Experts: Iran oil proposal long shot

Northwest Arkansas Arkansas Democrat-Gazette // THE ASSOCIATED PRESS

Posted on Saturday, May 6, 2006

URL: http://www.nwanews.com/adg/Business/153888/

TEHRAN, Iran — Iran took a step on Friday toward establishing an oil market denominated in euros, a plan analysts described as highly unlikely to materialize but which in theory could have serious consequences for the U. S. economy.

Iranian state-run television said the country's oil ministry granted a license for the eurodenominated market, an idea first suggested in 2004, though just who would trade on it remains unclear.

Global oil trading is now conducted in dollars on exchanges in New York and London.

But if the Iranian market were to succeed — or if Iran simply demanded payment for its oil in euros — commodities experts said it could lead central bankers around the world to convert some dollar reserves into euros, possibly causing a decline in the dollar's value.

"If OPEC decided they didn't want dollars anymore," A. G. Edwards commodities analyst Bill O'Grady said, "it would signal an end of American hegemony by signaling an end to the dollar as the sole reserve currency status."

Iran is the fourth-largest oil producing country in the world, the second-largest in OPEC and controls about 5 percent of the global oil supply, so it has a measure of influence over international oil markets. Tehran also partially controls the Persian Gulf 's Strait of Hormuz through which much of the world's oil supply must pass.

First suggested in 2004 when reformist president Mohammad Khatami was in power, the idea of a euro-denominated oil exchange gained new life after the stridently nationalist Mahmoud Ahmadinejad was elected president last summer.

Iran has sought to use its oil resources as a bargaining tool in Tehran's ongoing standoff with the West over its nuclear program.

But O'Grady and others say there are practical reasons why the Iranian threat — the subject of much discussion in some corners of the Internet in recent weeks — is largely empty.

For starters, Iran is not a very attractive site for a market, given the volatile nature of its politics, the U. S. sanctions against it and the lack of a transparent legal system.

Moreover, there is no indication that the European Union is interested in vying to become the world's central bank, which requires a willingness to run large currency deficits, he said.

PFC Energy oil analyst Jamal Qureshi said the fears stirred up by a hypothetical euro-denominated oil market in Iran or anywhere else are overblown, not least because the oil trade is just a small component of the overall global economy. Information for this article was contributed by Brad Foss of The Associated Press.
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