Let me start with the architect and main advisor to the Iranian government, Chris Cook, a former director of the International Petroleum Exchange. Though he agrees with the myth of the dollar/euro petrocurrency myth - he seems to have more faith in the creation and validity of an Iranian Oil and Natural Gas Bourse than yourself.
What ultimately determines the demand for dollars is not the unit of account for the transaction, but rather the desired asset holdings of those who are accumulating the wealth.
...I wrote to the then Governor of the Iranian Central Bank Dr Nourbakhsh. In this letter I pointed out that the structure of global oil markets massively favours intermediary traders and particularly investment banks and that both consumers and producers such as Iran are adversely affected by this. I recommended that Iran consider as a matter of urgency the creation of a Middle Eastern Energy exchange, and particularly a new Gulf benchmark oil price. It is therefore with wry amusement that I have seen a myth being widely propagated on the Internet that the genesis of this "Iran Bourse" project is a wish to subvert the dollar by denominating oil pricing in Euro's. As anyone familiar with OPEC will know, the denomination of oil sales in currencies other than the dollar is not a new subject, and as anyone familiar with Economics will tell you the denomination of oil sales is merely a transactional issue: what matters is in what assets (or, in the case of the US, liabilities ) these proceeds are then invested. After a couple of years of apparent inaction my colleague and I were invited to put together a consortium to tender for a project to create such an exchange and after a presentation at the Central Bank in Tehran in May 2004, we were successful, as reported in the Guardian at the time. We subsequently learned that the delay had been due to initial opposition from the Saudi's and this opposition was withdrawn post 9/11 and Iraq. President Ahmadi-Nejad is on record as saying that he favours transparency in the Iranian oil market. As anyone familiar with the City and Wall Street will know, transparency is the enemy of private profit, and it is this factor which was behind the delays in developing the Bourse project. However, we remain hopeful that the strategy we recommended, which is based upon: (a) gradual and organic introduction of pricing built upon the neutral function of transaction registration; and (b) a simple (and Islamically sound) partnership-based "Clearing Union" synthesis of bilateral trading and a multilateral guarantee; will in due course be taken forward. http://www.opencapital.net/articles.htm
In this letter I pointed out that the structure of global oil markets massively favours intermediary traders and particularly investment banks and that both consumers and producers such as Iran are adversely affected by this.
I recommended that Iran consider as a matter of urgency the creation of a Middle Eastern Energy exchange, and particularly a new Gulf benchmark oil price.
It is therefore with wry amusement that I have seen a myth being widely propagated on the Internet that the genesis of this "Iran Bourse" project is a wish to subvert the dollar by denominating oil pricing in Euro's.
As anyone familiar with OPEC will know, the denomination of oil sales in currencies other than the dollar is not a new subject, and as anyone familiar with Economics will tell you the denomination of oil sales is merely a transactional issue: what matters is in what assets (or, in the case of the US, liabilities ) these proceeds are then invested.
After a couple of years of apparent inaction my colleague and I were invited to put together a consortium to tender for a project to create such an exchange and after a presentation at the Central Bank in Tehran in May 2004, we were successful, as reported in the Guardian at the time. We subsequently learned that the delay had been due to initial opposition from the Saudi's and this opposition was withdrawn post 9/11 and Iraq.
President Ahmadi-Nejad is on record as saying that he favours transparency in the Iranian oil market. As anyone familiar with the City and Wall Street will know, transparency is the enemy of private profit, and it is this factor which was behind the delays in developing the Bourse project.
However, we remain hopeful that the strategy we recommended, which is based upon: (a) gradual and organic introduction of pricing built upon the neutral function of transaction registration; and (b) a simple (and Islamically sound) partnership-based "Clearing Union" synthesis of bilateral trading and a multilateral guarantee;
will in due course be taken forward.
http://www.opencapital.net/articles.htm
There appear to be a few misconceptions re the Iran Oil Bourse. Firstly, the reason for its genesis was nothing to do with what currency oil is traded in and everything to do with the fact that producers and consumers were and are suffering at the hands of intermediary oil traders, particularly investment banks, and now hedge funds. Although absolute levels of oil prices are based upon supply and demand, the level of volatility has been way too high due to systemic market manipulation resulting in massive hedging losses. It's a phenomenon J K Galbraith called "the Bezzle" - where the losers do not know they are losing.... It means that the derivative tail has been wagging the oil market dog, and in fact oil markets are - courtesy of hedge funds - an accident waiting to happen, probably next Winter. Why? Because unlike the LTCM hedge fund debacle in financial markets, the Fed can't print oil to bail people out...... What reason do I have for saying this? Simply that the Iranian authorities accepted my arguments - as a former Director of the International Petroleum Exchange - some 4 years ago, and subsequently appointed my consortium to carry out a Feasibility study. www.opencapital.net/papers/Iranexchange.pdf In fact, it really does not matter what currency oil is sold in: that's merely a transactional issue. What matters is what assets (or rather, liabilities) the proceeds are invested in. Where Mr Clark has a point. Regards Chris Cook http://peakoil.com/post235825.html#235825
Firstly, the reason for its genesis was nothing to do with what currency oil is traded in and everything to do with the fact that producers and consumers were and are suffering at the hands of intermediary oil traders, particularly investment banks, and now hedge funds.
Although absolute levels of oil prices are based upon supply and demand, the level of volatility has been way too high due to systemic market manipulation resulting in massive hedging losses.
It's a phenomenon J K Galbraith called "the Bezzle" - where the losers do not know they are losing.... It means that the derivative tail has been wagging the oil market dog, and in fact oil markets are - courtesy of hedge funds - an accident waiting to happen, probably next Winter. Why? Because unlike the LTCM hedge fund debacle in financial markets, the Fed can't print oil to bail people out......
What reason do I have for saying this? Simply that the Iranian authorities accepted my arguments - as a former Director of the International Petroleum Exchange - some 4 years ago, and subsequently appointed my consortium to carry out a Feasibility study.
www.opencapital.net/papers/Iranexchange.pdf
In fact, it really does not matter what currency oil is sold in: that's merely a transactional issue.
What matters is what assets (or rather, liabilities) the proceeds are invested in. Where Mr Clark has a point.
Regards
Chris Cook
http://peakoil.com/post235825.html#235825
...Mohammad Asemipour, who was appointed adviser to the minister for the execution of the Petroleum Exchange Market in late 2003, explains why current conditions favour its development. "The restructuring of our legal, fiscal and capital market systems has to take place simultaneously," he says. "Fluctuations in one market affect another.We have to extend our stock market geographically and we also have to diversify into other instruments," he adds. Setting up an exchange in Iran will enable the country to manage the risk of volatile oil prices better, he stresses."We dictate the price of our oil by announcing it, but we don't control it - that's determined by what happens at the New York Mercantile Exchange and London's International Petroleum Exchange. So we want to manage the risk.The establishment of an oil market is the most important market for us." A source close to Iran's stock exchange who preferred not to be named agrees:"The ministry and the stock exchange all believe setting up a petroleum exchange will be fruitful for the economy," he says. "A feasibility study has concluded that the right structures for setting up such an exchange are present." "Eventually we envisage a pan-Middle East exchange with Opec countries trading on it," the source says. The exchange developers stress that the exchange will be independent - not run by an existing exchange or the Iranian government. The ministry of petroleum initially invited other exchanges such as Nymex and the IPE to be involved, but project developers feared the initiative would lose its independence. Not necessarily wanting to conform to an existing model, the new exchange will "be a new model that will work within our new laws", Asemipour says. One of its unique features will be its clearing operation, which is likely to operate under a clearing union method. "This is a new partnership-based synthesis of bilateral trading between users combined with a collective guarantee," explains Chris Cook, a former director of the IPE who, as a member of the Wimpole consortium, provided strategic advice to Asemipour in a pre-feasibility study. "Instead of a central counterparty, we will see a risk/treasury management partner responsible for setting guarantee limits, margining and managing a default fund/pool on behalf of the user group collectively.This is absolutely fascinating in its implications," he says. http://www.opencapital.net/papers/Iranexchange.pdf
"The restructuring of our legal, fiscal and capital market systems has to take place simultaneously," he says. "Fluctuations in one market affect another.We have to extend our stock market geographically and we also have to diversify into other instruments," he adds.
Setting up an exchange in Iran will enable the country to manage the risk of volatile oil prices better, he stresses."We dictate the price of our oil by announcing it, but we don't control it - that's determined by what happens at the New York Mercantile Exchange and London's International Petroleum Exchange.
So we want to manage the risk.The establishment of an oil market is the most important market for us."
A source close to Iran's stock exchange who preferred not to be named agrees:"The ministry and the stock exchange all believe setting up a petroleum exchange will be fruitful for the economy," he says. "A feasibility study has concluded that the right structures for setting up such an exchange are present."
"Eventually we envisage a pan-Middle East exchange with Opec countries trading on it," the source says. The exchange developers stress that the exchange will be independent - not run by an existing exchange or the Iranian government.
The ministry of petroleum initially invited other exchanges such as Nymex and the IPE to be involved, but project developers feared the initiative would lose its independence. Not necessarily wanting to conform to an existing model, the new exchange will "be a new model that will work within our new laws", Asemipour says. One of its unique features will be its clearing operation, which is likely to operate under a clearing union method.
"This is a new partnership-based synthesis of bilateral trading between users combined with a collective guarantee," explains Chris Cook, a former director of the IPE who, as a member of the Wimpole consortium, provided strategic advice to Asemipour in a pre-feasibility study.
"Instead of a central counterparty, we will see a risk/treasury management partner responsible for setting guarantee limits, margining and managing a default fund/pool on behalf of the user group collectively.This is absolutely fascinating in its implications," he says.
http://www.opencapital.net/papers/Iranexchange.pdf
My feeling is, it could have some impact if it falls into the favour of China, India and Russia. Transparency is an added value. Atlantic Free Press
Secondly this statment from Cook is braindead
Setting up an exchange in Iran will enable the country to manage the risk of volatile oil prices better,
The sovereign sellers, oil majors (BP excepted) and large scale buyers share one common trait. They are gutless when it comes to pricing their sales/purchases. It would be nice of Mr Cook to tell us just how he proposes to get the Iranians/Saudis/Emirates/Kuwaitis to sell fixed price well forward in time on an exchange when they won't do it now with physical bbls.
Their purchasing/sales managers never, ever want to do a fixed price trade. Why you ask? Number one reason, is you can be wrong and in such a transparent way that even your boss can figure it out. Iran could eliminate price volatility tomorrow simply by posting a fixed price for lifting in the next 30 days and requiring their term buyers to lift rateably in each 30 day period. But they are paranoid that they'd be low in some months. So instead of taking responsibility for their trading, they sell on WTI - X or DTD Brent - X and whine about "traders and middlemen" taking advantage.....and about hedging losses when they do speculate and try to fix a price.
It's a bit unfair to the peons that actually make the trades as they are compensated with moderate, fixed salaries and get 100X the shit when the are wrong than kudos when they are right. Much better to trade off of Platts or some other industry marker and go home at 5 PM. Top management is generally ignorant beyond words on how these markets work -firmly stuck in the 1950's. One such putz ranted at my group that "we don't want to pay for our insurance (hedging). Somehow we were to be the only players in the market that never lost.
All the sellers demand their people beat the market average (Platts/Argus Mean), while the buyers insist on Platts Mean minus. And they wonder why the traders move the marker around like a yo yo...If they just got together and did half their business with fixed price deals, the middlemen would thin out fairly quickly. Only the real derivative specialists and the black bag boys would have any valued added.
I made a speech to that effect to a bunker fuels conference once. The traders in the audience were cringing and the shipping co. buyers were squirming in their seats. But I was ready to retire, tired of Wall Streeters being bashed and just wanted to see the reaction to some harsh truth. You could hear a pin drop.
Now this could work, EXCEPT the Iranians will lose their water when the spread to WTI gets out of their range of expectations. These guys want a stable price and to have that price be HIGH relative to the buyer's alternatives at all times. Small wonder they are often disappointed.
My feeling is, it could have some impact if it falls into the favour of China, India and Russia. Transparency is an added value.
How do you get more transparent than an open outcry or electronic system like Access. Every trade is done openly and recorded for all to see...Iran could easily sell all their oil either fixed price or on monthly averages relative to NYMEX settles. Its almost impossible to manipulate a market for a whole month, especially one the size of the NYMEX.
Now if the Iranians want to try to cull the mkt of speculators they should be careful what they wish for. Without liquidity it's very hard to keep an exchange afloat.
Let's see what Chris has to say about that. I have emailed him on the subject of being labeled 'brain dead'. I am sure he will respond. Atlantic Free Press
