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Analysts Skeptical of Iran Oil Plan

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posted on May, 5 2006 @ 01:46 PM

TEHRAN, Iran - Iran took a step on Friday toward establishing an oil market denominated in euros, a plan analysts described as highly unlikely to materialize but which in theory could have serious consequences for the U.S. economy.

Iranian state-run television said the country's oil ministry granted a license for the euro-denominated market, an idea first floated back in 2004, though just who would trade on it remains unclear.

If the market were to succeed — or if Iran simply demanded payment for its oil in euros — commodities experts said it could lead central bankers around the world to convert some dollar reserves into euros, possibly causing a decline in the dollar's value.

But if one day the world's largest oil producers allowed, or worse demanded, euros for their barrels, "it would be the financial equivalent of a nuclear strike," said A.G. Edwards commodities analyst Bill O'Grady.

Ohh, that's really scary kids! But let's read on.

O'Grady said there are practical reasons why the Iranian threat is an empty one.

For starters, Iran is not a very attractive site for a market, given the volatile nature of its politics, the U.S. sanctions against it and the lack of a fair legal system. Moreover, there is no indication that the European Union is interested in vying to become the world's central bank, which requires a willingness to run large currency deficits, he said. For the U.S., that has meant allowing cheap imports to undermine the strength of some major industries, including textiles, autos and electronics manufacturing.

PFC Energy oil analyst Jamal Qureshi said the fears stirred up by a hypothetical euro-denominated oil market in Iran or anywhere else are overblown, not least because the oil trade is just a small component of the overall global economy.;_ylt=Agq7AmQ5gHFwUpzROzmdlzQDW7oF;_ylu=X3o'___'BhcmljNmVhBHNlYwNtcm5ld3M-

And of course should Iran decide to do something stupid, like shut down the SOH, who would go over there to bring the smack down? France? Germany? Spain?

I don’t think so.

Oh well, euros it was nice dream while it lasted.


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