will have to keep a very slightly closer watch on international exchange rates, but will be happy to do so if the Iranians choose (b) as they have more scope for making a quick profit. Doesn't affect me!

The European Central Bank will have to take note of the increase in demand for Euros (assuming the Iranians demand payment in Euros rather than just pricing in Euro and accepting any other form of payment). Doesn't affect me!

Oil purchasers who ONLY use dollars will have a slightly higher cost due to having to buy euros from a bank (assuming the Iranians demand payment in Euros rather than just pricing in Euro and accepting any other form of payment). How many oil companies ONLY trade in dollars? Last time I filled up, they accepted pounds in the UK and Euros in Belgium et al. Doesn't affect me!


It's a nice little political (and propaganda) stunt that lloks good on paper as it appears to thumb a nose to the septics, but in reality just increases the work or worry factor for themselves.

Mind you, it would be damn good sport if Venezuela decided to price their oil in pesos, the Saudis in riyals and the Iraqis in dinars!!!! :)
 
#6
merkator said:
Iranians To Commence Quoting Oil In Euros

So what?

To you and me, it makes fcuk all difference whether they quote the price of oil in dollers, euros or plutonian zobs!
true working in stirling it will have little real impact. However to european oil traders with multimillion dollar/euro deals the implications of euro operations are that european oil traders will no longer have to worry about exhcnage rate risk and the associated cost of hedging their investments against it.

for the EURO itself it makes the currency a viable reserve currency and the ECB a far more important player in oil transactions consequently the value of the currency can be set to optimise the eurozone economy without having to worry as much about the impact on fuel import costs.

at present for a country to purchase oil they first have to acquire dollars, either by exchanging them for goods, buying them with another currency or borrowing them.

and much like we all do with banks first you have to put your money into them before you can take it out, so effectively what they are doing is giving valuable materials to america in return for pieces of paper which have zero intrinsic value.

now think about that for a moment.. it's like setting off to tescos to buy some groceries but first having to stop off at sainsburies to trade your gold necklace in for a few pieces of paper which you need in order to buy the groceries.

you (oil buyer) swapped a gold necklace for groceries tesco (oil seller) swapped groceries for pieces of paper and sainsburys (US treasury) swapped a few bits of paper for a gold necklace.

tell me who in that transaction above made the most profitable exchange?

what's more whenever the US wishes to buy oil all they have to do is print more dollars. they are effectively producing something with no intrinsic value and exchanging it for something with real value.

To then change to euro only oil dealing means the US will have to exchange something of value to get the euros to buy the oil.
given that the dollar would no longer be reserve currency in this scenario then it's value would rapidly collapse and the result would be an economic double whammy on the US. not only would they no longer get any valuables for their worthless pieces of paper but furthermore they would also have to give up items of value to europe in order to obtain 'worthless' pieces of paper to buy oil.
 
#10
invited said:
true working in stirling it will have little real impact. However to european oil traders with multimillion dollar/euro deals the implications of euro operations are that european oil traders will no longer have to worry about exhcnage rate risk and the associated cost of hedging their investments against it.
See my point above. Are the Iranians planning to 'float' the price of their oil by setting a Euro rate and sticking to it, or will they simply try to peg the euro price to the doller price per barrel? The former is by far the more logical. But who will want to buy Iranian oil if it gains in price, relative to a barrel priced in dollars? Quoting in Euros has both advantages and disadvantages to the Iranians - and it is upon them that most of the burden (work and worry) will surely fall.

Don't get me wrong, I accept most of your analysis. It's just that you're unable to see the wood for the trees.

1. You write that the oil purchaser has to buy dollars in order to buy oil. True. Now he may have to buy Euros to buy oil. What's the difference for anyone outside the Eurozone - UK included?

2. You don't have to have a dollar account with a US bank to buy dollars any more than you have to have a Euro account with a European bank. In effect, your Tescos and Saisburys analogy is valid, but doesn't necessarily benefit the US exclusively when the currency in question is the dollar. Nor will it benefit exclusively the Eurozone if Iran sells in Euros.

3. But who buys oil. The majority is bought by multi-national corporations (via oil traders) who then sell on to other multi-national corporations or Joe Bloggs like you and I. These multi-national corporations (and oil traders) are well versed in foreign currency transactions. SHifting a bit of their business from doller to euro is hardly a seismic shift in business practice!

4. And finally, if the US had to buy ALL it's oil in Euros (as you try to suggest), I'm pretty sure it could well get pretty pi$$ed off, but as has already pointed out, the country that is making this proposal is off-limits to them anyway!

So, all in all, your points are valid and correct, but have far, far less impact than you believe.
 
#11
merkator said:
1. You write that the oil purchaser has to buy dollars in order to buy oil. True. Now he may have to buy Euros to buy oil. What's the difference for anyone outside the Eurozone - UK included?

4. And finally, if the US had to buy ALL it's oil in Euros (as you try to suggest), I'm pretty sure it could well get pretty pi$$ed off, but as has already pointed out, the country that is making this proposal is off-limits to them anyway!

So, all in all, your points are valid and correct, but have far, far less impact than you believe.
I suspect the gesture is more symbolic-like alot of things the Iranian PM does.

However, there may be a move away fromthe dollar as the reservecurrency of choice. Your points about itrrelevence of currency are true as long as exchange rates aren't moving. However, the US currently gets a free ride because its the international reserve currency. If the US devalues (which it has as the dollar has slid) everyone holding dollars, or goods priced in dollars also loses value. It may not just be Iran that wishes to price in something other than the dollar.
 
#12
merkator said:
Oil purchasers who ONLY use dollars will have a slightly higher cost due to having to buy euros from a bank (assuming the Iranians demand payment in Euros rather than just pricing in Euro and accepting any other form of payment)...
As things presently stand, countries that wish to import oil do have to come up with dollars to buy it.

There was a brief interval when Iraq, under the rule of Saddam Hussein, stopped accepting dollars and insisted on euro payment. Then there was an abrupt change in political leadership and, strangely enough, the new management resumed quoting exclusively in dollars.

You posit that, should it come to pass that the Iranian oil bourse only accepts euros in payment, purchasers of Iranian oil "will have a slightly higher cost due to having to buy euros." You are talking about the entire foreign market for Iranian oil. If that entire market becomes obliged (as we are hypothetically assuming to be the case) to remit in euros, that represents a huge increase in the demand for euros and a huge decline in the demand for dollars.

The dollar would decline in the forex market and the euro would rise.

I suspect (though I have no rigorous way of proving this) that exclusive use of the euro to settle Iranian oil transactions would cause such a bear market in dollars that countries around the world would become apprehensive about holding any substantial part of their foreign exchange reserves as dollars. The potential secondary economic consequences could be enormous and would span the globe.

One possible consequence might be to encourage other producers to do likewise. Russia has talked up the notion (but has so far not done so) of taking euros as an alternative payment. In years gone by, similar proposals have come out of OPEC.
 
#14
Just from the opposing responses in this forum regarding the impact of Iranian Oil priced in Euros, it should be quite clear to ALL concerned that there are both posiive and negative effects in play for both the Euro and the Dollar. In my opinion, these will effectively counter-balance one another and the status quo will remain, because, although Iran produces alot of oil, this change is not so major that it would have a disproportionate effect on the international currency market.

It only becomes truely problematic if other major produces decide to jump on the same bandwagon: Venezuela, Russia ...

Not_Whistlin_Dixie said:
There was a brief interval when Iraq, under the rule of Saddam Hussein, stopped accepting dollars and insisted on euro payment. Then there was an abrupt change in political leadership and, strangely enough, the new management resumed quoting exclusively in dollars.
I don't find it the least bit strange that a political leadership beholden to the US should choose to return to the dollar! Do you honestly think it would dare to do anything different?

Moreover, at the time that Iraq was accepting Euros not Dollars, it was producing/selling about 2/3 the quantity that the Iranians were. That had no effect on world currency markets, nor the US economy. Nor will an Iranian change.
 
#15
So you think that if the US has to actually pay for its oil (no matter what percentage) with goods and services instead of pieces of paper this will have no impact on the US economy?

The world holds something like 3 TRILLION "petrodollars" outside of the US. Now imagine what will happen to the US economy when those dollars are no longer needed to buy oil and they ask the US to replace this 3 trillion with goods and services to the same value. The US would implode.

Now even though the US is an over large user of oil don't forget that the eurozone is the biggest importer of oil in the world and 45 per cent of Middle East imports are from Europe. Russia (probably the number 1 oil producer in the world believe it or not) trade almost exclusively with Europe they do not actually need all the petrodollars that they have so it would make sense for them to change to petroeuros as well.


If Iran does this and gets away with it (ie no regime change) then do not be in the least surprised if Venezuala (and possibly others) does the same thing.
 
#16
Steven said:
So you think that if the US has to actually pay for its oil (no matter what percentage) with goods and services instead of pieces of paper this will have no impact on the US economy?

The world holds something like 3 TRILLION "petrodollars" outside of the US. Now imagine what will happen to the US economy when those dollars are no longer needed to buy oil and they ask the US to replace this 3 trillion with goods and services to the same value. The US would implode.
a valid analysis

Put another way assuming all oil trades were to take place in euros in order for the oil purchasers to purchase exclusively euro traded oil they would then have to go to the US tresury and demand the fact value of their dollar held currency be exchanged into euros to purchase the oil they require. (after all the dollar is a promisary note from the fed not the ECB).

this means that the US either has to cough up gold (which it does not have in sufficient quantities or has to purchase euros (and burst it's budget deficit limit) of the equivalent value from europe in order to fulfill its obligations).

furthermore no one in their right mind would wait until such time as the value of the dollar collapsed and the currency became worthless so currency movement out of the dollar would start very early indeed, if only to hedge risk.

put it another way hussain started trading in euros when the rate way 0.85 dollars to the euro by the time the US invaded the exchange rate was 1.15 dollars to the euro. Saddam made an absolute fortune on that switch, in the long term it did him no good but will the US be willing or indeed able to invade any and every country swapping out of the dollar?

The current price of gold should be an indication as to how jittery people are about iran's intention and the long term stability of the dollar, how many other OPEC countries are going to stand around and do nothing as a/ the value of their reserve dollars collapse or b/ they watch other oil producers get stinking rich simply by switching oil sales from depreciating dollars to investment grade euros.
 
#17
If the Iranians continue to p*ss off the Red Sea Pedestrians and their American masters, they will be selling oil in shekels!
 
#18
That's not what the word "petrodollar" means. Petrodollars are dollars held by oil exporters outside the US - if they were to return there, this would mean either a stock market boom in the US, as they are converted to investments there, or an export-led manufacturing boom in the US as they are converted to US products. The US's debt problem is (mostly) with manufacturing exporters (i.e. Chindia), which is a different problem.

On-point, imagine you are a typical Gulf oil state; i.e. you sell oil for dollars and spend the dollars on everything else. You don't, though, trade exclusively with the US; even though your exports are priced in dollars, your imports are much more diverse, being split between the US/Canada, Europe, Japan, and Chindia for manufactured goods and professional services, and probably Australia for grain and such. At the moment, you exchange dollars for goods, services and investments in these countries. Now flip the model. You charge for oil in euros. Rather than exchanging some of your dollars for euros, yen, AUS$ etc to buy "everything else", you now exchange some of your euros for dollars, yen, AUS$ etc to buy everything else. The exact difference in demand for dollars as opposed to all other currencies depends on the share of your imports and investments that are American (or dollar-priced) - I suspect that this is not overwhelmingly huge compared with all the other things - Alcatel routers, Airbuses, Mercs, champagne, Gripens and PwC accountants probably come to the same sort of share as MS software/Hellfires/SUVs/Boeings and cheap clothes/gadget do.

As far as changing central-bank reserves goes, who needs to hold more euros and why? The Americans? Why? If you get paid for the oil in the States in dollars, you simply convert them to euros on the open market - the GIGANTIC majority of all money in the world is electronic in nature and lives outside the official reserves. At the same time, the oil exporters are changing their euros into dollars, remember? There would be a small one-off reserve change, but essentially trivial.

The Americans can only "exchange paper for oil" rather than the income they make from selling other stuff, or money people lend them against future stuff sales, if they decide to devalue the dollar continuously. As the dollar has gone up (incredibly in the light of other factors), they obviously aren't doing this and have never done. This is a story people who don't quite get it like.
 
#19
Your model seems slightly flawed.

At the same time, the oil exporters are changing their euros into dollars.

Why would they bother? There is very little that the US exports to OPEC countries that they cannot get cheaper, when using petroeuros from either the Eurozone or other sources - all of which would want Euros not dollars anymore.

The dollar could become relatively worthless which means that the US could not afford to buy all those things that they now get by using the dollars that everyone wants to buy oil with.
 

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