Iran’s President to Capitalize on Oil Wealth

When will the country’s oil bourse finally start trading?

The replacement of the oil and industry ministers is explained as a tactical move by the Iranian president to increase his control over areas that he believes key to economic prosperity.

Ahmadinejad offered to drag the fledgling economy out of the mess it was in and oil revenues were going to be a key factor in this plan. However, Ahmadinejad’s plan to reshape the oil sector has been met with strong resistance from within the industry. The oil minister that was sacked, Kazem Vaziri Mahaneh, is known to be highly opposed to restructuring the industry.
Plans to open an Iranian oil bourse to compete with NYMEX in New York and the IPE in London have been continuously deferred for the past two years. At least three deadlines have expired without any progress being made. The bourse, which will be located in the Iranian Free Trade Zone on the island of Kish, is meant to attract international oil trading to the Middle East.

Outside observers say the potential for an oil-trading platform in the Middle East is promising but its main risk will be stability. Oil markets, like currency markets, react much more intensely to political instability than other capital markets. The Iranian nuclear issue won’t do the country any favors in creating the best circumstances for a successful oil bourse.

How the plans for an oil bourse finally pan out is going to be crucial for developments at home in Iran, and the country’s leaders’ realization that stressing out the world at large over nuclear capability might turn out to have consequences for Iran’s own prosperity. Iran’s plans are leading the international drive to overhaul dollar denomination in global oil trading, currently accounting for around 65 percent of all oil trade, and this is a strong card. Iranian oil traders have been suggesting for a while now that clients start paying in euros, and according to the Iranians they are finding willing ears. They say that over half their business is now conducted in euros.

Some international trading houses quoted by the International Herald Tribune a few months ago, confirmed that they were being encouraged by officials in Iran’s oil industry to pay in currencies other than the dollar, but that they had yet to receive an official request from the authorities.

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