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Tuesday, July 26, 2011



Iran-China Deal Makes End Run on US Sanctions, Dollar

Iran's oil trade with China proceeds apace in Euros as the Islamic Republic makes an end-run around the weakened US dollar with a 3.2 billion Euro deal.
The move comes as US sanctions over Iran's nuclear program have blocked the ability of many nations to pay for Iranian oil in dollars has left the Islamic Republic oil-rich and cash-strapped. 
Iranian officials have reportedly been growing increasingly angry about the inability of the country's biggest oil customers such as China and India to pay cash, which has contributed to a shortage of hard currency for the country.
"Both China and India have been happy to keep Iran's money in their banks and try to get Iran involved in barter deals to sell their junk, or given yuan and rupees instead of hard currencies," one Iranian former official who chose to remain anonymous said.
This despite previous Iranian claims that US sanctions were having 'no effect.'
Chinese companies first started paying in euros for their Iranian crude in 2006 and have also considered payment in yuan, considered a soft currency, industry sources said. Now China's government is following suit.
Iran is China's third-largest crude supplier, shipping around 540,000 barrels per day (bpd) in the first six months of the year, or more than 10 percent of Beijing's 5.1 million bpd of imports. The flow grew 50 percent from the first half of 2010.
Tehran has cut supply to India for August as sanctions have made it difficult for New Delhi to find a way for its refiners to pay for Iranian oil. 
Chinese refiners have suffered no such problems in dealing with Iran, the sources said, because its deals bypass the weakened US dollar.
"We've been paying in euros all these years," said a Chinese buyer of Iranian oil.
"There is no problem with euro payment," said a second industry executive with direct knowledge of the oil trade between the two nations.
The volume of crude Iran sells China has increased even though Chinese traders have said prices of Iranian oil were uncompetitive compared to other Middle East supplies.
The deal underscores the close relationship Iran has with China who has routinely protected the Islamic Republic, and its ally Syria, with its  Security Council veto at the UN.

by Gavriel Queenann  25/07/11

SOURCE  http://www.israelnationalnews.com  

Finance: Arbiters under fire
Calls for reform – reflected in the Dodd-Frank financial regulations passed in the US a year ago – have now taken on a fresh lease of life on both sides of the Atlantic. When, for example, Moody’s this month said it was reviewing America’s triple A status out of concern about the rapid rise in US government debt relative to gross domestic product, Dennis Kucinich, a Democratic congressman, delivered an angry response.

“No nation, agency or organisation has the authority to dictate terms to the United States government,” he said. “Moody’s and its compatriot S&P were a direct cause of the near collapse of the economy of the United States. That industry should be subject to greater scrutiny, regulation and fundamental overhaul as Washington gets serious about the deficit.”

MORE AT http://www.ft.com/intl/cms/s/0/a246b0c2-b629-11e0-8bed-00144feabdc0.html#axzz1TDDDFyAK

Brazil fears economic fallout as real soars

The Brazilian real soared to a 12-year high against the dollar on Friday, reigniting Brazil’s currency war fears and worsening the economic problems for Dilma Rousseff, president.

The real traded at a high of 1.5523 versus the US currency, its strongest level since just after it was first floated in 1999, as investors sought higher-yielding assets following the easing of the Greek debt crisis.

Brazil’s rapid economic growth and high real interest rates at nearly 6 per cent make its markets a powerful draw for foreign investors starved of investment opportunities in developed markets.

“US interest rates are near zero, UK interest rates are near zero, Japanese rates are near zero and Brazilian rates are 12.25 per cent – I would say that’s the crux of the matter,” said Neil Shearing of Capital Economics in London.

The relentless strengthening of the country’s currency is a headache for the administration of Ms Rousseff, which is concerned that it is reducing the competitiveness of the country’s industrial sector.

Brazil has been a vocal critic of ultra-loose US monetary policy, known as quantitative easing, which it has blamed for pumping liquidity into the global economy.

The US Federal Reserve this week ended its second round of bond-buying, dubbed QE2.

Much of this liquidity, Brazil has argued, found its way into emerging markets, such as those in Latin America, inflating asset prices and forcing governments to implement defensive capital controls.

But with the end of quantitative easing, the government will have to look for other reasons for the rising strength of the real.

Central bank data show that foreign direct investment and higher commodity prices have accounted for most of the dollar inflows this year, rather than speculative investments.

About $42.4bn flowed into Brazil between January and April this year, more than five times as much as the same period last year. Only about $7bn of this was destined for the fixed income market.

In addition, Japanese households remain firm buyers of Brazilian assets, with about $4bn flowing into Brazil from retail investors there every month.

The government has been willing to let the currency strengthen in recent months to combat rising inflation but any further appreciation will prompt opposition from Brazil`s powerful industrial lobbies.

Ms Rousseff, a development economist, came to office with promises to reduce interest rates but has had her hands tied by the rising inflation rate.

Mr Shearing said the real effective exchange rate of the Brazilian currency against the dollar had strengthened 12 per cent since its pre-crisis high.

Much of the currency’s strength has come from record commodity prices, which have helped limit the current account deficit to about 2.3 per cent of gross domestic product in May.

“If you kept level of imports the same and put commodity prices back to 2005 levels, we reckon the deficit would be close to 5 per cent of GDP, which is getting close to danger territory,” said Mr Shearing.

By Joe Leahy in São Paulo





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