• Home
• /
• Energy

Iran could reassert authority at Opec

Bijan zanganeh returns this week to the same Vienna hotel suite he last occupied eight years ago as Iranian oil minister, ready to prepare Opec for what Tehran hopes will mark its return to the rank of the group’s second biggest producer.

Emboldened by its nuclear deal with the West, Iranian oil negotiators led again by industry veteran Zanganeh, will seek to reassert Tehran’s authority in the Organisation of the Petroleum Exporting Countries (Opec) at a Wednesday meeting.

Western sanctions imposed in 2012 on Iran for its nuclear programme have cost it dearly, losing it billions of dollars in oil revenues and market share in Opec — largely to Saudi Arabia and Iraq.

With its exports still shackled by sanctions for at least another six months, Iran poses no immediate threat to the status quo. Oil ministers are widely expected to roll forward until June an agreement to hold their output near 30 million barrels daily for 12 member countries. But oil traders will be watching closely for signs of cooperation, or otherwise, between the big three producers in Opec, knowing that Riyadh and Baghdad will need to find room for Iran should its interim nuclear deal be verified and sanctions lifted.

Reappointed by Iran’s new and more western friendly President Hassan Rouhani, Zanganeh has openly criticised Iraq, now Opec’s second biggest producer, for increasing its market share at Tehran’s expense.

“We expect the Iranians to say, ‘We’re coming back to the market and we need some space,’” said an Opec delegate from a rival Gulf Arab producer.

Rising volumes from the United States spurred by production from new shale technology may mean Opec will need to cut output in the second half of 2014 if it wants to keep oil prices above $100 a barrel.

“From now until the end of March, the market looks well balanced and the price should stay supported. But from June, there will be a need for a cut,” said a senior Opec delegate.

“The onus would be on Saudi Arabia and a few other Gulf producers to rein in the incremental output they put into the market,” said Samuel Ciszuk, oil analyst at the Swedish Energy Agency.

Because of sanctions, Iran’s output is down a million bpd since the start of 2012 to 2.7 million bpd while Iraq, recovering from years of war and sanctions under Saddam Hussein, has boosted production to nearly three million bpd.

“Iran’s position has been strengthened after the Geneva deal, but there is still a long way to go,” said energy consultant Mehdi Varzi, formerly of state National Iranian Oil Company.

“The bottom line is the Iranians don’t want to rock the boat and put $100 oil under threat, so they need the cooperation of the Saudis.” Oil prices now near $110 a barrel are close to ideal for Saudi Arabia, Opec’s most influential producer because of its one-third share of group output, and its position as the only producer globally that keeps any significant spare capacity. Riyadh pumped at record levels above 10 million bpd when sanctions were imposed on Iran and to fill the gap left by post civil war disruption in Libya, throttling back a little recently to support prices.

The relationship between the oil ministers of Saudi Arabia and Iran is key to policy-making in the often-quarrelsome Opec.

Long-standing Saudi Oil Minister Ali Al Naimi first met his Iranian counterpart at Zanganeh’s Opec debut in Jakarta in 1997 — a meeting where Riyadh pushed through a surprising production increase that helped send oil prices crashing.

Saudi Arabia’s moderate position on oil prices, to support world economic growth, has often clashed with price hawk Iran’s wish to keep Opec production in check to support prices.

But Zanganeh, who served as oil minister under Iran’s reformist government from 1997-2005, and his trusted aide, Hossein Kazempour Ardebili, are respected within Opec and will want to be at the centre of negotiations.

Iran’s oil minister under former president Ahmadinejad was Rostam Qasemi a former commander of the Revolutionary Guard’s engineering wing, Khatam Al Anbia, and did not play a significant role at Opec.

While the oil price hawk-versus-dove dynamic persists between Saudi Arabia and Iran, their price aspirations have converged around triple-digit oil.

Zanganeh has already been in contact with the big Western oil companies who would invest in Iran once sanctions are lifted. But a rapid recovery in output is unlikely. — Reuters

Yuan pips euro as global trade finance currency

hong kong — China’s yuan overtook the euro to become the second most-used currency in global trade finance in 2013, according to the Society for Worldwide Interbank Financial Telecommunication.

The currency had an 8.66 per cent share of letters of credit and collections in October, compared with 6.64 per cent for the euro, Swift said in a statement on Tuesday.

China, Hong Kong, Singapore, Germany and Australia were the top users of yuan in trade finance, according to the Belgium-based financial-messaging platform. The yuan’s share of global trade finance was 1.89 per cent in January 2012, while the euro’s was 7.87 per cent, Swift said.

“It’s true that overseas exporters are using the renminbi more as the contract currency to increase the attractiveness and competitiveness of goods or services sold to China,” said Cynthia Wong, the Hong Kong-based head of emerging-market trading for Singapore and Hong Kong at Societe Generale SA.

China is seeking a greater role for its currency in global trade and investment as the state loosens controls on the exchange rate and borrowing costs in the world’s second-largest economy. People’s Bank of China Deputy Governor Yi Gang said Nov. 20 it is no longer in the nation’s interest to keep building up its foreign-exchange reserves, which totalled a record $3.66 trillion at the end of September.

Yuan deposits in Hong Kong, the largest pool outside China, rose the most since April 2011 to a record 782 billion yuan ($128 billion) in October. Agreements were announced this quarter to start direct currency trading between the yuan and both the British pound and Singapore dollar.

“The renminbi is clearly a top currency for trade finance globally and even more so in Asia,” Franck de Praetere, Swift’s Singapore-based head of payments and trade markets for Asia Pacific, said in the statement.

The Chinese currency ranked No. 12 for transactions in the global payments system in October, unchanged from the previous month, according to Swift figures. Payment value for the currency rose 1.5 per cent that month, less than the 4.6 per cent growth for all currencies, the Swift data showed. That saw the yuan’s market share drop to 0.84 per cent from 0.86 per cent in September. Daily yuan transactions surged to $120 billion in April from $34 billion in 2010, making it the ninth most-traded currency in the world, according to a September report by the Bank for International Settlements in Basel, Switzerland.

The yuan has appreciated 2.3 per cent against the greenback this year, the best performance in Asia, according to data compiled by Bloomberg. The currency closed at 6.0924 per dollar today in Shanghai, little changed from yesterday.

China accounted for 59 per cent of the trade finance denominated in yuan in October and Hong Kong’s share was 21 per cent, Swift data showed. Singapore had 12 per cent with Germany and Australia having 2 per cent each. — Bloomberg