Bloomberg: Iran, holder of the world’s second-largest oil and gas reserves, opened an exchange for crude and petrochemicals as the government encourages private investment in the energy sector.
By Ladane Nasseri and Ayesha Daya
Feb. 17 (Bloomberg) — Iran, holder of the world’s second- largest oil and gas reserves, opened an exchange for crude and petrochemicals as the government encourages private investment in the energy sector.
Trading began today in petroleum products such as light polyethylene, a plastic used for packaging. The Tehran-based Iran Mercantile Exchange is using “spot” rather than futures trading, requiring immediate payment and delivery of the physical product.
Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, wants to encourage local investors to participate in the oil market as it tries to reduce the state’s role in the country’s energy industry. Political pressures and the exchange’s use of spot contracts may reduce interest in the exchange, an analyst said.
“I don’t expect there will be much liquidity on this market,” said Dalton Garis, economics professor at the Abu Dhabi Petroleum Institute. “Traders use such exchanges to hedge against price risk, rather than buy a commodity. Also, traders will be under pressure not to trade with Iran.”
Oil derivatives and petrochemical products will be traded initially on the exchange, Ali Akbar Hashemian, director general of Iran’s Mercantile Exchange Co., said.
Crude oil contracts will be added after a review, Iran’s Oil Minister Gholamhossein Nozari said, without giving a specific date. Iran had been expected to start its own oil-trading market in 2005. Since then, Dubai has launched the Persian Gulf’s first bourse to trade sour crude oil futures, which best reflects the type of oil produced in most of the region.
“On the world’s major exchanges, only a very small amount is settled through physical delivery,” Garis said in a phone interview from Abu Dhabi. “Most petrochemicals supply is locked into long-term contracts that were probably lined up before the plants were built.”
A review of religious rules led to the spot trading rule, Hashemian said.
“We are ready from a technical point of view for futures trading,” he said. The religious issue was recently resolved, although the authorities haven’t yet decided whether to trade petrochemicals futures, he added.
Iran’s government expects to raise about $90 billion from selling shares in the country’s state-owned energy companies after a 2006 directive from Supreme Leader Ayatollah Ali Khamenei that four-fifths of the country’s biggest companies should be sold to develop the economy.
From Seller to Trader
“We have been a good seller of oil,” the oil minister, Nozari, told reporters at the exchange. “The aim we have today is higher, to have a share in oil trading.”
The Iranian rial will be used for all transactions in the first phase and “can be converted in real time into any currency,” Nozari said. Traders are based in the Kish Island free-zone, offering investors easy transfer of money and tax exemptions.
The exchange may also use the Russian ruble “to free the world of dollar slavery,” Iran’s ambassador to Moscow, Gholamreza Ansari, said Feb. 15.