Sunday, November 18, 2007

Oil and Dollar

As the oil prices are closing in on $100, Iran has been pressing OPEC to study the weak dollar's effect on the oil cartel's earnings and to study the feasibility of pricing oil in a currency basket instead. Iran which uses most of its dollar-based oil revenues on euro and yen-based imports has been particularly hit hard by the free fall in dollar value.

President Ahmadinejad, attending the OPEC summit, today said a majority of OPEC heads of state have expressed willingness to study the switch away from dollar. The final communiqué issued today at the end of the summit said OPEC will study “proposals by some of the heads of state and governments,” apparently referring to Ahmadinejad’s (and Hugo Chavez’s) proposal on the switch away from dollar.

The controversy over dollar-based oil pricing come few months before Iran celebrates the 100th anniversary of its discovery of oil with $100 oil! The first oil wells of Iran and the Middle East were discovered and drilled in Masjid Soleyman, in southwestern Iran, in 1908. In the past 100 years, Masjid Soleyman alone has produced more than 1.5 billion barrels of oil.

Iran’s crude oil export revenues are expected to surpass $70 billion this year. Iran feels, however, that the weak dollar has eaten considerably into its oil revenue bonanza of the recent years.


Mark Pyruz said...

I thought Iran had converted to the Euro for payment of oil. You state here that it is dollar based. Please explain.

Nader Uskowi said...

Mark, what Iran has done is accepting revenues in Euro or Yen. However, oil is still priced in dollar (the sales price is calculated in dollar first, then converted into Yen or Euro for paymant). The new push is to have oil priced on a basket of currencies, and not just dollar, to lessen the impact of a weak dollar.

Mark Pyruz said...

Ah, a weak dollar for the world oil market buys less euros and yen. I can understand the push for a basket. Thanks for the swift reply.