The plan to market huge quantities of crude on the Kish bourse was billed last year as a major Iranian initiative to take control of the market away from the West. To the surprise of few, it turned out to be a big flop.
Mohsen Qamsari, the director for international affairs at the National Iranian Oil Company (NIOC), revealed the change last week. He was quoted in the final paragraph of a story carried by the Oil Ministry’s news service as saying:
“At present, we are using all common marketing techniques in the world oil markets except for the bourse, which is due to structural and legal constraints, because, when you trade on the bourse, you may be a winner or a loser, while the NIOC has no permission to enter such transactions.”
Last summer, there was no talk about the NIOC lacking authority for such transactions when it began offering crude at the Kish bourse with much fanfare. It put eight cargoes of crude on sale over 10 weeks, but found a buyer only for the fourth cargo offering.
The Kish Island bourse was an effort by the Islamic Republic to make Iran a major player in the international financial markets. It was supposed to be the launch of a scheme to displace Western exchanges as the main venue for oil sales.
The government put its eighth consignment of 500,000 barrels of crude on the bourse on September 21 with a list price of $113.92 a barrel. The consignment drew no bidders.
In mid-August, the Islamic Republic sold its only shipload of crude oil at the oil bourse—500,000 barrels of Iran’s heavy crude at the government’s official selling price (OSP). Iran routinely sells crude at the OSP plus a figure that varies frequently. So selling at the published OSP was viewed as a discount from normal terms.
The daily Sharq reported that unnamed critics accused the NIOC of being generous to the buyer in order to complete the sale and end the embarrassment of five weeks with no buyers.
The NIOC seemed, strangely, to agree. Qamsari was quoted as saying the cargo could have sold for $1.35 a barrel over OSP, but the NIOC decided to sell at OSP “to proceed with the sale on a flat basis with the approval of officials in order to promote trade there [at Kish].”
Qamsari seemed unhappy with the bourse when he spoke in August. “The trading at the bourse today demonstrated that the supply of oil there is not advantageous. There is this outlook that if oil is put on sale at the bourse, there would be more transparency. But we don’t believe that, as our contracts are transparent enough,” he said.
A financial website said the actual sale price was $105.49 a barrel, which was very close to the market price for an OPEC barrel that day.
The Kish bourse opened in February 2008 offering consignments of oil products. It started listing crude oil for sale July13 of last year.
One problem with the Kish bourse is that the government sets the prices. In a normal commodity exchange, it is the traders who bargain and set prices. That, of course, is the whole point of a bourse. Interested buyers can bid any price at Kish, but if the price is lower than the state’s offering price, the oil company doesn’t have to sell—and, so far, has not.
The bourse is located on Kish because foreigners can fly to Kish without having to obtain an Iranian visa.
The Islamic Republic made clear in announcing plans for the bourse that it wishes to become a player in the commodities market. Commodities are traded on markets all over the world, although the dominant markets are in London and New York. Oil has historically been traded primarily in Rotterdam and New York—and, since 2000, it has been traded in an electronic market, IntercontinentalExchange (ICE), which is a virtual market operating around the clock over the Internet.
