Japanese oil refiners have started paying for Iranian crude oil in yen instead of dollars. Japan’s largest oil refiner, Nippon Oil Corp., announced the change in September; Cosmo Oil Co. and Japan Energy Corp. followed suit in October.
How significant is it that more and more nations are ceasing to use the dollar to conduct international trade?
Since the 1944 Bretton Woods Agreement, the U.S. dollar has been the world’s primary reserve currency. As such, the dollar has been used by the majority of nations to pay for crude oil. The resulting massive demand for dollars has allowed the United States to accumulate trade deficits and fiscal debts without experiencing the negative economic impacts that such imbalances normally cause.
This past July, the National Iranian Oil Company (nioc) general manager of crude oil marketing and exports, Ali Arshi, sent a letter to Japanese oil refineries requesting that all future crude oil shipments be paid for in yen. Three major Japanese oil refiners have already complied. Will other Asian oil refiners follow suit and move away from the U.S. dollar?
As the largest overseas holder of U.S. treasuries, Japan is a key supporter of the U.S. dollar. Yet Iran is Japan’s third-largest oil supplier. In the words of one Tokyo investment securities analyst, “What else can Japan do but accept the [Iranian] request, once the oil producer sent its wish?” (Bloomberg, July 13).
Already, approximately 65 percent of Iran’s crude oil exports are based on the euro and another 20 percent on the yen. Iran is casting off the dollar and doing all it can to persuade the oil refineries of Japan to do the same.
Central banks in South Korea, China, Taiwan, Russia, Syria and Italy have announced plans to reduce their dollar holdings.
As nations and corporations turn their back on the greenback, the decreasing demand for America’s currency may cause its already weakening value to plunge to new depths. This development suits Iran just fine, as it would like nothing better than to destroy the dollar and, simultaneously, the economy of its arch-enemy, the United States.