Iran’s re-entry into the oil market, following the end of sanctions over its nuclear program, will also mark the beginning of a major effort to reduce its dependency on the U.S. dollar. Not only is Iran demanding payment in euros instead of dollars for its new oil contracts, but it also wants the billions owed by its trading partners to be remitted in euros.
“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,” said Iran’s state-owned NIOC oil company, as reported by Reuters. The affected contracts include oil sales to Total of France, Cepsa and Litasco of Spain, and Litasco of Russia.
Reuters’s source within NIOC also said that Iran communicated a desire for payment in euros to all of its trading partners, and has recovered some of the funds that were formerly frozen under sanctions with currencies other than the dollar.
The Indian Express reported that Iran will be “opening or re-activating euro accounts with Indian banks and would like to have the money transferred from refiners into these accounts.”
“Many European companies are rushing to Iran for business opportunities, so it makes sense to have revenue in euros,” said Robin Mills of Qamar Energy in Dubai.
Reuters notes a longer-term objective is at work, because Iran has long been pushing for the euro to replace the dollar as the standard currency for international oil transactions. Their source within Iran’s state-run oil company frankly declared that his country “shifted to the euro and canceled trade in dollars because of political reasons.”
Economists have mixed opinions about what such a shift would mean for the American financial system, with some arguing that the pressure of serving as the world’s reserve currency gives other nations too much latitude to manipulate the value of their own currencies, while others say the dollar’s special position in world markets helps to keep American interest rates down. The most pessimistic predictions of what would happen if “King Dollar” were dethroned say that it could precipitate the financial meltdown of the U.S. government, by dramatically increasing the already huge cost of financing our immense national debt.