Oil exchange in Iran is pipe dream

Azerbaijan, Baku, Feb. 2 / Trend T. Konyayeva /

The project of creating an oil exchange in Iran, in light of the international isolation of the country, has no significant economic basis, Northeastern University Professor Kamran Dadkhah said this week.

"Under present circumstances there is neither a need for an oil exchange in Iran nor will it have any effect on the international market for oil. Indeed, it is difficult to imagine that the project will get off the ground in any meaningful way," Dadkhah told Trend via e-mail.

Last week, Iranian President Mahmoud Ahmadinejad gave an order to establish the oil exchange as soon as possible.

According to the information, the oil exchange will be created on the Iranian island of Kish. Several meetings have been recently held to discuss the issue between the exchange and the country's Oil Ministry.

Secretary of the Oil Exchange Presidium Abbas Yaqubi said that primarily crude oil and oil products will be put up on sale on the exchange. The oil exchange will begin to work at full scale within three years.

One can surmise that Mr. Ahmadinejad has two objectives in establishing such an exchange. First, the Iranian government has been pretending that it is an important player on the international scene. The second goal would be to create another venue for the cronies inside and outside the government to reap profits off such trades, Dadkhah said.

Thus, the exchange has to have the credibility and the financial infrastructure to handle the transactions, the expert said.

The whole enterprise would be a sham and will not work, Dadkhah said.

Iran announced the opening of the oil exchange in March 2006 and has called the opportunity "to influence the establishment of fair prices for oil" as the main reason for the opening of the exchange.

Oil is traded only on the two exchanges now: in London (IPE) and New York (NYMEX). The calculations are carried out exclusively in dollars there.

Moreover, one should not forget about the international sanctions imposed against the Islamic republic of Iran, the expert said.

Many buyers would shun the exchange. The relationship between Iran and other oil producers in the region is not friendly. Thus, major oil producers such as Saudi Arabia, Kuwait, and others would not be participants in the exchange, Dadkhah said.

Among OPEC countries, Iran ranks third on the proved oil reserves (after Saudi Arabia and Venezuela) and second (after Saudi Arabia) on its production. According to BP, as of January 1, 2009, the proved reserves of oil in Iran amounted to $137.6 billion.

But despite this, at present, Iran experiences a number of economic problems due to the international sanctions imposed against Iran.

In June 2010 the U.N. Security Council adopted Resolution 1929, enacting new sanctions against Iran over its refusal to stop enriching uranium. Later, the U.S. Congress and foreign ministers of all EU countries approved the imposing of additional unilateral sanctions aimed mainly against the energy, banking and financial sectors of Iran.

The restrictions imposed by the European Union include the ban on the sale of equipment, technologies and services in Iran's energy sector. The oil processing industry is among these measures. New investments in Iran's energy sector as a whole were also banned. The production capacity of the country is decreasing. Iran cannot effectively increase production due to the lack of investments.

Several European banks refuse to open a credit line for Iranian citizens, so, they have to pay in cash. Moreover, the sale of certain goods to Iran was banned.

But more important, such an exchange will have neither the credibility nor the backing of financial institutions that NYMEX, for example, enjoys, the expert said.

In such a world, we could also imagine that Iran could establish a thriving oil exchange in Kish Island. But it would take a different government and decades to create such a world, the expert said.

We can, nevertheless, imagine another world where Iran was not a pariah among the nations - a world where it had friendly relations with oil producers in the Persian Gulf area and with nations around the world. We can imagine a world where Iran had an advanced financial system connected to the world financial markets. Note also that even if all the above conditions materialize and Iran creates a working exchange, oil prices would be determined in New York and London, Dadkhah said.

"Oil prices in Kish could not deviate from those in New York and London because of arbitrage. If the oil prices are higher in Kish than in London, then arbitrageurs would buy in London and sell in Kish. On the other hand, if prices in Kish are lower than in New York, then traders can buy in Kish and sell in New York. But, as mentioned before, at present establishing a viable oil exchange in Kish is a pipe dream," he said.

Former adviser to the Central Bank of Iran, Professor Bijan Bidabad agrees with the U.S expert. He said that the establishment of the oil exchange in Iran will lead to the fact that pricing on the Iranian oil market will be made in accordance with the pricing on the international commodity exchanges.

At present and in the foreseeable future, the international currency is and will remain the dollar, Dadkhah said.

"Even if an oil exchange is established in Kish Island, in order to satisfy international traders, it has to use the dollar for its transactions. No sane international trader would accept anything but the dollar," he said.

"Most likely it would be state-owned, or it would claim to be a private enterprise but under the ownership and management of government and semi-government entities such as the Islamic Revolutionary Guard Corps (IRGC). But at present, the establishment of a viable oil exchange in Iran is a pipe dream," he said.

Subscribe to Trend in Google News! Subscribe
Budget for social rehabilitation and childcare to reach 52 mln GEL next year, Georgian PM says
Budget for social rehabilitation and childcare to reach 52 mln GEL next year, Georgian PM says
Policy and Management Consulting Group shares data on Georgia’s economic outlook
Policy and Management Consulting Group shares data on Georgia’s economic outlook
Georgia, Qatar discuss favorable investment climate
Georgia, Qatar discuss favorable investment climate
Loading Bars
IMF chief says Omicron could dent global economic growth
France evacuates more than 300 people from Afghanistan
UK records more than 50,000 new coronavirus cases
Italy's economy projected to grow 6.3 pct this year
Kazakhstan decreases petroleum gas export to Hungary amid global pandemic
Militants kill 7 soldiers in Nigeria's northeastern Borno state
Iran nuclear talks adjourn, resume next week
South Africa hit by fourth COVID wave driven by Omicron
Budget for social rehabilitation and childcare to reach 52 mln GEL next year, Georgian PM says
Putin informs Erdogan on main results of Sochi trilateral meeting
Turkey introduces action plan to improve lives of the disabled
Construction of 50MW solar power plant underway in Kazakhstan
Azerbaijani FM, OSCE rep exchange views on OSCE Charter (PHOTO)
Human remains discovered in Caspian Sea and recovered - SOCAR
Iran highlights need for more customs cooperation with Pakistan
bp discloses investments in construction of power plant in liberated Azerbaijani lands
Turkmen gas may be supplied to Europe via Caspian Connector project - ambassador
Turkish, Russian Presidents hold phone talks
Azerbaijan’s Pasha Holding talks about development strategy
Azerbaijan's Heydar Aliyev Foundation, UNICEF sign another memorandum of understanding (PHOTO)
Azerbaijan shares data on number of vaccinated citizens
Azerbaijani, Turkish military pilots conduct joint training flights in Baku (PHOTO/VIDEO)
Azerbaijan confirms 1,703 more COVID-19 cases, 2,180 recoveries
Turkmenistan can supply natural gas to European market until 2050 - ambassador
Azerbaijan discloses export volume of petroleum coke
Azerbaijan's Finance Ministry to auction gov't bonds via Baku Stock Exchange
SOCAR begins testing of new mobile diving complex
Israeli co Fireblocks raising $400m at $8b valuation
Croatia remains one of Russia’s key partners in EU
Value of goods transported via road increases in Azerbaijan
U.S. job growth misses expectations in Nov.
Policy and Management Consulting Group shares data on Georgia’s economic outlook
Georgia, Qatar discuss favorable investment climate
Price indexes of financial, trade sectors at Uzbek stock exchange fall
Uzbekneftegaz obtains new industrial gas flow from Kulbeshkak field
Uzbek Statistics Committee shares data on imports of meat for 10M2021
Georgia’s economic climate remains stable – PMC
Uzbekistan reveals volume of bank loans allocated to various sectors of economy
Iran, Turkmenistan and Azerbaijan gas swap - win-win deal, says Iranian analyst
FMs of Azerbaijan, Poland hold meeting within OSCE Ministerial Council
Co-op between Turkmenistan, EU to focus on improving business climate till 2027
Azerbaijan's food import volume down for 10M2021
Zones free from animal diseases being created in Azerbaijan’s Karabakh, East Zangazur
Azerbaijan considers opening Indonesian Chamber of Commerce
Azerbaijan increases chemical production volume for 10M2021
Azerbaijan, Turkey begin work on establishing joint university - minister
Azerbaijan’s liberated territories have several types of renewable energy sources– RES agency
Azerbaijani parliament adopts amendment to servicemen insurance law
Azerbaijan may exempt sale of electric cars from VAT
Azerbaijan introduces excise taxes on electronic cigarettes, shisha
Concept for creation of "green energy" zone in Azerbaijan’s liberated territories prepared
Transaction to sell Chinese oil company’s stake in Azerbaijan closed
Output volume at Azerbaijan’s Kursangi, Garabagli fields revealed
Austrian interior minister becomes candidate for country’s next chancellor
Azerbaijan begins geological exploration at Tutkhun gold deposit in Kalbajar
Iran to import hay from Russia
Uzbek home appliance manufacturer Artel joins United Nations Global Compact
Economic stability - framework of Iran`s next year budget
BioNTech CEO confident of quickly adapting vaccine for Omicron
Situation is still fragile in South Caucasus - OSCE Chairperson-in-Office
Azerbaijan to strengthen social protection of population in 2022 – PM
Azerbaijan may exempt import of books and paper from VAT
Iran reveals its non-oil trade in 7 months
Iran aims to build new oil, gas refineries amid growing consumption
Uzbek Central Bank shares data on leading banks in terms of loans
Azerbaijani PM talks on measures to curb price increase
Iran seeks to establish joint banking network with Syria
Azerbaijan to expand agriculture dev’t in Karabakh in 2020 – minister
Demining of water basins in Azerbaijan's liberated Fuzuli, Aghdam underway - ministry
Azerbaijan removes electronic bracelets from 134 convicts within amnesty act
India seeks strong ties with EU, cooperation in transition to clean energy
Dubai's DP World pulls out of Haifa port privatisation bid
Azerbaijani Artillery Units hold live-fire exercises (PHOTO/VIDEO)
Azerbaijan to change state duties on issuing registration plates of road vehicles
Georgian business sector sees average monthly salary increase
Cementing ties with France, UAE places $19 bln order for warplanes, helicopters
Azerbaijan preparing development strategy for Karabakh - Karabakh Revival Fund (PHOTO)
Man of Armenian origin who attacked Azerbaijani soldier neutralized – MoD
Azerbaijan releases 14 prisoners from correctional institution № 16 as part of amnesty act (PHOTO)
Azerbaijan releases 122 prisoners from correctional institution within amnesty act (PHOTO)
Australia calls on Azerbaijan, Armenia to delimit and demarcate state borders
Azerbaijan sees growth of trading via Baku Stock Exchange
Azerbaijan to release 65 female prisoners within act of amnesty
Georgia’s domestic supply of natural gas slightly decreases
Azerbaijan clears almost half of "Araz Valley Economic Zone" Industrial Park of mines - minister
Azerbaijan releases seven prisoners within act of amnesty (PHOTO)
Azernews newspaper selected as media partner of ECO from Azerbaijan (PHOTO)
bp is first company to use flexible approach in management of energy resources during pandemic
Turkey’s fuel exports to Georgia plummet
EU firms in infrastructure sector spent higher share of their investment on energy efficiency
Azerbaijan to strengthen control over allocation of subsidies
Share of EU firms investing in improving energy efficiency falls
Partnered with Azerbaijani banks, VISA actively developing technologies for issuing digital cards
Azerbaijan expands list of goods not covered by VAT refund
Georgia’s electricity exports triple
Azerbaijan’s justice ministry talks number of people released under amnesty act (PHOTO)
Further strengthening of Azerbaijan's army is one of important tasks – PM
Azerbaijan discloses expenses on COVID-19 vaccination
Opening of Zangazur corridor is one of most important issues – PM
Azerbaijani Parliament adopts amendments to Tax Code
All news