Iran holds the cards

An oil bourse in Tehran could reap havoc on the US economy. There has been a lot of rhetoric over Iran in recent weeks, but the authorities in Tehran may be far smarter than we are giving them credit for. Our exclusive interview this week with former Iranian president Mohammed Khatami sheds light on a number of issues...

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By  Anil Bhoyrul Published  June 11, 2006

Iran holds the cards|~||~||~|An oil bourse in Tehran could reap havoc on the US economy. There has been a lot of rhetoric over Iran in recent weeks, but the authorities in Tehran may be far smarter than we are giving them credit for. Our exclusive interview this week with former Iranian president Mohammed Khatami sheds light on a number of issues: notably, how Iran was once encouraged by the West to build nuclear reactors for power generation. But whoever’s argument you agree with, and regardless of whether you think Iran really is building a nuclear bomb, I sense this entire issue will all come down to one word: oil. In the interview with Ramia Farrage, Khatami doesn’t do much to hide his feelings, explaining: “The U.S. is spending billions of taxpayer’s dollars in the Middle East and unfortunately all it’s taking back is the corpses of American youth. America's presence in the region has been very detrimental to the Middle East and to the Americans themselves.” But beyond the rhetoric, there is a more serious point for both Iran and the US. This concerns the imminent Iran Oil Bourse, which many experts believe could become the dominant centre for the Middle East’s oil trade. It is an open secret that the bourse will trade for oil in euros, not US dollars. In other words, international buyers would have the option of spending fragile dollars on the New York Mercantile Exchange and London’s International Petroleum Exchange, or paying in powerful euros on the Iranian Bourse. You don’t need a degree in economics to work out that such a move could lead to a huge drop in the dollar’s value. It could, quite easily, devastate the US' economy. And Iran would be in pole position to benefit. At the end of the 2005 fiscal year foreign currency reserves sat at US$45 billion. Oil revenues grew to nearly US$42 billion. Commanding around 10% of the world’s oil reserves, Iran is the second-largest producer in OPEC after Saudi Arabia. As Khatami himself says: “The pressure on Iran is not because of nuclear weapons, it's political pressure. America needs to have an enemy to convince other countries that its behaviour in this region is appropriate and today America is trying to claim that enemy is Iran.” The economic fall out from this dispute could be castastrophic.||**||Lingering doubts|~||~||~|The confusion over just how successful the Dubai International Financial Centre is, and one day will be, is set to continue. Last week we revealed that the DIFC is considering a takeover of the Dubai Financial Market. Despite protests from executives at the DFM that “this is news to us” (well, sorry chaps, but that is the purpose of news stories), I have little doubt this deal will happen. The real question is what happens next. As we report this week, a new report sponsored by the Qatar Financial Centre - ‘Investment in the Middle East: Opportunities and Challenges for Financial Institutions’ – makes grim reading. Whilst firms are hoping to expand their Middle East operations, they are still looking for governments in the region to further the trend towards economic reform and a more open business environment. “A lack of transparency and poor regulatory standards are seen as a deterrent by quite a high proportion of those companies that we surveyed,” says the report’s editor Rob Mitchell. He has a point that can’t be ignored much longer.||**||Simple solution|~||~||~|I’ve had a lot of stick in the past few days from Emirates Airline, over the cover story we ran last week. Some executives at the company have called me in private to express their displeasure at my suggestion that the US$200 million FIFA sponsorship deal wasn’t such a clever move. To clarify the point, I never said such a thing. The point I was making – which I will make again – is that given this is a world class company with revenues of US$6.6 billion, and the world’s most profitable airline, isn’t it time those ticket prices were dropped? Like most readers, I am fed up of paying over US$100 just to make up for the rise in fuel prices. It doesn’t help that while I am waiting to board an Emirates Airline flight, all I can see is huge screens reminding me how much the company has splashed on soccer sponsorship. Sorry guys, but this issue just isn’t going away – not until you drop the price hikes. ||**||

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