How can anyone get any work done with such interesting news out there?
Very interesting stuff from The Prudent Investor blog
Tuesday, August 23, 2005, Iranian Oil Bourse Could Kill The US Dollar
Can the Iranian Oil Bourse become the catalyst for a significant blow to the position of worldwide power the US Dollar enjoys? Manifold supply fears have driven the price of crude oil nearwards its recent highs of $67.10 which are also only a notch below historical records in real dollar terms. With the world facing a daily bill of roughly $5.5 billion for crude oil at current price levels it becomes apparent that sellers and purchasers of the black gold are looking into all ways that could lead to a financial improvement on their respective side.
While the worldwide bottleneck of inadequate refining facilities and partly dramatic declines in production - for example in the North Sea - are two factors that cannot be eliminated in the short term there is one area left which could result in smiling faces of oil producers and (most) buyers likewise. Non US dollar thinkers are the victim of a transaction cost in the oil trade. The necessary conversion of local currencies into greenbacks can be considered a hidden tax, charged and enjoyed by the banking sector.
Until now oil is solely priced, traded and paid for in the greenback on both markets in London and New York. The Treasury Inflow Capital data from mid-2005 show that OPEC members have parked only a skimpy $120 billion in direct dollar holdings which are almost equally split between equities and debt paper. This is a clear indication that oil producers are investing their windfalls elsewhere. The yield spread between US and EU debt papers in favor of the EU is clearly another hint where the petrodollars might flow after conversion.
The Iranian Oil Bourse (IOB) will become a factor that could unsettle the dollar's dominant position.
Especially in the case of Iran it does not make sense to accept dollars only for its much desired commodity. Being seen as a hostile country by the USA for the intention to build its own nuclear reactors one wonders whether the new IOB will not try to attract other buyers than Americans who are particularly unwelcome in that corner of the globe. Iran has recently announced that the new oil exchange will start up its computers in early 2006.
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