Wednesday, April 05, 2006

Iran's Oil Bourse Goes Poof

Iranian Oil Bourse Is History...But Oil's Still Dangerous For Dollar
by Kathy Lien & Boris Schlossberg, editors of The Money Trader.

"On March 21st Iran was scheduled to launch the world's first oil trading exchange that would have set prices in euros rather than dollars. Many analysts feared this would have spelled disaster for the greenback since oil is the world's most popular commodity and requires most nations to hold vast reserves of dollars in order to purchase it. If oil were to be suddenly settled in euros, the global need to hoard dollars would diminish considerably, eliminating one of the key supports for the US dollar in the currency market.

The doomsday scenario did not come to pass, as Iran failed to construct the necessary infrastructure for a successful launch of the exchange. It is still insisting on opening a Persian Gulf oil bourse with the southern Iranian island Kish as its base of operations according to a report by Iranian state- television on Saturday.

'The issue has already been agreed upon and the oil ministry has been instructed to open this bourse in the Persian Gulf island of Kish,' Economic and Finance Minister Davoud Danesh-Jafari said. However, at this point, the issue of an Iranian oil exchange to challenge the New York and London markets appears to be more of a P.R. stunt rather than a viable competitive threat.

Even if the Iranians managed to open up for trading, the key question remains: who would trade with them? Given the recent antagonistic rhetoric of the country's political leaders, many investors would likely shun the bourse for fear of not having their trades honored. Successful financial markets require trust and cooperation and Iran's antagonistic actions over the past several months (especially their insistence on developing nuclear capabilities) have engendered little goodwill in the world community. But dollar bulls should not be so quick to breathe a sigh of relief.... "

No comments: