Iran has asked Japanese buyers of oil to pay in yen, not dollars. It has always been the convention to denominate oil sales in dollars (the Scotsman in March 2007 reported that China’s Zhuhai Zhenrong Corp, the biggest buyer of Iranian crude worldwide, had started paying for Iranian oil in dollars last year). If other Gulf States were to follow suit, this would be a serious repudiation of the dollar.
The US government is rumored to understand this risk full well. In 2005, Iran had announced plans to open a petroleum exchange in which petroleum, gas, and petrochemicals would trade in non-dollar currencies, mainly the euro. It was scheduled to open in early 2006 but has encountered repeated delays, and still remains in limbo, although there appears to be no explanation as to why. The conspiracy-minded have opined that the US’s threats of military aggression have as much to do with this exchange as with Iran’s nuclear program.
The yen was buoyed in early afternoon trade by reports that Iran had asked Japan to pay for its oil purchases in the Japanese currency and not in dollars.
Though the story is yet to confirmed, it helped push the dollar down from around the 122.40 yen mark down to below 120.
‘The news mirrors attempts by Iran to move away from all dollar-based exposure with a shift to other currencies,’ said Rhonda Staskow, an analyst at IFR Markets.
‘In fact, as one analyst called them, the ‘Axis of Oil’, Iran, Venezuela and Russia have shifted much of their foreign currency reserves to euros in recent months,’ she added.
Diversification away from the dollar is one of the reasons the US currency has been on the back foot over the last few years.