Launch of Iranian oil trading hits wall

Oil exchange unlikely to begin till at least midyear

By John Partridge
Investment Reporter

03/15/06 "Globe & Mail" -- -- As the nuclear standoff pitting Iran against the West continues, some conspiracy theorists are more focused on another plan that the Middle Eastern nation is pursuing.

But they are jumping the gun if they still figure Iran is within days of launching a new international oil exchange that would sell its own and other Middle Eastern oil producers' black gold in euros rather than U.S. dollars -- and which, the theory goes, could ultimately torpedo the greenback and the U.S. economy.

Despite repeated reports over the past 18 months or so that the planned bourse would finally open for business on March 20, 2006 -- and go head to head with the New York Mercantile Exchange and the ICE Futures Exchange in London -- the start date has been postponed by at least several months and maybe more than a year.

"In the middle of 2006, we are able to start the bourse," Mohammad Asemipur, special adviser on the project to Iran's Oil Minister, said when reached in Tehran. The plan is to trade petrochemical products first, with a crude oil contract coming last, a rollout that likely will take three years, he said.

"Oh, crikey, it's at a much earlier stage than people would think," said British consultant Chris Cook, who claims credit for coming up with the idea for the exchange in the first place and is a member of the consortium headed by the Tehran Stock Exchange that is charged with bringing the project to life.

"You can rest assured, there will not be a crude oil contract, Gulf-based, in my opinion, within a year -- and that would be really pushing it," Mr. Cook, a former director of ICE's predecessor, the International Petroleum Exchange, said when reached in Scotland.

The electronic exchange is to be located on Kish Island in the Persian Gulf, an Iranian duty- and tax-free zone.

There has been far less talk about the planned bourse in the mainstream media than on the Internet, particularly on websites aimed at gold bugs and other economic conspiracy theorists.

The theory is that all trades through the new bourse would be made in euros, not the U.S. dollar, which for decades has been the world's primary reserve currency, as well as the one in which oil and most other commodities have been priced. As a result, European nations and other countries, especially Middle East oil producers, tired of having to buy billions of now weakening greenbacks to pay for their energy purchases, would no longer have to do so.

This, the conspiracy theorists contend, would knock the stuffing out of the U.S. currency and hasten the decline and fall of the American Empire, all the while allowing Iran to stick it to the Great Satan.

But, the theory continues, Washington will pre-empt all this by using Iran's nuclear ambitions as a pretext for attacking the country.

Kamal Daneshyar, chairman of Iran's Majlis [parliamentary] Energy Commission reportedly told the Iranian Students News Agency in December that the exchange would at first operate in both dollars and euros, but gradually move to the European currency exclusively. He was also quoted as saying that this would enable Iran to get even with the U.S. for the economic damages it has inflicted on the Islamic republic.

Dr. Asemipur, meanwhile, was noncommittal on the currency question, saying market participants, not the Iranian government, would make the decision. He also denied the planned bourse could harm the U.S. economy.

Mr. Cook dismissed the idea that Iran's goal is to use the bourse to sabotage the greenback. "I have a technical term for that," he said. "Bollocks!"

As for trading oil in euros, he said the Iranians likely would find it very difficult, at least in the next several years. "Basically, there aren't enough euros in circulation, and nor are there likely to be," he said.

Mr. Cook cited a recent article on Hong Kong-based Asia Times Online by William Engdahl, who specializes in the geopolitics of oil.

"For the euro to begin to challenge the reserve role of the U.S. dollar, a virtual revolution in policy would have to take place in Euroland," Mr. Engdahl wrote. "First the European Central Bank . . . would have to surrender power to elected legislators. It would then have to turn on the printing presses and print euros like there was no tomorrow."

A full challenge to the U.S. dollar as the world central bank reserve currency, Mr. Engdahl added later, would entail a "de facto declaration of war on the 'full-spectrum dominance' of the United States today," and that is something no country or group of countries is yet willing to launch.

© Copyright 2006 Bell Globemedia Publishing Inc

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source: Information Clearing House