Iran oil bourse:a threat to the petrodollar?

Fewer nations would be willing to hold the dollar in reserve which would cause a significant devaluation and result in the loss seigniorage revenues.

http://english.aljazeera.net/NR/exeres/C1C0C9B3-DDA9-42E2-AE9C-B7CDBA08A6E9.htm

Iran oil bourse:a threat to the petrodollar?
          By Emilie Rutledge


Iran's decision to set up an oil and associated derivatives market next year has generated a great deal of interest.

This is primarily because of Iran’s reported intention to invoice energy contracts in euros rather than dollars.

The contention that this could unseat the dollar’s dominance as the de facto currency for oil transactions may be overstated but this has not stopped many commentators from linking America’s current political disquiet with Iran to the proposed Iranian Oil Bourse (IOB). 

The proposal to set up the IOB was first put forward in Iran’s Third Development Plan (2000-2005). Mohammad Javad Assemipour, who heads the project, has said that the exchange will strive to make Iran the main hub for oil deals in the region and that it should be operational by March 2006.

Geographically Iran is ideally located as it is in close proximity to major oil importers such as China, Europe and India.

It is unlikely, in the short term at least, that large numbers of energy traders will decamp and set up shop in Iran; a country which happens to be categorized as a member of the ‘axis of evil’ by the president of the world’s largest oil importing country; the United States.

But over time Iran could take some business away from the two incumbent energy exchanges, the International Petroleum Exchange and the New York Mercantile Exchange whom both invoice sales solely in dollars.

Economic Motives

If successful the IOB will provide Iran with concrete economic benefits especially if it invoices at least some of its energy contracts in euros.

Iran has around 126bn barrels of proven oil reserves about 10 percent of the world's total, and has the world’s second largest proven natural gas reserves.