Iran Opens Oil Bourse to Sidestep U.S. Sanctions

By Jason Simpkins
Associate Editor

Iran opened an exchange for crude and petrochemicals Sunday, an effort that encourages private investment in the nation's prominent energy sector.

"The bourse provides an economic opportunity for Iranians, other countries, and foreign customers," Iranian Oil Minister Gholam Hossein Nozari said in a statement.

The primary trade currency used by the bourse will be the euro, thereby establishing a euro-based oil marker if successful. Iran first floated the idea of trading oil in euros several years ago, but a weak dollar has breathed new life into the concept.

Iran has also registered for another oil bourse, in which it intends to trade crude contracts in euros instead of dollars with the hope of reducing U.S. influence in the country's economy.

Iran's president, Mahmoud Ahmadinejad has repeatedly demonstrated his willingness to use its oil resources as bargaining chips in his ongoing standoff with the West over Iran's nuclear program.

Iran produces more than 20 million tons of petrochemical products each year, and is the fourth largest oil producer in the world. The country controls about 5% of the global oil supply.

Financial institutions are in the midst of a global credit crunch and most are shying away from riskier investments. Bankers around the world reduced lending to Iran to satisfy a campaign led by the United States to isolate the country and its economy. UBS AG (UBS), Deutsche Bank AG (DB), and HSBC Holdings PLC (HBC) have all reduced or stopped lending to Iran entirely.

That doesn't bode well for Iran, which lacks the technology and equipment to develop its natural resources on its own.

A statement posted on the ministry's Web site said 100 tons of polythene - a plastic used for packaging - was traded at the market's open. However, some analysts believe that political pressure, and the use of spot pricing, will reduce interest in the exchange.

"I don't expect there will be much liquidity on this market," Dalton Garis, an economics professor at the Abu Dhabi Petroleum Institute told Bloomberg News. "Traders use such exchanges to hedge against price risk, rather than buy a commodity. Also, traders will be under pressure not to trade with Iran."

The exchange uses "spot," rather than futures trading, which requires the immediate payment and delivery of the physical product.

News and Related Story Links:

  • Associated Press:
    Iran Opens Its 1st Oil Products Bourse