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Page added on May 14, 2018

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Iran Sanctions Threaten The Petrodollar

Public Policy

One country must be quite pleased with the prospect of new U.S. economic sanctions against Iran’s oil industry, and this country is the largest oil importer in the world, and is Iran’s largest single oil client.

When China launched its long-awaited yuan-priced oil futures last month, it did so as part of its strategy to expand the international clout of its currency. Now, with U.S. sanctions on Iran’s horizon, the yuan could further advance down this road, as Beijing has vowed to continue buying Iranian crude, which will most likely be paid in yuan.

Iran should be on board with the idea. The country has made it clear even before President Trump’s withdrawal from the JCPOA that it would prefer to settle its trade in currencies other than the greenback, to which it has limited access.

Last month, Tehran and Moscow inked a deal to conduct all its business in goods rather than in dollars as both seek to reduce the influence of the U.S. currency on their economies. A month earlier, Iran banned settlement of import deals in dollars and ditched the currency in favor of the euro in reporting its forex reserves. In other words, Iran will be more than happy to take in Chinese yuan for its crude, or alternatively, to apply some oil-for-goods exchange scheme similar to the one agreed with Russia.

The point is that those one million barrels daily that new Iran sanctions are supposed to take off the market may not in fact be taken off the market. Analysts are citing this figure because that’s how much Iranian crude left global markets during the period when both the U.S. and the EU had sanctions in place against Tehran.

But then they agreed to the Joint Comprehensive Plan of Action, commonly called the Iran nuclear deal, and sanctions were lifted. This time, Washington is playing the sanction game alone. The European signatories to the deal have made it abundantly clear that they are not pulling out just because Washington is doing it.

Germany, one of the signatories, has also said it will protect its companies doing business in Iran. Chances are that France will follow—Total has a major interest in Iran’s South Pars gas field. On top of that, Europe is the largest buyer of Iranian oil—collectively European countries bought 624,000 bpd on average last year.

Unlike last time, everyone wants to continue buying Iranian oil, and although some may be forced to buy less, China is not bound by any economic or national security dependence on the United States. Iran, for its part, needs markets for its oil, even if it sells it for yuan and then converts the Chinese currency into, say, euros, which will come at a cost. After all, it’s better to sell more cheaply than not to sell at all.

What’s more, China will likely increase its investments in Iran’s oil industry. Iran is part of Beijing’s One Belt, One Road infrastructure investment initiative, and securing a chunk of Iran’s oil industry is a natural element of the initiative. Buying Iranian oil for yuans will only complement it.

Settling Iranian imports in yuan is just the beginning. In the long run, it would make sense for many oil trades to be carried out in the currency of the top importer. But it will take years for the yuan to undermine the dollar as the ultimate petrocurrency, and it would also involve risks, some observers familiar with Robert Triffin’s Dilemma have noted. In the short term, however, the U.S. sanctions may well be presenting a win-win situation for China and Iran.

By Irina Slav for Oilprice.com

 



16 Comments on "Iran Sanctions Threaten The Petrodollar"

  1. Makati1 on Mon, 14th May 2018 6:11 pm 

    The US keeps doing stupid shit that can only drive more and more countries away for the US and the USD. The curtain has been pulled back and the Us has been exposed for what iy is, a fake. Nothing but lies, hypocrisy,corruption and deceit. No country will believe that an agreement will ever be kept by The Us. Trumpet has been breaking them like a bull in a china shop. He is only speeding up the Us decline to the 3rd world. So be it. The faster, the better.

  2. twocats on Mon, 14th May 2018 6:32 pm 

    It’s crazy to think that a single country can pretty much at any time decide to financially cut off any other country from the rest of the world. But that’s the benefit of being an empire (despite those here that don’t consider the US to be one).

    But a primary aspect of this empire is economic and financial. But the US control over Swift has been a question, and now – not all finance runs through New York.

    From this perspective the US (economic) empire doesn’t have to end it might just become less and less effective over time.

    Similarly from a military perspective. Israel and SA hate the fact that Iran has gained power in the wake of the Iraq invasion (that wasn’t supposed to happen) and there is a sense from both SA & ISRL that the US military was shown to be weak in Iraq and is not doing enough to counter Iran militarily in the ME.

  3. MASTERMIND on Mon, 14th May 2018 7:09 pm 

    Madkat

    I agree totally with that statement. That is why I hate Trump and the Cons so much. I don’t think they are the cause of our problems. But Trump and them are speeding up the train towards the brick wall we are headed for. And I sorta like my high tech society. And don’t want the collapse to happen any time soon.

  4. Rockwellstartrek on Mon, 14th May 2018 7:11 pm 

    Decline of empire! The Roman Empire faded away because non-Roman tribes became more dominant and drive their own tribal destiny.

  5. Makati1 on Mon, 14th May 2018 11:43 pm 

    MM, I kinda liked, (past tense) my lifestyle too, but I realized years ago, that it was not sustainable for much longer. That is one reason I decided to move to the PS when I was offered the opportunity by my friend here. I am moving down the ;adder voluntarily. and it is not so bad. Less stress. Less “stuff”. More freedom. A happier lifestyle.

  6. Keith McClary on Mon, 14th May 2018 11:51 pm 

    Japan, S. Korea and India are also in the position of begging Trump for permission to import Iranian oil. Will they give him the finger, like Russia and China do?

  7. kanon on Tue, 15th May 2018 8:55 am 

    IMHO, Bush Jr. and the neocons moved the empire to the precipice. Now Trump and the neocons will jump off. The geostrategy picture looks like upcoming losses on the Korean front and the Iranian front. This is just speculation, but I have the feeling that Korea is working itself out of the Pentagon’s grip and that the Iranian sanctions will not work due to lack of cooperation. We Americans will likely not have the relevant information for assessing these situations, so we should identify possible markers. Perhaps a large scale deal with China + India + Iran will signal sanctions failure. Perhaps a N. Korea economic modernization program will signal that Korea has gotten a body part free. Just guessing.

  8. Outcast_Searcher on Tue, 15th May 2018 11:50 am 

    Let’s pretend $5 trillion plus isn’t traded daily in the FX markets. Let’s pretend currencies can’t be hedged, and so this matters at all.

    Doomers are so desperate to constantly point to doom, that they point to anything. When they’re wrong 95%+ of the time re all their dire warnings, year after year, then they wonder why they’re mostly ignored.

    They’d be better off sticking to topics that are real and matter like AGW, pollution, BAU growth, etc.

  9. Davy on Tue, 15th May 2018 12:47 pm 

    OS, at what point does being a doomer begin? Might you be excessive about your doomer label? What is doom anyway, please explain your version.

    “When they’re wrong 95%+ of the time re all their dire warnings”

    I am curious what was the 5% we were right? just askin.

  10. MASTERMIND on Tue, 15th May 2018 12:47 pm 

    Outcast

    There are no such thing as doomers, only humans. But I agree that the dollar scaremongering is laughable. They have been predicting it will crash ever since Nixon took it off the gold standard..They made a movie even about it in 1982 called “Rollover”…And I haven’t read any doomers at least on this blog make any dire predictions about doom happening anytime soon. I have stated I think the collapse will come in the next ten years. And I seem to be alone in my conclusions.

  11. CAM on Tue, 15th May 2018 4:39 pm 

    Doomers can afford to be wrong 99.999 percent of the time. They only need to be right once!

  12. Makati1 on Tue, 15th May 2018 5:01 pm 

    CAM, BINGO!

    BTW:MM is so out of touch with what is happening in the real world.

  13. MASTERMIND on Tue, 15th May 2018 5:07 pm 

    Madkat

    How am I out of touch? you are the one who’s cognitive capabilities have been declining for fifty years..

  14. Boat on Tue, 15th May 2018 7:50 pm 

    Mm

    Maybe out of touch isn’t the right phrase. Way to in touch with media and a lousy filter is a better description. Lol

  15. Boat on Tue, 15th May 2018 7:59 pm 

    Teocats

    The US cannot make any decision for any country. You anti US fanatics love to dump responsibility rather than look at your own choices and take responsibility for them.
    The next time your bombed by an Iran financed Shiria Law peckerhead, it’s on you, not the US. Trade away greedy fools and fund the enemy. Your choice.

  16. Boat on Tue, 15th May 2018 8:12 pm 

    Kanon

    Pentagons grip? Lol, It was GW’s watch when N Korea got it’s first nuke. The cat’s already out of the bag.
    The Pentagon serves at the president’s pleasure.
    The deal with Trump……who knows. It appears he wants N Korea to pay for talking shyt and threatening the US and it’s allies.

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