Iran Says No Thanks To Dollars; Demands Euro Payment For Oil Sales

Tyler Durden's picture




 

Iran enjoys trolling the United States. In fact, it’s something of hobby for the Ayatollah, who has maintained the country’s semi-official “death to America” slogan even as President Rouhani plays good cop with Obama and Kerry.

The ink was barely dry on the nuclear accord when Tehran test-fired a next-gen surface-to-surface ballistic missile with the range to hit archrival Israel, a move that most certainly violated the spirit of the deal if not the letter. Two months later, the IRGC conducted live rocket drills in close proximity to an American aircraft carrier and then, on the eve of President Obama’s final state-of-the-union address, Iran essentially kidnapped 10 American sailors in what amounted to a truly epic publicity stunt.

All of this raises serious questions about just how committed Tehran is to nurturing the newfound relationship with America, a state which for years sought to impoverish Iran as “punishment” for what the West swears was an illegitimate effort to build a nuclear weapon.

As regular readers are no doubt aware, Iran is now set to ramp up crude production by some 500,000 b/d in H1 and by 1 million b/d by the end of the year now that international sanctions have been lifted. In the latest humiliation for Washington, Tehran now says it wants to be paid for its oil in euros, not dollars.

Iran wants to recover tens of billions of dollars it is owed by India and other buyers of its oil in euros and is billing new crude sales in euros, too, looking to reduce its dependence on the U.S. dollar following last month's sanctions relief,” Reuters reports. "In our invoices we mention a clause that buyers of our oil will have to pay in euros, considering the exchange rate versus the dollar around the time of delivery," an National Iranian Oil Co. said. Here’s more:

Iran has also told its trading partners who owe it billions of dollars that it wants to be paid in euros rather than U.S. dollars, said the person, who has direct knowledge of the matter.

 

Iran was allowed to recover some of the funds frozen under U.S.-led sanctions in currencies other than dollars, such as the Omani rial and UAE dhiram.

 

Switching oil sales to euros makes sense as Europe is now one of Iran's biggest trading partners.

 

"Many European companies are rushing to Iran for business opportunities, so it makes sense to have revenue in euros," said Robin Mills, chief executive of Dubai-based Qamar Energy.

 

Iran's insistence on being paid in euros rather than dollars is also a sign of an uneasy truce between Tehran and Washington even after last month's lifting of most sanctions.

 

U.S. officials estimate about $100 billion (69 billion pound) of Iranian assets were frozen abroad, around half of which Tehran could access as a result of sanctions relief.

 

It is not clear how much of those funds are oil dues that Iran would want back in euros.

 

India owes Tehran about $6 billion for oil delivered during the sanctions years.

 

Last month, NIOC's director general for international affairs told Reuters that Iran "would prefer to receive (oil money owed) in some foreign currency, which for the time being is going to be euro."

 

Indian government sources confirmed Iran is looking to be paid in euros.

 

Iran has pushed for years to have the euro replace the dollar as the currency for international oil trade. In 2007, Tehran failed to persuade OPEC members to switch away from the dollar, which its then President Mahmoud Ahmadinejad called a "worthless piece of paper".

Of course all fiat money amounts to "worthless pieces of paper" and as things currently stand, the USD is the least "worthless" of the lot which means that Iran's insistence on being paid in a currency that Mario Draghi is hell bent on devaluing might seem strange to anyone who knows nothing about geopolitics. 

Put simply, this has very little to do with economics and a whole lot to do with sending a message. "Iran shifted to the euro and canceled trade in dollars because of political reasons," the same NOIC source told Reuters.

Right. So basically, Iran is looking to punish the US for instituting years of economic tyranny by de-dollarizing the oil trade. 

This comes at a time when the petrodollar is under tremendous pressure. Russia and China are already settling oil sales in yuan and "lower for longer" crude has broken the virtuous circle whereby producing countries were net exporters of capital, recycling their USD proceeds into USD assets thus underwriting decades of dollar dominance. 

The question, we suppose, is whether other producers move away from the dollar just as Russia and Iran have. If there's a wholesale shift away from settling oil sales in greenbacks, another instrument of US hegemony will be dismantled and Washington's leverage over "unfriendly" producers will have been broken.

The irony is this: if Iran follows through on its promises to flood an already oversupplied market, crude might not fetch any "worthless pieces of paper" at all - dollars or euros.

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Sun, 02/07/2016 - 12:22 | 7152355 blabam
blabam's picture

Gonna laugh when the Euro goes 80 dollar cents this year. 

Sun, 02/07/2016 - 12:29 | 7152366 cheka
cheka's picture

haha!  jokes on you iran.  euro nothing but frn in drag.  see bailouts, see currency swaps as proof that frn backs euro

that's why the saddam killed for selling oil in euro is pure bunk

imo he was offed for continuously busting his oil quota imposed on him by the oil production suppression cartel

cartel -- used to create artificial scarcity and thus higher than true market price.  what else?

Sun, 02/07/2016 - 12:38 | 7152417 Looney
Looney's picture

In the past, any country just talking about using anything but the dollar would be promptly destroyed and its leader hung or clubbed to death.

Now, when it happens, the lame-horse Kerry along with the lame-duck Golfer cuddle in the Situation Room, hold each other’s hands, and hope that nothing happens BEFORE the new president is sworn in. I think?  ;-)

Looney

Sun, 02/07/2016 - 12:45 | 7152440 Buckaroo Banzai
Buckaroo Banzai's picture

Lessons not learned by Saddam or Gaddafi:

(1) FIRST, negotiate your nuclear arms deal with the US, to your satisfaction (i.e., you get to have nuclear weapons).

(2) THEN, stop accepting dollars for oil.

Iran obviously showing a positive slope on their learning curve. NOTE: it helps when the people running the US are willing to cave to your every demand.

Sun, 02/07/2016 - 12:53 | 7152472 El Oregonian
El Oregonian's picture

Queue the band waiting on the deck of the U.S.S. Titanic, 'cause this ship is listing after hitting our financial iceberg... And the iceberg has definately won.

Sun, 02/07/2016 - 13:02 | 7152484 nope-1004
nope-1004's picture

This is serious decision time for petrodollar war-mongers.

I mean, this is war time for petrodollar luciferians.  Saddam V2

 

Sun, 02/07/2016 - 13:04 | 7152521 daveO
daveO's picture

Is this why they were talking about drafting women?

Sun, 02/07/2016 - 13:19 | 7152598 thesonandheir
thesonandheir's picture

If Saudi goes the same way the dollar is fucked, completely fucking fucked.

 

Sun, 02/07/2016 - 13:24 | 7152630 peddling-fiction
peddling-fiction's picture

If SA also drops the petrodollar, how would the Euro look then?

Don´t get me wrong, I believe Europe is in trouble these days.

Sun, 02/07/2016 - 13:54 | 7152754 knukles
knukles's picture

Lemme see here.  Dollar down, gold up. 
Next:  Rooskies stop taking dollars.  Take Ruble or Gold. 
Oh the Humanity of it all!

BTW  I note some folks suggesting the Dollar strengthens and Euro falls.  In relative terms, Euro will strengthen v Dollar.
Some of y'all got it ass-backwards.

Now, who's Iran's pals?  China and Russia.  Geo-political allies.  Who''s been accumulating gold?  Who's been selling dollar reserves?  Y'all see where I'm going with this, no?

Sun, 02/07/2016 - 13:57 | 7152782 Keyser
Keyser's picture

I bet John McCain's head is about to explode right now... The perfect impetus for the neocons to do that thing they do so well, and his knowing that Obama will do fuck all about it...  

Sun, 02/07/2016 - 14:15 | 7152841 weburke
weburke's picture

haha, well time to prep for ww3. it has long been said that the iran war will be the excuse for the elites to kill billions. 

Sun, 02/07/2016 - 14:46 | 7152995 aPlayer
aPlayer's picture

What exactly are they going to do with these Euros, buy a bankrupt Deutsche Bank?

Sun, 02/07/2016 - 15:26 | 7153185 giovanni_f
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No, a real-value generating German company such as Bayer, BASF, e.g. 

Sun, 02/07/2016 - 16:25 | 7153407 HenryHall
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It is trivially important which currency is used for spot sales of oil. Currencies are, by and large, convertible one to another.

What does matter is the future price, that is the agreed contract price now for crude oil to be delivered one, two or even three months hence.

If the  Euro is expected to weaken relative to the US Dollar then making a contract in Euros (ie with the Iranians in preference to other OPEC countries) suddenly becomes increasingly attractive.

If the Euro is expected to weaken but actually strengthens over time then the Iranians make out like bandits. If.

Sun, 02/07/2016 - 16:56 | 7153497 peddling-fiction
Sun, 02/07/2016 - 14:19 | 7152842 weburke
weburke's picture

.

Sun, 02/07/2016 - 14:03 | 7152805 thesonandheir
thesonandheir's picture

The dollar lost it's gold backing in 71. Since then it has been backed by oil and nuclear weapons. Europe now has no need for US protection so the nukes are null and void. If the Saudis remove the need to buy dollars to purchase their oil and go to Euro or gold (even better) then that would be an instant devaluation of the dollar and all the debts denominated in it. Countries holding just US paper would be fucked, those that were wise and accumulated gold would be fine. Countries producing both oil and gold (Venezuela?) would be laughing their tits off.

Sun, 02/07/2016 - 14:19 | 7152853 Boris Badenov
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You guys keep confusing Iran and Saudi Arabia for each other.

But neither country said they would stop accepting Dollars from the USA.  

Sun, 02/07/2016 - 16:09 | 7153344 SWRichmond
SWRichmond's picture

that would be an instant devaluation of the dollar and all the debts denominated in it.

...and the Fed is off the hook for everything that happens next, gets to play "rescuer" instead (at least in the MSM).

Sun, 02/07/2016 - 13:15 | 7152583 Karlus
Karlus's picture

>>This is serious decision time for petrodollar war-mongers.

 

Not really. Most of us are long dollar and short EU and shit emerging markets.

 

LOL at Iran selling discounted oil in a discounted currency. They SHOULD be using the munny to buy shale debt for pennies on the dollar

 

Lets see who is similing after the reset button is pushed.

Sun, 02/07/2016 - 13:26 | 7152625 new game
new game's picture

confusious says iran like gold, euros buy gold too...
this really only maters if there are excess reserves. 

Sun, 02/07/2016 - 14:05 | 7152812 Keyser
Keyser's picture

I believe the point is, the USD becomes irrelavant if oil is no longer solely priced in greenbacks, so the fx component is removed from the equation... Not to worry though, all fiat currencies are going to die this time around, so a new global currency can arise from the ashes like a Phoenix... 

Sun, 02/07/2016 - 15:28 | 7153193 giovanni_f
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"Lets see who is similing after the reset button is pushed."

Definitely not the middle class of the USA.

Sun, 02/07/2016 - 17:11 | 7153555 FX223
FX223's picture

No reason to panic people...we'll just go in there and stone age some Flintstone folks.

Sun, 02/07/2016 - 13:46 | 7152730 yellensNIRPles
yellensNIRPles's picture

I don't claim to understand exactly how the global banking cartel operates, but this is surely a big fucking deal indeed.

Sun, 02/07/2016 - 14:58 | 7153066 Antifaschistische
Antifaschistische's picture

we will more than likely always use fiat to buy oil....but what makes sense isn't to sell it in dollars or euros, etc.. what makes sense is to sell your oil, in the fiat denominations commensurate to the trade you want to do with the source fiat regime.   So, if 20% of your imports are from China, it make sense to sell 20% of your oil (assuming that's your only export in this simple model) in RMB.

What never ever made sense was to sell your oil in dollars, when you then had to convert to accomplish your imports.  Of course...Wall Street/Banks/FED appreciate scalping ever single international trade transaction but it never benefited foreign governments and countries to do so. (except for the free mercinaries/US Army/Navy etc..they got help from occasionally)

Sun, 02/07/2016 - 12:57 | 7152493 WTFRLY
WTFRLY's picture

World War J (for Joooooooooooooooooooooooo)

Sun, 02/07/2016 - 13:05 | 7152530 Purpurroter Regen
Purpurroter Regen's picture

All this mess in the Middle East is to please Israel: The Scourge of Empires >>> http://wp.me/p4OZ4v-eK

Sun, 02/07/2016 - 12:55 | 7152483 GhostOfDiogenes
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"NOTE: it helps when the people running the US are willing to cave to your every demand."

*hasbarat detected*

Sun, 02/07/2016 - 13:00 | 7152512 oddjob
oddjob's picture

BB likes to paint the picture that Iran needs the USA's permission to do anything.

Sun, 02/07/2016 - 13:14 | 7152577 giovanni_f
giovanni_f's picture

Right observation. Not only Iran. Russia, Germany, Japan, all of South America - all shall abide by the command of the USA.

Sun, 02/07/2016 - 14:47 | 7152962 Buckaroo Banzai
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Yeah, except you're missing the fact that Iran has had nuclear weapons for years; who do you think funded the Pakistani nuclear effort? What do you think they might have gotten back in return? Pakistan is a dirt-poor shitstain of a country, yet nobody bothers to ask how they could possibly fund and develop nuclear technology.

Iran used the nuclear negotiations process to basically tell the US, and any other interested parties, that the horse had left the barn decades ago; so what was the point of the sanctions anymore? You know there has been a ton of corporate investment dollars just dying to get into Iran; and you better believe they've been working on the Obama administration since the moment he entered office. Since Obama (and, of course, Valerie Jarret) is highly sympathetic to Iran, it was only a matter of putting up an appropriate puppet show before conceding to what all sides-- i.e., Obama, the international corporations, and Iran-- all eagerly wanted.

The major problem, of course, is that the whole process, as it unfolded, made the US appear incredibly weak and ineffectual. But to Obama, that's a feature, not a bug. And now Iran is taking full advantage of that weakness.

 

Sun, 02/07/2016 - 15:21 | 7153160 giovanni_f
giovanni_f's picture

"And now Iran is taking full advantage of that weakness."

Good.

Sun, 02/07/2016 - 17:22 | 7153586 Buckaroo Banzai
Buckaroo Banzai's picture

You are laboring under the misconception that, in this case, what is bad for the US, is good for you. That's pretty dumb. There are dozens of ways this could have gone that would have been better for the US, and better for everybody in general-- while still being beneficial for Iran.

Unfortunately, the administration that is currently occupying the White House is either incompetent, traitorous, or both.

Mon, 02/08/2016 - 00:40 | 7154655 Kiwi Pete
Kiwi Pete's picture

If North Korea can afford one then I'm sure Pakistan can.

Sun, 02/07/2016 - 12:44 | 7152445 Father Thyme
Father Thyme's picture

Democrats have made America Grate Again.

Sun, 02/07/2016 - 12:47 | 7152456 DownWithYogaPants
DownWithYogaPants's picture

Use your forefinger to press the tip of your nose to the side and repeat after me:

"Dats an awful nice oil well you gots there.  It would be a shame if somtin happened to it"

Sun, 02/07/2016 - 13:08 | 7152548 Absalon
Absalon's picture

This is all bullshit.

 

Countries are free to use whatever currency they want to denominate their oil contracts.  Russia was always free to insist on payment in Rubles.  China was always free to insist that they would only buy oil if they could pay in Yuan (or Euros or Swiss Francs or Japanese Yen or gold or whatever they wanted).  They both make the choice to use US dollars.

Sun, 02/07/2016 - 13:39 | 7152704 manofthenorth
manofthenorth's picture

Yea you betcha,

we are ALL "FREE" to do whatever we want here in the USA and around the "FREE" world !

And if you are not ?

Not to worry 'Murica gonna free the shit out of ya !!!

Sun, 02/07/2016 - 13:42 | 7152712 Reichstag Fire Dept.
Reichstag Fire Dept.'s picture

Absalon, you need to read up on Henry Kissinger as Secretary of State in 1973 and the establishment of the "Petro Dollar"...just sayin'!

Sun, 02/07/2016 - 14:40 | 7152953 Absalon
Absalon's picture

That was 40 years ago and Kissinger was probably completely wrong in his thinking.   The accumulation of foreign reserves in US dollars is probably a net negative for the US economy. 

 

The US has no leverage that would let dictate to Iran or Russia what currency Iran or Russia denominate their oil sales in.   The US has no leverage to dictate to China what currency China denominates its oil purchases in.

 

 

Sun, 02/07/2016 - 19:03 | 7153912 bonin006
bonin006's picture

Just like we are free to voluntarily pay our taxes (or rot in prison).

Sun, 02/07/2016 - 13:13 | 7152570 Max Cynical
Max Cynical's picture

This doesn't mean they're going to keep euros in reserve...probably already converting excess reserves to gold.

Sun, 02/07/2016 - 14:59 | 7153077 Absalon
Absalon's picture

It does not matter whether they get dollars or Euros they are going to spend it on the world market as fast as they get it.  The F/X markets will take care of the rest.

Sun, 02/07/2016 - 13:43 | 7152718 robertsgt40
robertsgt40's picture

BTW Tyler, Iranhasn't attacked anyone in 2 centuries. The US has 43 military bases surrounding Iran.  The US and UK have been mettling in Iranian affairs since 1953 with a coup against the duly elected president and replaced with the Shau.  And you expect them to make warm and fuzzy with their antagonizers? I want what you're smoking.

Sun, 02/07/2016 - 15:46 | 7153255 giovanni_f
giovanni_f's picture

Thank you. Same with North Korea, e.g., or Cuba. The majority of people on this  planet consider the USA as the most evil shitheap in human history. Yet most Americans don't get it. I believe less than 100 Americans  know that their leaders bombed North Korea almost back to the stone age or about how the democratically elected president of Iran, Massadeq, was displaced in a CIA coup d'etat.

Sun, 02/07/2016 - 12:56 | 7152489 nidaar
nidaar's picture

But you are missing the point. Today Euro instead of Dollar, tomorrow Yuan instead of Euro, then Gold instead of Yuan...

Sun, 02/07/2016 - 13:12 | 7152565 ejmoosa
ejmoosa's picture

Imagine what would happen if they demanded hard gold only.....

Sun, 02/07/2016 - 13:16 | 7152588 Sages wife
Sages wife's picture

See: Libya.

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