Iran to Stop Accepting
Payments in Dollars

UPI / Tehran Times 12sep2007

WASHINGTON — Faced with U.S. economic sanctions and a weak dollar, Tehran is demanding foreign energy companies do business in yen and euros. UPI believes Iran policy to shifting to euros and yen allows Iran some relief.

In a deal announced last week, Japan's Nippon Oil agreed to buy oil from Iran using yen instead of the traditional U.S. dollars. The agreement comes after years of Iranian efforts to shift its petroleum exports away from dollars and toward yen and euros.

"In general, a key motivation is the U.S. informal sanctions pressure that the Treasury, and Undersecretary Levey in particular, put on banks not to do financial transactions with Iran. And increasingly designating banks with ties to certain Iranian entities as unable to perform the U-turn transactions for dollar-denominated transactions," according to David Kirsch, the manager for market intelligence at the international energy consultancy PFC Energy.

U.S. Treasury Undersecretary for Financial Intelligence Stuart Levey has been in charge of coordinating U.S. sanctions against Iran since 2004. In recent months the U.S. Treasury has increased pressure on foreign banks not to deal with Iran, including so-called U-turn transactions, which "allow U.S. banks to process payments involving Iran that begin and end with a non-Iranian foreign bank," according to the U.S. Treasury.

"Shifting to euros and yen, overall it does lower some of their exposure to this informal pressure from the U.S.," Kirsch said.

Iran has the world's second-largest reserves of crude oil, is the world's fourth-largest exporter of oil, at 2.5 million barrels per day, and depends on export revenue for almost half of its government revenue, estimated at about $46.9 billion in 2006. Japan is Iran's largest customer for oil.

Iran's turn to the yen or euro may help in some ways.

"For them, I think it will make it easier, simply because the banks that it deals with won't be under the threat of the U.S. prohibiting turnaround transactions," Kirsch said.

The economic consequences of sanctions are not Iran's only motivation. The declining value of the dollar has also made the euro and yen attractive, if not for sales, than at least for saving.

"There is also another key issue that you are seeing, not just in Iran, but in other oil producers, especially Persian Gulf oil producers, is given the depreciation of the dollar, it is better to hold their reserves at least in euros, it is a better store of wealth. Some of the other Persian Gulf producers will accept payment in euros. They won't price their oil in euros or yen, and even if they are receiving payments in dollars, most likely they are converting a substantial share of that every month into other currency," Kirsch said.

Holding cash reserves in euros and yen may be a trend for the region, according to Kirsch, but a large-scale market conversion away from dollars in unlikely.

A strengthened European economy has impacted trade in other Persian Gulf countries as well.

"Throughout the Persian Gulf, they are also seeing an increasing amount of their trade conducted with the European Union, so with increasing amounts of their imports coming from the euro zone, why not hold larger stakes in their reserves in that currency," Kirsch said

source: 13sep2007