Iran’s plan to pre-sell crude oil to citizens



Iranian government is planning to pre-sell crude oil to citizens, aimed to attract investment for oil industry sector, which long been suffering from lack of liquidity.
Ahmad Ghalebani, head of National Iranian Oil Company told Shana on Sunday the government in planning to issue Oil Sukuk (an Islamic type of bond) in the form of "forward contract" to attract the assets of citizens for investing in the oil industry sector.
Forward contract is a contract that specifies the price and quantity of an asset to be delivered in the future.
"According to this plan, Iran wants to pre-sell crude oil to people in the form of bonds," he said.
Just 12 month ago, Iranian government announced its plan to establish crude pre-selling to people, and Oil Minister Rostam Qasemi said that $15 billion worth Sukuks have been permitted to be issued by Iran Securities and Exchange Organization. However, this plan didn't work out.
Qasemi had said that issuing oil Sukuks means "selling crude oil to citizens".
According to Ahmad Ghalebani, National Iranian Oil Company (NIOC) needs $30 billion worth investment per year and a part of this value is scheduled to be attracted from issuing bonds.
Conditions of Islamic oil bonds
Ghalebani did not mention the conditions, but according to last year plan, these Sukuks would be issued in two terms: Based to Iran's national currency, rial and USD.
In case with rial, yearly benefit was fixed at 20 percent, which could be doubled in future. With the USD, if the crude oil price reaches $140 per barrel until maturity date, the yearly benefit (until next four years) would be 10 percent and if the price reaches $160, the yearly benefit would be 15 percent.
USD rate fluctuations in Iran
Iran currency value has dropped by 80 percent since 2011versus USD rate in open market, namely anyone who bought bonds during last year, lost a major amount of his / her assets in Iran.
In addition, the USD prices at Iran's open markets is twice as big as the official one.
Currently, USD is sold in Tehran open market at 33, 500 rials, while the official rate of USD is 12, 260 rials. Then, investing USD in bonds means losing the assets.
On the other hand, based on Article 84 of the Fifth Five-year Socio Economic Development Plan (2011-2015), the National Development Fund was established to transform 20 percent of oil and gas revenues into productive investments for future generations.
Then signing "forward contract" with citizens to sell some crude oil to them in term of bonds is contradicts to law. It seems NIOC can only attract investment from issued bonds by banks, which has been done before.

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