http://www.americanenergyindependence.com/ "The rise of terrorism by militant Islam against the United States and the West coincided with the rise in oil prices of 1979-80 and the subsequent transfer of hundreds of billions of dollars from the West to Muslim countries." â Max Singer, senior fellow, The Hudson Institute.
The US have taken advantage of poorer nation such as Venezuela for the longest time. Ravaging their natural resources, sucking their resources dry, and now, they are wisening up and fighting back. I wouldn't be surprised to suddenly read in the newspaper "Hugo Chavez dies in a helicopter crash". I'm not a big fan of Iran myself but if/when they start the Iranian oil bourse trading in euro, we're gonna go through a lot of pain to stop that from happening including an invasion. And, if/when we do: 1) The rest of the world will hate us 2) The stock market will rally at least 25% 3) Oil will go up 4) Dollar will go down 5) We're gonna be experiencing record debt more than ever before.
I've seen the proposed Iranian energy exchange and the trading of oil in euros mentioned several times... My .02 Euros... For starters, no significant market participants (producers, funds, banks, refiners, etc) are going to start trading the Iranian contract overnight. This isn't like ICE offering WTI. Regulatory Oversight: Who is going to regulate trading on the Iranian exchange? I'm doubtful that it will be an organization that is similar to the CFTC/FSA? Will they be able to gain the trust of the global markets? Credit/Clearinghouse: Who will the clearinghouse be? Will they have a solid credit rating like other reputable exchanges (i.e. NYMEX is AA+)? Again, will the global market trust them? Clearing Firms: Are the major FCMs going to become members? I can't imagine that there are too many people eager to place capital with an Iranian bank/brokerage firm. Liquidity: If it's an open outcry market will the locals be willing to provide a continuous, reasonable bid/ask? If it's electronic, will there be designated market makers required to show a tight bid/ask at all times? Technology: If it's electronic will there systems be sufficient? What about connectivity? Decent front-end/APIs? Contract Months: How far out will they go? The majority of Middle Eastern crude trades are long-dated. Options: For the market to really become liquid they'll have to offer options. If you have to trade NYMEX/ICE/OTC options to hedge your Iranian exposure you'd be better off to have your position in the underlying in USD as well. Dubai: Dubai is the standard when it comes to Middle Eastern crude. Strong probability that Dubai's exchange will be up and running before Iran's and Dubai is going to be cleared through NYMEX, hence the market will view Dubai as the Middle Eastern exchange of choice, regardless of currency. Furthermore, Dubai swaps are very liquid in the OTC market and if credit risk is a concern, you can clear Dubai calendar swaps via Clearport. Competition: It wouldn't be very difficult for NYMEX and/or ICE to list EUR denominated contracts. They already have the vast majority of the necessary infrastructure. If either decides to list a Middle Eastern product in EUR the Iranian exchange will die very quickly. Are traders all of the sudden going to dump their positions just to convert their position to a EUR denominated product? Slim chance especially when you consider that you'll be exposed to the bid/ask 2-3 times (exiting your current crude position, exiting your USD/EUR hedge (and potentially a third currency as well), if applicable, and entering a new position on the Iranian exchange). At the end of the day the Iranians are going to have to pull off a miracle to develop a liquid crude market, if for no other reason because it's simply too easy (and already common practice) to trade a USD denominated crude and hedge the FX. Last but not least, given the current geopolitical environment, not too many people are going to rush to trade in Iran. Sidenote: The Dubai Merc issued this press release today. http://www.dubaimerc.com/pr020706.htm