Iran is pressuring its oil customers to pay in currencies other than U.S. dollars. The fact that many nations are giving in does not portend well for the dollar.
Officials from the Iranian oil ministry have stated that 60 percent of their oil transactions are conducted in non-dollar currencies, but now for the first time there is outside confirmation of this shift.
Officials from the Chinese-owned Zhuhai Zhenrong Trading—Iran’s biggest crude oil customer—confirmed that they began paying for Iranian oil in euros starting late last year.
In addition, Japanese officials have indicated they are willing to pay for Iranian crude in yen if necessary. Japanese buyers, including Nippon Oil, said Iran had signaled it wanted them to switch their oil purchases out of dollars but were waiting for a formal request (International Herald Tribune, March 27).
All told, Iranian officials claim over half their customers now pay in non-dollar currencies. This trend is a worrying sign for the future of the U.S. economy.
The dollar, as the world’s reserve currency, is the monetary unit used in the majority of global transactions. Most commodities traded on the world market, including oil, are priced and traded in dollars, meaning nations must hold large dollar-denominated reserves to conduct global trade.
This extra demand for the dollar has allowed the U.S. to overspend and run up massive trade deficits without experiencing the normal negative consequences such as currency devaluation, higher interest rates and price inflation.
Iran is, of course, only one nation, and its oil sales are only a fraction of total dollar-denominated trade. However, this precedent widens the crack in the dollar’s reserve currency status. The danger lies in other nations shifting away from the greenback—and already this is the clear trend in global trade.
The U.S. economy—weakening under massive debt loads, trade imbalances and ongoing wars—is vulnerable to a currency attack. Time will tell how quickly other nations break away from the dollar.