Iranian traders: CNY might be used as vehicle currency in Iran-China petchem trade

On the 6 August 2018, the USA government moved to reimpose economic sanctions against Iran after the absurd withdrawal from the 2015 Iran Nuclear Accord. The sanctions ban the sale of US currency to Iran’s government, sanction Iran’s trade in gold and precious metals, outlaw the purchase of Iran’s sovereign debt and sanction Iran’s automotive sector, the Wall Street Journal reported. 

The USA is threatening to take a tougher step against Iran by 5 November including cut off Iran oil exports and shipping if the country does not comply with US’s requirements.

Many businesses around the world are retracting from dealing with Iranian materials despite the fact that the country is still having strong support from Russia, China, Britain, France, Germany and the EU. China’s demand for Iranian cargoes might remain strong, sources said while adding that this is not the first time Iran faces US sanctions, and the only issue in this trade is how to settle the payment. 

Several Iranian traders informed CommoPlast on 24 August that they are working with Chinese counterparts to set prices and payment in Chinese Yuan (CNY) instead of the US dollars or Euro. 

“We have the option to set prices in Euro, however, the exchange rates are not in favour of our customers. Therefore, we are working on the alternatives,” a trader reported. 

The challenge facing participants is that Iranian cargoes are normally transacted based on formula pricing using benchmarks in US dollar, “And therefore, we have to determine an exchange rate in order to convert the based formula from US dollar to CNY,” another trader added.

Discussing with Chinese buyers regarding the use of CNY as a vehicle currency in Iran-China petchem trade, sources are rather eager, though no concrete solutions have been formed. “We are still in early stage discussion with major Iranian producer regarding the switch in currency. We do hope to work this through, as we are a long-term customer,” a buyer added. 

Earlier this year, Chinese officials were planning on a pilot program to pay for crude imports in CNY and its trading partners including Russia and Angola were very keen, according to Reuters.