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Tuesday, Jun 17, 2003

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Iran offers oil to Asian union on easier terms

C. Shivkumar


IRAN has offered to supply oil to member countries of the Asian Clearing Union (ACU) on preferential terms in a bid to boost regional trade volumes.

Speaking to Business Line, Dr Mohammed Jaffar Mojarrad, Vice-Governor of the Iranian Central Bank, said: "We are prepared to supply oil on the same credit terms as in the ACU." The current mechanism within the ACU provides for a two-month settlement period. Such a large settlement period acts as short-duration credit. Currently, oil is traded either in the spot markets or through forward contracts, though countries like India have some imports in the form of country contracts.

However, Dr Mojarrad made it clear that Iran would prefer the payments to be denominated in euros, though invoiced in dollars. In fact, Iran has been in the forefront on insisting that payments settlements among the ACU member countries be permitted in alternative currencies including the euro. All payments settlement between the ACU members is currently done in dollars.

Iran's oil and gas exports destined mostly for Europe are already denominated in euros. Iran produces about 3.5 barrels and is the second largest oil exporter among the Organisation of Petroleum Exporting Countries (OPEC). About 30 per cent of the Iran's oil exports are destined for European markets. The other two large consumers of Iranian Oil are India and China. Even in the case of Indian only a small quantum of the oil imports come through the ACU mechanism.

As a result of the large exports to Europe, Dr Mojarrad said 60 per cent of Iran's foreign reserves were held in the form of euros. Iran's current foreign exchange reserves are estimated to be equivalent to $20 billion.

But, he added, the switch to the euro, which as done during the last few months had helped the country to negate the effects of a depreciating dollar and falling international oil prices. He said that if the country had continued its receipts in US dollars, it would have meant large losses, which would have translated into domestic inflation. This was because large volumes of its imports are also sourced from Europe. The Iranian central bank was keen to avert that situation and had consequently adopted the euro-denominated payments to ensure that the losses were minimised. The country had also resorted to managing its reserves to minimise the effects of the depreciating dollar, he added.

Oil prices during the last few months have fallen from a high $34 dollar a barrel to about $24. Most international oil analysts forecast it to drop below $ 20 a barrel at current levels of production. However, during the last one year, the euro has appreciated by over 30 per cent against the US dollar.

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