Iran’s decision to trade oil in Euros instead of dollars

Posted by jerry as finance, politics

Iran announced that it is now trading oil Euros instead of dollars. The weakness in the dollar is cited as a primary reason, though it is understood that the growing tension between the US and Iran is probably a key factor as well.

The general reaction I have seen is: “Holy Crap!”. But, I have to wonder: what is the real impact of doing such a thing, from any side? Oil is a fungible commodity. Currencies are traded on the market. Oil sold in Euros is still convertable to the current exchange rate to dollars. So, someone who wants to buy a million barrels of oil from Iran has to convert $120M to 75M Euro before conducting the transaction? That does sound grave. I suppose the net effect is that Iran will be holding $80B less US dollars per year. Since NO US institution can transact business with the Iran anyhow, Iran is most likely having to exchange them for Euros, Yen or some other currency before doing anything meaningful with it anyhow.

I suspect the risk is that the whole oil market will eventually follow suit. With the recent behavior of the US, that seems likely, but I still have to wonder: will we care?