Baku, Azerbaijan, June 20
By Dalga Khatinoglu - Trend:
After a couple of months since lifting sanctions on Iran, the country still faces a challenge in trade with the international markets, especially the oil markets, which deal with USD-based deals and payments.
Iran's Oil Minister Bijan Namdar Zanganeh announced June 17 that the country sells its crude oil to international markets only through euro.
The announcement came after a US court blocked $2 billion of Iranian assets. The US Supreme Court ruled in April that the assets must be turned over to American families of people killed in the 1983 bombing of a U.S. Marine Corps barracks in Beirut and other attacks blamed on Iran.
The restrictions imposed by the US treasury on the use of USD by Iran continues, while the process of freeing of the dollar-denominated assets (blocked during the sanctions era) of Iran, has faced delays.
Iran has previously considered abandoning use of petrodollars, so the idea is nothing new.
Sohbet Karbuz, Director of Hydrocarbons, France, Mediterranean Energy Observatory (OME) told Trend June 20 that the motive behind the idea of selling oil in euros was to end the petrodollar's hegemonic status as the monopoly oil currency and hence challenge the U.S. dollar supremacy.
"In a way, this would have major impact on the macroeconomics of 'petrodollar recycling'. However, it has long been debated what the alternative oil currency could be. Some have proposed euo, others have proposed gold or gold dinar."
The idea of selling oil in euros was first introduced in 2000. In November 2000 Iraq's former president Saddam Hussein demanded Euros for his oil.
In 2001, Venezuela started to speak about switching to euro for all their oil sales. In 2003 Iran required payments in euro for its European and Asian exports. A year later Iran announced intentions to create an Iranian oil bourse using a euro-based international oil-trading mechanism.
Karbuz added that the Tehran oil bourse was scheduled to open in 2005.
"In 2006 Russian president Vladimir Putin announced that an oil and gas stock exchange will be created in Russia that would trade in rubles. In 2007, Tehran failed to persuade OPEC members to switch away from the US dollar but at the end of 2007 Iran stopped selling oil in U.S. dollars. Libya has also been urging that oil be priced in other currencies rather than the US dollars," he said.
"Since Kaddafi was attempting to create a pan-African gold standard, he was urging African oil producers to abandon the petro-dollar, and demand gold payment for oil/gas. In 2010 Libya proposed a new currency called the Gold Dinar to replace the dollar for oil sales".
Iran's oil exports increased from around 1 million barrels per day (mb/d) in sanctions era to about 2.1 mb/d in May. Iran says its June exports soared to above 2.3 mb/d. The country's oil production also increased from 2.8 mb/d in 2015 to about 3.7 mb/d in May.
Karbuz said that from a purely economic and logical perspective, switching oil sales to euros makes sense if oil exporters’ biggest trading customers use euro. It is the case with Iran.
"If large oil and gas exporters made the switch together from the US dollar to euros, the dollar would take a hit. Perhaps this would not cause real damage to the US dollar and the US economy but if other nations follow and dump their US dollar holdings rapidly by replacing it with euro, then the result would cause an economic meltdown," he explained.
"This could happen if a coordinated large scale conversion takes in place shortly. A smaller scale and individual cases such as Syria switching all of the state's foreign currency transactions to euros from dollars in 2006 would not make a remarkable impact".
Karbuz said that now, perhaps, a more important issue that sticks out in the above given short summary, is what happened to the countries or leaders attempting to move away from the US dollar in selling their hydrocarbons.