[DEBATE] : Oil Is Up, and This Time the Dollar Is Down + Iran Gets over 70 Pct Oil Income in Non-US Currencies

[Yoshie Furuhashi]

While no crisis of the capitalist mode of production is in the offing,
the waning of US hegemony appears to be, due to economic reasons as
well as Washington's own adventurism.  I hope that will give enough
room for maneuver to the Iranians. -- Yoshie

<http://www.iht.com/articles/2007/09/23/bloomberg/bxatm.php>
Oil is up, and this time the dollar is down
By Michael R. Sesit
Bloomberg News
Monday, September 24, 2007

PARIS: Oil is up and the dollar is down. If the petroleum part of that
relationship doesn't change significantly - which looks unlikely - the
currency piece probably won't, either.

For three decades, the correlation between two of the world's most
important prices was strongly positive, with oil and the dollar rising
and falling in tandem.

Petroleum is bought and sold in dollars. That meant that as oil prices
climbed, so did the global demand for dollars. And the appetite for
dollars grew even larger during recurrent oil shocks, as rising risk
aversion prompted investors to seek safety in U.S. Treasury
securities.

The U.S. currency was also buoyed by the inclination of oil-exporting
countries to invest their sale proceeds in dollar-denominated
securities. When they spent the funds on goods, they usually bought
American.

But since early 2002, the correlation between oil and the dollar has
been negative. When oil rises, the U.S. currency falls.

>From about $19 a barrel in late January 2002, the price of oil has
catapulted to $81.62. Since then, the dollar has tumbled by 39 percent
against the euro, to $1.4081, and by 34 percent on a trade-weighted
basis.

After the Federal Reserve cut its federal funds rate by half a
percentage point to 4.75 percent on Sept. 18, crude oil rose to a
record $83.90 a barrel and the dollar fell to a record low of $1.4120
to the euro.

What happened? Oil nations are more willing to diversify out of the
dollar than they used to be, said Mansoor Mohi-uddin, the head of
foreign exchange strategy at UBS, in Zurich.

Stephen Jen, the global head of current research for Morgan Stanley in
London, agreed. "Oil exporters' propensity to import from the U.S. has
declined in recent years, while their tendency to import from Europe
and Asia has risen steadily," he said, adding that OPEC nations
currently buy more than three times as much from the European Union as
from the United States.

To the extent that oil exporters keep buying European, Europe's
economy may be less affected by higher oil prices than the U.S.
economy, prompting investors to favor European investments. And since
oil imports account for about a third of the U.S. trade deficit, "high
and rising oil prices may be particularly bad for the dollar," Jen
said.

What's more, many investors see the Fed reacting to rising oil prices
by cutting interest rates to preserve growth, and expect the European
Central Bank to raise rates to ward off inflation.

Costly petroleum is not the only reason the dollar is weak: Asian
central banks are diversifying into other currencies. Growing
protectionist sentiment in the U.S. Congress is casting doubt on the
willingness of foreign investors to finance the current account
deficit. Relatively low U.S. interest rates reduce the appeal of
dollar assets to international investors. And to the degree that the
subprime mortgage mess is an American phenomenon, it does the dollar
no favors.

Nonetheless, "the importance of the continued rise in oil prices has
been underestimated," said Paul Robinson, a currency strategist at
Barclays Capital in London. "The worrying thing from the perspective
of those who care about a strong dollar is that the risks are
predominantly to the downside, and the oil price is clearly one of
them."

Since the start of 1993, the dollar has been the worst performer among
the world's 10 major currencies during periods when increases of oil
prices were stronger than usual, Robinson said. Last week, commodity
analysts at Goldman Sachs raised their year-end oil-price forecast to
$85 a barrel, compared with their previous forecast of $72.

That doesn't look like good news for the dollar.

<http://uk.reuters.com/article/oilRpt/idUKL2576439020070925>
UPDATE 2-Iran gets over 70 pct oil income in non-US currencies
Tue Sep 25, 2007 5:24pm BST

(Releads with update from Iran oil official)

TEHRAN, Sept 25 (Reuters) - Iran, locked in a row with Washington over
its nuclear work, is aiming to boost oil export earnings in non-U.S.
dollar currencies to 80 percent by the end of next month, an Iranian
oil official said on Tuesday.

A switch in payment by Nippon Oil (5001.T: Quote, Profile, Research)
and other Japanese refiners to yen has already pushed the Islamic
Republic's non-U.S. dollar income to more than 70 percent.

"With the arrangements we've made with our Asian customers, hopefully
by the end of October we will have around 80 percent of our export
revenue in currencies other than the dollar," Hojjatollah Ghanimifard,
international affairs director of the state-owned National Iranian Oil
Company (NIOC) told Reuters.

For nearly two years, the world's fourth-biggest oil exporter has been
reducing its exposure to the dollar, saying the weak U.S. currency is
eroding its purchasing power.

In July, the National Iranian Oil Company (NIOC) made an official
request to customers in Japan, which imports more than 300,000 barrels
per day (bpd) of Iranian crude, to pay in yen.

Mohammad Ali Khatibi, Deputy Director of International Affairs at the
state oil company, earlier on Tuesday told the oil ministry's official
website SHANA that some Japanese refiners have asked for more time to
honour Tehran's request.

"Currently, over 70 percent of Iran's crude exports are based on euro
and yen instead of dollar," said Khatibi.

"Nippon Oil is not the only Japanese refinery which has replaced
dollar with yen, but also there are some other refineries that have
started this replacement," Khatibi said.

"Others called for one or two months to do that."

Before Japan made the switch, just short of 70 percent of Iran's oil
income was in non-U.S. dollar currencies.

Iran's total crude oil exports are around 2.3 million bpd. (Additional
reporting by Peg Mackey in London)

<http://uk.reuters.com/article/oilRpt/idUKL2582205420070925>
Iran cuts petrol imports to save nearly $3 billion
Tue Sep 25, 2007 6:36pm BST

LONDON, Sept 25 (Reuters) - OPEC's second largest producer Iran is
making a drastic cut in gasoline imports through rationing and expects
to save nearly $3 billion in this Iranian year, a top Iranian oil
official said on Tuesday.

The Islamic Republic aims to slash petrol purchases to 15 million
litres per day (94,000 barrels per day) over the next six months --
nearly 60 percent below the rate before rationing started in June,
when Tehran imported 36 million litres a day.

"We are buying tremendously less in the market than before rationing
was imposed in June," Hojjatollah Ghanimifard, international affairs
director of the state-owned National Iranian Oil Company (NIOC), told
Reuters.

"With this lower amount of imports, we expect to save about $3 billion
over the whole year."

The world's fourth largest oil exporter lacks refining capacity and
must import large amounts of gasoline to cover its needs -- a
sensitive issue as the West considers tougher sanctions against Tehran
over its nuclear work.

The effects of rationing already are in evidence, with Tehran saving
about $950 million during the first half of the Iranian year (from
March 22-Sept. 22).

During that period, the Islamic Republic's imports of gasoline
averaged 25 million litres per day. The next six months will be even
lower.

"Our import target for the second half of the Iranian year is a
maximum 15 million litres/day," said Ghanimifard.

Iran's gasoline import requirements are 15 million litres/day for this
month and 14 million litres/day in October, he said.

India, the Netherlands, France and the United Arab Emirates are Iran's
primary suppliers.

On Friday, Iran's consumption of gasoline was running at 64 million
litres, said the Iranian official -- down 20 percent from up to 80
million litres/day before rationing.

Importing gasoline is a costly business for Iran, which subsidises all
fuel sold at the pumps -- whether imported or not -- so drivers pay
just 1,000 rials (11 U.S. cents) a litre.

Under rationing, private cars can buy 100 litres of gasoline a months,
but drivers can also buy their quotas up to six months in advance.
--
Yoshie