The European Union is going to ditch the US dollar and use its own currency in oil contracts worth 300 billion euros, an Iranian official said, quoting a European commissioner.
“Based on the news I recently received and was confirmed by a European commissioner, from now on, the EU is going to ditch the US dollar and just use the euro in the financial transactions of all European oil deals with other countries,” said Iran’s nuclear chief, Ali Akbar Salehi, on Thursday.
Speaking to reporters, the head of the Atomic Energy Organization of Iran (AEOI) said the amount of these transactions is more than €300 billion.
“Previously, the EU used to pay 85 percent of the money for the oil it purchased from other countries in US dollars, but now with this new mechanism, all the money will be paid in euros,” he said.
Once the mechanism takes effect, the US dollar will be isolated as a global currency, and the US will no longer be able to use dollars in the current dominating way, Salehi added.
His comments came one day after the EU commission presented its plan to reduce the dollar's overwhelming dominance of the global economy and to strengthen the role of the euro, particularly for energy transactions.
European capitals are increasingly frustrated with the global dominance of the dollar as a reserve currency, which hands the United States unparalleled diplomatic and economic power in a globalized world.
Governments, banks and multinationals are at the mercy of US authorities, which have the legal power to switch off access to the world economy if any company or country runs afoul of Washington.
"In the current context of incertitudes – trade conflicts, extra territorial sanctions by the US – the market participants are looking for alternative," said EU economics affairs commissioner Pierre Moscovici at a news conference in Brussels.
The single currency – born on January 1, 1999 – "should reflect the political, economic and financial weight of the eurozone", the single currency bloc of 19 EU countries, said European Commission Vice-President Valdis Dombrovskis.
The share of the euro in global holdings of foreign exchange reserves currently stands at around 20 percent, according to the commission. The US dollar, by comparison, is over 60 percent.
After a strong start, the international stature of the euro suffered greatly during the eurozone debt crisis as the financial markets lost faith in the single currency.
The most frustrating recent example for the EU is Iran, where international companies that choose to trade with or invest in despite US sanctions are vulnerable to punishment by Washington if they use the dollar.
In order to resolve the issue, Europe has promised to establish the Special Purpose Vehicle (SPV), a mechanism which is supposed to bypass US sanctions against Tehran.
SPV to be launched by year-end
In his Thursday remarks, Iran’s nuclear chief expressed hope that the SPV will be in place by the end of December.
It is not easy to build consensus among 27 members of the European Union, he said, quoting European officials as saying that they are doing their best to finalize the mechanism, and that its development is in its final stages.
“Based on the pledges that the Europeans have made, we hope that Europe’s proposed package would become operational by the end of the current year,” Salehi added.
Salehi’s comments echoed Wednesday remarks by Iranian Foreign Minister Mohammad Javad Zarif who also quoted Europeans as saying that the SPV will be launched very soon.
“The Europeans told me in Geneva, and my colleagues in Brussels, that the final arrangements for the SPV have been made,” Zarif said, but at the same time noted that the EU has kept the process confidential for fear of the US which may disrupt the SPV if it is made aware of the details.
In a Tuesday report, Al-Monitor quoted European sources as saying that the SPV will be announced in January.
“It is likely that it will be used initially to facilitate trade in food and medicine and consumer goods to avoid attracting unwanted scrutiny from the US Treasury Department,” the report said.
“The Europeans have indicated that other countries may be welcome to join the SPV or that there may be multiple SPVs for different types of trade,” it added.