The National Iranian Oil Company plans to offer standard parallel salaf contracts for 520,000 barrels of heavy crude oil via Iran Energy Exchange.
As per a notice published on the codal.ir-- an information platform for publishing key stock market data and listed companies-- each salaf contract has an equivalent value of one barrel of oil.
Heavy crude oil is priced at 9.446 million rials (about $42). Those interested can buy the salaf contracts for minimum one barrel and maximum 20,000 barrels.
The contract’s yield is 19% with August 2022 maturity. There is no periodic interest payment and the interest plus principal value of contracts will be reimbursed at the end of maturity date.
The notice said contracts can be traded at the secondary market within 10 days after initial public offering. The state-owned NIOC is in charge of offering the contracts.
Standard parallel salaf is an Islamic contract similar to futures, with the difference being that the total price should be paid in advance. The offer is aimed at raising funds for development projects and NIOC operational costs.
Different From Oil Presale Scheme
While news about the contract was misconstrued by the media to be the same as the previously announced plan by the government to presale 220 million barrels of crude oil, there is no mention that the NIOC offer has anything to do with the government plan.
President Hassan Rouhani announced last week that the outlines of the crude oil presale scheme was approved by the Supreme Council of Economic Coordination, the ad hoc economic decision-making body comprising the heads of three branches of government. However, it is subject to reviews by economic and financial experts.
Ali Hosseini, managing director of IRENEX, tried to clarify the media reports and said the salaf contracts are a “routine procedure” by NIOC and different from the president’s plan.
“If its legal and executive prerequisites are in place, the plan announced by the president will be explained to the public by the relevant bodies,” IRNA quoted him as saying.
Gov’t Plan
Unofficial reports had said the government plans to presale 220 million barrels of crude oil to the people in one year using Islamic parallel salaf contracts. Reimbursement is backed by the government’s future crude oil sale after the US embargo on oil export is lifted.
To hedge investment risks emanating from decline in international crude prices and control forex market volatility, the government guarantees that investors would not have to bear any loss.
According to media surveys if the government succeeds in realizing this target, it could generate 1,900 trillion rials ($8.2 billion).
The plan reportedly includes setting up an exchange-traded commodity (ETC). An ETC is traded at the stock exchange, like any stock, but tracks the price of a commodity or a commodity index.
This allows investors to gain exposure to commodity markets without buying futures contracts or the physical commodity. As such, ETCs have a share price that moves up and down as prices of the underlying commodities fluctuate.
Rouhani said the initiative will involve the people in the economy, describing it as “an effective measure to boost the capital market and a move in the right direction to counter the unjust sanctions imposed by enemies”.
The oil sale initiative is designed to “control the money supply and direct it toward the production sector,” he said.
In the vein, the CBI Governor Abdolnasser Hemmati defended the plan on the ground that it would prevent the government from approaching the central bank for more funds.
