Iran Energy Exchange is collaborating with the National Iranian Oil Company on plans to launch commodity-linked certificate of deposits backed by oil and energy carriers.
Ali Naqavi, the IRENEX chief made the announcement on Thursday, adding that the plan will promote transparency and help expand the oil market.
“Commodity-linked CDs are a new method for selling oil and petroleum and offer a new tool for investment,” he was quoted as saying by the Securities and Exchange News Agency.
A commodity CD is a security indicating ownership of the holder on a particular amount of a commodity supported by a standard warehouse receipt issued by the warehouse and certified by the Securities and Exchange Organization, the Iranian capital market regulator.
Selling CDs in the primary market means selling the stored or deposited commodity by the owner, and buying it means buying of such commodity. CDs securitize a company’s product inventory and offer buyers easy ownership of goods without the usual hassles of storage and insurance.
Referring to a seemingly similar plan to presale oil proposed in August 2020 by the former government, Naqavi said the new scheme by nature is different and not designed as a tool to fund government budget deficits.
“Commodity-linked CDs end in physical delivery of the commodity and there is no cash settlement,” he said.
“Given that the commodity will be sold via CDs, it will not create any liability for the future government nor compensate budget deficits”.
Struggling with deep budget deficits, the former government under Hassan Rouhani in 2020 proposed preselling crude oil via standard salaf contracts.
Standard parallel salaf is an Islamic contract similar to futures, with the difference being that the total price should be paid in advance.
Calling for the presale of 220 million barrels of crude oil to domestic buyers, the plan was rejected because of doubts over its feasibility.
The new plan, however, is welcome by some observers and described by many as a milestone in energy trade.
An earlier article in the Persian-language economic newspaper Donya-e-Eqtesad described the commodity-based CD plan as “a right decision that could revolutionize selling and financing mechanisms in the oil industry”.
Naqavi has earlier said that launching energy CDs has its own complexities given the monopoly of the Oil Ministry and its affiliated companies in offering oil products but emphasized that the plan is on the agenda.
Option contracts based on energy carriers and commodity-based exchange traded funds are also on the IRENEX agenda.
In March, IRENEX launched its first futures contracts backed by naphtha and methanol. Futures trading are planned for liquefied petroleum gas and natural gas condensate while feasibility studies are underway to launch gasoline futures.
