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Tue 5 Feb 2008 06:33 PM

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Iran 'secret weapon' against US likely to fail

Tehran will struggle to make oil bourse a success due to sanctions, analyst.

Iran will have huge difficulty making its long-awaited Iranian Oil Bourse (IOB) a success in an environment of harsher US sanctions and global exchange consolidation, a leading analyst said on Tuesday.

Tehran said last month it plans to launch the IOB on February 11, the anniversary of the Islamic Revolution.

The IOB is an attempt by Iran to wrestle control of oil out of US hands by allowing oil, petrochemicals and gas to be traded in non-dollar currencies, particularly the euro.

Currently oil, the world's most valuable commodity, is traded almost exclusively in US dollars, which forces countries to keep large amounts of dollar reserves.

Iran hopes the success of the IOB will see a mass exodus away from the dollar as countries switch their reserves to euros, sending the US currency into freefall.

However, Tony McAuley, energy analyst at the Economist Intelligence Unit (EIU), said economics and not politics would be the deciding factor in the bourse's success.

He said the IOB would likely struggle to attract traders due to tough market conditions and US sanctions.

"The success or failure of the Iranian Oil Bourse - as with any bourse - will be based primarily on whether or not it can attract enough big buyers and seller to have efficient price discovery," McAuley told ArabianBusiness.com.

"It is difficult enough for experienced exchange operators to start a new futures product and achieve that liquidity at the best of times.

"US sanctions means that the biggest traders of oil futures - major international oil companies, banks and speculative traders - will not become members and will not trade there."

McAuley said the stranglehold the New York Mercantile Exchange (Nymex) and the Intercontinental Exchange (ICE) have on energy trading and accelerating bourse consolidation would also make it difficult for the IOB to succeed.

"It would be difficult to imagine that this exchange [the IOB] could be a success, given that Nymex and the ICE dominate world energy derivatives trading... and that the world's bourse landscape is consolidating, as evidenced by the $11 billion outstanding offer for Nymex by the Chicago Mercantile Exchange," he said.

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