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What Happens If Oil Is Traded In Euro's + Dollar's

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Yes you folks at HPC are still missing the biggest single factor which will influence the UK / US economies - OIL - because OIL IS POWER + whoever controls this Power controls the World -

Yes my friends, the Big Game is being played out right now + in MARCH 2006 the Iranian Oil Bourse is set to go on-line and trade hydrocarbons in EURO's -

Will this cause a power shift from WEST to EAST ?? - if it does you can bet that our standard of living is going to fall (down the pan) in the longer term - especially because the UK North Sea oil / Gas fields are now in a state of terminal decline and we are now net importers of hydrocarbons !

Suggest you all research this topic as March 2006 is not far away - and if things do 'kick-off' the 'Western World' (dependant on US / Dollar's) could be turned into a 'Banana Republic' -

++

A preemptive attack on Iran would “provoke other industrial nations to strategically abandon the dollar en masse”… “in an effort to thwart the neoconservatives from pursuing their desperate strategy of dominating the world’s hydrocarbon energy supply.” William R. Clark “Petrodollar Warfare; Dollars, Euros and the upcoming Iranian Oil Bourse”,

http://www.opednews.com/articles/opedne_mi...for_the_gre.htm

Also See :

The news agency reported the Oil Ministry and the Ministry of Economic Affairs and Finance are prepared to sign a memorandum of understanding that will prepare the way for the much-publicized initiative. The move was confirmed by another Iranian news source, MehrNews.com.

Hossein Talebi, director for information technology affairs for the National Iranian Oil Company, told the Fars news agency that the bourse project will proceed to the executive phase right after the memorandum is signed.

Talebi also said petrochemicals, crude oil and oil and gas products will be traded at the new exchange. “The oil exchange would strive to make Iran the main hub for oil deals in the region,” he said. Talebi added that most transactions will be carried out over the Internet. He said the new exchange could help to develop the petrochemical industry.

http://www.rockrivertimes.com/index.pl?cmd...&cat=4&id=11815

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I think the oil issue is something that will play out over the medium to long term rather then the next 2-5 years or so. I would have thought that even the Iranian oil bourse will take some time to play out. It seems rather unlikely that everyone is suddenly going to switch to buying oil in Euros from March 2006.

Also, I would have thought that if the US were really worried about it they would already be engaging in much louder sabre rattling then they are now.

I'm not saying it will have no impact. It may have a huge impact, but I can't see it all playing out suddenly and as far as any HPC is concerned I think oil is likely to be a contributing factor rather than a trigger.

All IMO of cause.

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Interesting one this...my gut feeling is it will be very hard for them to get off the ground because they will not have the liquidity necessary in the exchange. It's very hard to get an exchange going, especially if you're competing with some very old and well-established rivals. The Nymex (where US benchmark WTI is traded) tried to muscle in on Brent (North Sea benchmark traded on IPE in London) when the IPE stopped open outcry trading by opening its ownn Brent pit in Dublin and then London. Even though many of the pit traders that were essentially out of a job when the IPE closed moved over to Nymex, it hasn't really flown because the liquidity provided by the banks and oil companies has stayed with the IPE. More liquidity=better spread=attracts more business=more liquidity etc etc. It's a virtuous circle.

Another problem is that that supply chain is so complex that trading one part of it in another currency would introduce yet another layer of risk to be managed, hedged etc - it's a lot of work for oil companies (but maybe good news for banks!). At the moment if you're a refiner, you hedge your forward requirements with futures and CFDs in dollars, buy your physical crude in dollars, hedge your forward sales with futures and swaps in dollars, and sell to your suppliers in dollars. The currency only becomes an issue when you get to the last link in the chain - actually selling the stuff in a service station, which is another business. Now imagine that you are hedging your crude in euros, but the oil products market is still trading in dollars...nightmare.

Now what COULD overcome this massive inertia is if some big consumer nations like China and Japan got together and made a political decision to push for oil trading in another currency...but that seems a long way off

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Interesting one this...my gut feeling is it will be very hard for them to get off the ground because they will not have the liquidity necessary in the exchange. It's very hard to get an exchange going, especially if you're competing with some very old and well-established rivals. The Nymex (where US benchmark WTI is traded) tried to muscle in on Brent (North Sea benchmark traded on IPE in London) when the IPE stopped open outcry trading by opening its ownn Brent pit in Dublin and then London. Even though many of the pit traders that were essentially out of a job when the IPE closed moved over to Nymex, it hasn't really flown because the liquidity provided by the banks and oil companies has stayed with the IPE. More liquidity=better spread=attracts more business=more liquidity etc etc. It's a virtuous circle.

Another problem is that that supply chain is so complex that trading one part of it in another currency would introduce yet another layer of risk to be managed, hedged etc - it's a lot of work for oil companies (but maybe good news for banks!). At the moment if you're a refiner, you hedge your forward requirements with futures and CFDs in dollars, buy your physical crude in dollars, hedge your forward sales with futures and swaps in dollars, and sell to your suppliers in dollars. The currency only becomes an issue when you get to the last link in the chain - actually selling the stuff in a service station, which is another business. Now imagine that you are hedging your crude in euros, but the oil products market is still trading in dollars...nightmare.

Now what COULD overcome this massive inertia is if some big consumer nations like China and Japan got together and made a political decision to push for oil trading in another currency...but that seems a long way off

Very true. China and Japan, as the US's largest creditors, are all to aware that if they change to Euro's and

off load the dollar, then the real value of their dollar loans to the US will be affected as the dollar goes south.

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Interesting one this...my gut feeling is it will be very hard for them to get off the ground because they will not have the liquidity necessary in the exchange. It's very hard to get an exchange going, especially if you're competing with some very old and well-established rivals. The Nymex (where US benchmark WTI is traded) tried to muscle in on Brent (North Sea benchmark traded on IPE in London) when the IPE stopped open outcry trading by opening its ownn Brent pit in Dublin and then London. Even though many of the pit traders that were essentially out of a job when the IPE closed moved over to Nymex, it hasn't really flown because the liquidity provided by the banks and oil companies has stayed with the IPE. More liquidity=better spread=attracts more business=more liquidity etc etc. It's a virtuous circle.

Not to mention the 'hidden' things that underpin any exchange or financial center, that being confidence and transparency, without a solid legal framework that respects property and enforces contracts an exchange is worth nothing.

Dubai and China have real problems with financial probity in their markets, Iran is a whole other ball game, no US bank would be able to trade there, and that counts out almost all major European banks too because of their subsidiaries.

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True ..... but Iraq tried a similar thing in November 2000 ..... then 911 ..... and the rest is history ......

With all the noise being made about Iran's well known nuclear capacity being a front for arming weapons and the current President being a bit of a nutter (threatening Israel + preparing for the coming of the Islamic "messiah" + growing steadily unpopular with his own public + having little regard for his own appearance!) .... invading Iran would be a far easier "sell" than it was with Iraq .....

As far as I see it ..... America is in such deep trouble that even the slightest potential threat to its dollar hedgemony would need to be eliminated :(

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True ..... but Iraq tried a similar thing in November 2000 ..... then 911 ..... and the rest is history ......

With all the noise being made about Iran's well known nuclear capacity being a front for arming weapons and the current President being a bit of a nutter (threatening Israel + preparing for the coming of the Islamic "messiah" + growing steadily unpopular with his own public + having little regard for his own appearance!) .... invading Iran would be a far easier "sell" than it was with Iraq .....

As far as I see it ..... America is in such deep trouble that even the slightest potential threat to its dollar hedgemony would need to be eliminated :(

America will not invade Iran militarily. The geography of the country makes it virtually impossible. Maybe they will attack it in some other way.

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Not to mention the 'hidden' things that underpin any exchange or financial center, that being confidence and transparency, without a solid legal framework that respects property and enforces contracts an exchange is worth nothing.

Dubai and China have real problems with financial probity in their markets, Iran is a whole other ball game, no US bank would be able to trade there, and that counts out almost all major European banks too because of their subsidiaries.

wrong wrong wrong. It can happen all too easily you just need money (petrodollars will do for now) :)

step 1 - decide what your going to list. - easy oil oil oil but the product will be priced in euros or gold dinar or whatever ;).

step 2 - buy yourself an off the shelf ready programmmed exchange that the finnancial world trades on everyday by talking to http://www.aemarketsolutions.com host the exchange in London and get them to provide some sort of a managed service for it.

step 3 - get your contracts cleared by the LCH and your exchange regulated by the FSA.

step 4 sign up a market maker.

build it and the locals will come. sitting in a London data center next to most of the other European capital markets Its not like It could be bombed by Bush.

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Yes come March the UD$ will tank so Bush needs another staged 9-11 so we can invade Iran

Very true. China and Japan, as the US's largest creditors, are all to aware that if they change to Euro's and

off load the dollar, then the real value of their dollar loans to the US will be affected as the dollar goes south.

But china and japan can not keep backing a 3 leged hourse for ever.

China is the reason the USA has not bombed iran becuause china is starting to call the shoots

the Euro climb and i can see £1=1.10eu's not being too far away.

America will not invade Iran militarily. The geography of the country makes it virtually impossible. Maybe they will attack it in some other way.

Do you think a few nukes would help or maybe a few bio-weapons would do the job.

Iran is no match for america without the help of china and thats the trouble i thinks

Wonder why we are building our own GPS system !

Edited by Justice

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Yes come March the UD$ will tank so Bush needs another staged 9-11 so we can invade Iran

But china and japan can not keep backing a 3 leged hourse for ever.

China is the reason the USA has not bombed iran becuause china is starting to call the shoots

the Euro climb and i can see £1=1.10eu's not being too far away.

Do you think a few nukes would help or maybe a few bio-weapons would do the job.

Iran is no match for america without the help of china and thats the trouble i thinks

Wonder why we are building our own GPS system !

so are the pawns being positioned in this global game of chess??....in that case what do you make of russia turning off the gas-tap to ukraine(and most of europe for that matter)

payback for the ukrainian revolution or the EU for backing it???

funny how EU countries are all NATO allied now too??...apart from switzerland but that's where the puppetmasters live.

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Just how far America will go is what concerns me.

Let's say the Iranian oil bourse is a success and there's a shift away from the Dollar to the Euro and banks begin selling their dollar reserves.

America will be faced with a falling dollar, a trade deficit it can't maintain, a recession/depression like Germany after the Great War and a huge millitary budget it can't afford.

If history has taught us anything it's that empires don't just fade away, they go down fighting. Would America do the same?

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Just how far America will go is what concerns me.

Let's say the Iranian oil bourse is a success and there's a shift away from the Dollar to the Euro and banks begin selling their dollar reserves.

America will be faced with a falling dollar, a trade deficit it can't maintain, a recession/depression like Germany after the Great War and a huge millitary budget it can't afford.

If history has taught us anything it's that empires don't just fade away, they go down fighting. Would America do the same?

Yes I think we are already seeing this happen

Dot.Con/Shares go bust and along comes the 9-11 . Buys a bit more time

So tell me why is America investing so much in weapons now the cold war is over

America and by implication, britain are both desperate and by strange coincidence we are both at the top of the league when it comes to per capita debt.

Personally Bush will profit no mater what happens as he and his family has so many business links with weapons manufactures and the Saudi Royals.

Time Americans woke up to the real devil and sorted out the overwhelming corruption that has become endemic within US government.

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Interesting one this...my gut feeling is it will be very hard for them to get off the ground because they will not have the liquidity necessary in the exchange. It's very hard to get an exchange going, especially if you're competing with some very old and well-establ

I think you have overcomplicated the issue - but I am certainly no trader.

If Iran does start to trade then it will initially do so in Dollars. I gather their intent is to attract the Saudis to the Bourse along with other middle eastern countries. If they are successfull, and I would bet they are, then the next step will be for Europe and Japan to request that they trade in Euros and Yen. This will take place over a year or two so dont expect to see a calamity in March 06, the impact will diffuse through the markets.

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wrong wrong wrong. It can happen all too easily you just need money (petrodollars will do for now) :)

step 1 - decide what your going to list. - easy oil oil oil but the product will be priced in euros or gold dinar or whatever ;).

step 2 - buy yourself an off the shelf ready programmmed exchange that the finnancial world trades on everyday by talking to http://www.aemarketsolutions.com host the exchange in London and get them to provide some sort of a managed service for it.

step 3 - get your contracts cleared by the LCH and your exchange regulated by the FSA.

step 4 sign up a market maker.

build it and the locals will come. sitting in a London data center next to most of the other European capital markets Its not like It could be bombed by Bush.

I don't quite understand what you're saying. You are saying that Iran could easily set up a Euro-based oil futures exchange in London? Well, in that case so could anyone. But they haven't done it because it wouldn't work currently. Dollar-based trading is so entrenched that it will take massive political will from both producer nations and consumer nations to overcome the inertia of current conventions.

There are lots of things in the oil market that could - theoretically- be changed to make the whole game easier, but in practice will never change because they require too many competing parties to make a joint decision, then you have thousands of contracts to be rewritten etc. For example, in the US, crude and oil products are traded volumetrically - ie in barrels and gallons. In Europe, crude is also traded in barrels, but oil products are traded by weight - in tonnes. Say you want to buy some gasoline in Europe and sell it in the US. To know the margin you will make, you need to convert a price in $/tonne to a price in $/gallon. To do this you need to know the density of the gasoline - but the density can vary! So you have that element of risk in the process. It also makes the process of calculating refining margins etc more complicated than necessary. It would make far more sense for all oil and oil products to be traded in tonnes. But the inertia of current convention is too strong to overcome, and so things we keep being done "the way we've always done it."

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I think you have overcomplicated the issue - but I am certainly no trader.

If Iran does start to trade then it will initially do so in Dollars. I gather their intent is to attract the Saudis to the Bourse along with other middle eastern countries. If they are successfull, and I would bet they are, then the next step will be for Europe and Japan to request that they trade in Euros and Yen. This will take place over a year or two so dont expect to see a calamity in March 06, the impact will diffuse through the markets.

Bottom line is - this not going to fly (as much as some on here would love it to). Iran organisationally is a joke, especially since the election. They have spent months trying to appoint a cabinet. They have a ropey economy despite their oil income, and they are politically weak within Opec. This is a doomed political gesture, much like a lot of the gesturing you see coming from Venezuela.

Now, to deal with the Iranian oil bourse issue once and for all:

-What is the primary function of an oil exchange?

Not to buy or sell actual physical barrels of oil, bu to allow oil companies to manage price risk and exposure by buying and selling futures contracts, thus locking in forward prices.

But not even all oil companies do this. Exxon, for example, the world's biggest oil company, does very little hedging. They are happy with the price risks they are carrying.

I would therefore be extremely surprised if the Saudis or any Middle Eastern countries hedged any of their future production. They do not want to miss the opportunity of further price rises, and so are happy to risk price falls. And as Opec members they can do their darndest to prevent price falls. They just sell their physical oil at the price they can get. So these guys, despite being massive producers, actually have surpisingly little relevance to the oil exchange.

So the business for the exchange comes from: international oil companies (Shell, BP, etc), oil consumers locking in forward prices, and banks. There are a huge number of practical and political reasons why these would not abandon hedging on the Nymex and IPE in favour of Iran, some of which have already been mentioned on this thread. One key ingredient for a successful exchange is, as mentioned before, a stable and dependable legal and regulatory environment. Iran does not have this! How are contractual disputes, non-performance going to be settled? Do you think Shell or BP would rather settle disputes in a UK court or an Iranian court.

Then you have the issue of benchmarks - Brent and WTI get so much liquidity because they provide the reference price for almost every other grade of oil traded. This is very ingrained, as they were the contracts that first emerged when oil begun to be traded as a commodity, and it is hard to see what circumstances could lead to a shake up of this.

China and Japan in future could get involved and provide the business needed to get it off the ground, but there is no sign of the massive political will needed to make this happen from those countries yet.

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Gold v oil pricing....................Gold is priced in $ only because it's the most well known currency......nOt for any economic reason so if the $ falls 10% in value the $ price of gold rises 10%....................After all, gold holdings, both government and private are one of the few economic things not dominated bt the US......

Oil prices on the other hand don't work like this........because of oil companies thinking of their profits in $ terms..........

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