Iran Energy Exchange launched a new financial instrument on Sunday enabling investors to buy securities with crude oil and gas condensates as underlying assets.
“The so-called oil-backed certificates of deposit offer a new and innovative investment tool. Holders of the certificates will be the owners of physical crude oil. The certificates provide a new investment opportunity for investors to buy black gold rather than traditional assets such as gold and forex,” said Mohsen Khajeh Mehr, CEO of the National Iranian Oil Company, SENA reported.
The secondary market for the certificates has been launched can be guaranteed by banks. “Despite being denominated in US dollars, they are convertible into rials upon investors’ request,” Khajeh Mehr said.
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 domestic capital market regulator.
Ali Naqavi, the IRENEX boss, said that the exchange had made concerted efforts over the last decade to create an efficient and transparent market for crude oil, gas condensates, and oil byproducts.
The supply of crude oil on the stock market has been a strong demand of governments and the media, he said.
Naqavi said IRENEX will seek to conduct transactions on crude oil and gas condensates contracts accepted by the NIOC on the stock market, followed by options contracts.
Economy Minister Ehsan Khandouzi has said that opening the way for the private sector to the oil and gas industry and ensuing competition and transparency are significant developments in the sector. He added that the new certificate can and will help channel money into the productive and real market.
“The certificate has been created as per Article 44 of the Constitution, which call for expanding the role of the private enterprise in the economy. It has been introduced to also help reduce the country's reliance on oil and generate revenue through non-oil exports,” he said.
Attracting Investment
Speaking at the meeting, Majid Eshqi, the SEO chief, said the launch of the oil-backed certificate of deposit offers investors an innovative investment tool, and it is expected to bring much-needed investment into the economy. “The certificate also is a major step forward in enhancing the private sector role in the oil/gas industry.”
The certificate of deposit is a financial instrument that can be used by retail and institutional investors. Retail investors can buy certificates through brokerages, while institutional investors can do so directly via IRENEX. The certificate has a minimum buy-in of one barrel of crude oil.
Struggling with ballooning deficits, the government under former president Hassan Rouhani in 2020 proposed presale of crude oil via standard salaf contracts.
Standard 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 lack of verified feasibility.
The new plan, however, is welcome by some observers and described 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”.
Option contracts based on energy carriers and commodity-based exchange traded funds are also on the IRENEX agenda.
Last 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.
