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Iranian President Makes Moves To Capitalize On Iranian Oil Wealth

Angelique van Engelen - 8/14/2007

The Iranian President Mahmoud Ahmedinejad is reshuffling the oil ministry. He says this way, he hopes to deliver on his promise to redistribute wealth. He’s also sacked the Industry Minister. And next on the agenda is the Foreign Affairs Ministry.

It’s not the first time Ahmadinejad’s going about rearranging the furniture back home. But so far, he’s tended to project his zest for change to officials dealing with the outside world. Shortly after coming into power two years ago, his replacing 40 ambassadors sent out a strong message - the Iranian president was unlikely to budge over the nuclear program his country was running.

The replacement of the oil and industry ministers is explained as a tactical move by the Iranian president to increase his control over areas that he believes key to economic prosperity. So now there’s no outside world that he can pitch the rationale for his action against. What’s more, the move draws attention to a failure on behalf of Mr Ahmadinejad. Having been elected on a highly populist agenda, Ahmadinejad’s not delivered many of the goodies he promised in his election campaign in 2005. His luring promises to the young population faced with high levels of unemployment, were to the average Iranian just what the country needed.

Ahmadinejad offered to drag the fledgling economy out of the mess it was in and o so magic oil revenues were going to be key in this plan. However, Ahmadinejad’s plan to reshape the oil sector has been met with strong resistance from within the industry. The oil minister that was sacked, il Minister Kazem Vaziri Mahaneh, is known to be highly opposed to restructuring the industry.

Plans to open an Iranian Oil Bourse to compete with NYMEX in New York and the IPE in London have been continuously deferred for the past two years. At least three deadlines have expired without any progress achieved to open this bourse in the Iranian Free Trade Zone on the island of Kish. The bourse is meant to attract international oil trading to the Middle East.

Outside observers say the potential for an oil trading platform in the Middle East is promising but its main risk will be stability. Oil markets, like currency markets, react way more intensely to political instability than other capital markets. The Iranian nuclear issue won’t do the country any favors in creating the best circumstances for a successful oil bourse.

How the plans for an oil bourse finally will pan out is going to be crucial for developments at home in Iran and the country’s leaders’ realization that stressing out the world at large over nuclear (in)capability also might turn out to have consequences for Iran’s own prosperity. Iran’s plans are leading the international drive to overhaul dollar denomination in global oil trading, currently accounting for around 65% of all oil trade, and this is a strong card. Iranian oil traders have been suggesting to clients to start paying in euros for a while now and according to the Iranians are finding a willing ear. They say that over half their business is now conducted in Euros.

Some international trading houses quoted by the International Herald Tribune a few months ago confirmed that they were being encouraged by officials in Iran’s oil industry to pay in currencies other than the dollar, but that they had yet to receive an official request from the authorities. "We are looking at it so that we can switch the currencies any time, but we have not gotten any official requests from them," the Nippon Oil chairman, Fumiaki Watari, was quoted as saying. The only official company to confirm the news was a Chinese state owned corporation. That was big news because it imports 12 percent of Chinese foreign imported oil. China is also supporting Iran’s nuclear plans and has threatened to use its veto in the United Nations. The US has a reason to be somewhat worried.

Saddam Hussein’s plans to swap dollars into euros was the main reason behind the US’ invasion into that country, according to many observers.