Next year, the Iran Mercantile Exchange (IME) will be celebrating its decennial. The bourse has quickly turned itself into the largest commodity exchange in the Middle East in terms of volume.
Nevertheless, since access to international financial markets has been restricted due to western sanctions imposed against Iran over its nuclear energy program, full potential growth is yet to be achieved. With the thawing of relations between Tehran and the West and the potential lifting of sanctions in the near future, the IME looks to position itself at the centre for Iran’s commodity trade with the world.
In 2004, Leader of the Islamic Revolution Seyyed Ali Khamenei reinterpreted the controversial article 44 of the Constitution, previously blamed for suppressing the private sector, saying up to 80 percent of state assets could be privatized and returned “to the people.” In the same year, Iran’s first commodity exchange, the Tehran Metal Exchange was opened. The first agro exchange was launched one year later.
In 2006, these two exchanges were merged and expanded to constitute the IME. This exchange would provide a range of contracts on oil, petrochemicals, metals and agricultural products. According to the IME website, the mercantile exchange was founded to resolve artificial price differences, increase transparency and contract supervision, and reduce risk.
Iranian state and private companies have enthusiastically poured into the IME, which traded $20 billion worth of goods in the Iranian calendar year 1393 (ended March 20). In terms of volume, the IME has also turned itself into the largest exchange in the Middle East, with 24.393 million tons of goods traded last year, according to data from the Central Bank of Iran.
According to Mohammad-Reza Tahmasebi, head of the international department at the IME, around “10 percent of total Iranian GDP flows through the IME,” implying an increase of three percent compared to two years ago.
Historically, commodity exchanges attract regional, rather than global interest. With globalization, the contracts of some products have grown to continental standards. For example, the North Sea Brent oil contract, issued by the Intercontinental Exchange, has transformed itself into the oil benchmark for Europe, while NYMEX’s West Texas Intermediate emerged victorious in North America. In the Middle East, both the Dubai Mercantile Exchange and the IME have tried to introduce a regional oil benchmark. The Iranian Oil Bourse, located on Kish Special Economic Zone, was established by the IME to achieve that aim.
Formidable Competitor
The IME has faced significant competition from Dubai in marketing itself as the prime regional hub for oil and commodity trading. Although the IME is the largest exchange in traded volume, the Dubai Gold and Commodities Exchange (DGCX), which was launched in 2005, and the DME have quickly gained regional attention. Both the DGCX and the DME have experienced rapid growth. In 2014, oil trading at the DME reached 2.1 million barrels. Consequently, this exchange has been increasingly able to promote its own oil benchmark, called the Oman Crude.
Western sanctions have severely affected the workings of the IME and Iran Oil Bourse. Sanctions imposed by the US government in 2012 cut off Iran from international financial markets. In response, the IME was forced to trade in other currencies, which greatly reducing its global reach.
In the meantime, the IME embarked on a quest to attract investors and traders through individual agreements with other exchanges. Last January, the CCD Singapore Pte. LtD entered the IME.
Since late March, the IME has become linked to the Inter-Exchange Electronic Union (IEU), an online trading platform connecting the former Soviet states of Kazakhstan, Armenia, Belarus, Ukraine and Kyrgyzstan, according to comments made by Hossein Panahian, managing director of the IME. Total trade at the IEU reaches $10 billion. Although constituting only half of what is traded annually at the IME, Iran hopes this deal might channel back some of the traded resources. Improving trade infrastructure with its northern neighbors is also important in improving wheat supplies – one of Iran’s largest import products.
The IME is also planning to expand trading into new derivative markets. The exchange eyes future trading in soya and saffron.
While the IME’s access to global financial markets has suffered severe setbacks, foreign investors will continue to eye the exchange’s large and competitively priced commodities.
