In the latest news regarding Iran’s insistence that all international transactions (including oil sales) be conducted in euros, Brazil has become the first Latin American country to buy in to Tehran’s anti-dollar campaign. Iran is interested in Brazilian cars, trucks, jetliners, as well as replacement equipment for its refineries and oil wells. These sales would be a tremendous boost to Brazil’s recession-plagued economy.
Iran has told Indian refiners that it wanted their $6 billion in debts to be paid in euros over the next six months, and has recently inked several deals with European companies that are denominated in euros
Dollars Not Accepted
As soon as international sanctions over its nuclear program were lifted, Iran began billing its new oil customers in euros. This made sense, as most of Iran’s traditional customers for its oil are in Europe. Likewise, many European companies are eager to re-enter the Iranian market. This actually isn’t a new development for Iran. For years while under international sanctions, it transacted what little trade it was allowed to do by using euros.
Now that sanctions are lifted, Iran has been allowed to reconnect to the SWIFT international financial transaction network. However, still smarting over the treatment they received from the US, they have continued to buy and sell in euros.
The Quest For The Petro-Euro
In fact, the antipathy between the US and Iran goes back to American support for the regime of the Shah of Iran. In 2007, Iran pushed OPEC to abandon the petrodollar in favor of the euro, but the military alliances the US had with Saudi Arabia and other Persian Gulf monarchies meant that Tehran’s proposal did not get far.
But now, with relations between the US and Saudi Arabia strained (over Iran, ironically enough) the Saudis may be more receptive in “diversifying” accepted forms of payment. In fact, the encroachment of Russia into the Saudi’s traditional market of China means that they are being pressured to accept the yuan in payment for oil. This would open the door to also making euro-denominated deals.
US Sanctions Still In Place
Even though the US lifted sanctions put in place over Iran’s nuclear program, pre-existing sanctions regarding the US declaring Iran a state sponsor of terrorism remain in place. This means that American banks and companies cannot do business with Iran, and no transactions with Iran can go through the US banking system. This leaves foreign companies and banks exposed to prosecution, as the American government forbids any money at all from Iran to enter the US. This includes the US subsidiaries of foreign companies and banks. Since trying to track the internal path money made in Iran takes through the system is practically impossible, this in effect forces foreign companies to abide by sanctions put in place by the US alone, or… not deal in dollar-denominated trade with Iran. Hello, euro.
A Double-Edged Sword For The US
These sanction by the US government don’t just chill deals and investments between Iran and Europe. They also mean that American companies are almost completely locked out of this newly-open market that has desperate need for almost everything. This means that foreign companies that can find financing at home don’t have to worry about competition from US companies.
Even if an American company obtained a special exemption for a narrow contract with Iran, they run the very real risk of accidentally interacting with someone on the Treasury Department’s “blacklist” and being heavily fined. Add to this, the fact that most Republican Presidential candidates have pledged to re-instate nuclear sanctions against Iran. Any US company brave enough to risk trade with Tehran could see its assets in the country abruptly be out of reach.
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