By Ladane Nasseri and Ayesha Daya

Feb. 17 (Bloomberg) -- Iran, holder of the world's second- largest oil and gas reserves, opened an exchange for crude and petrochemicals as the government encourages private investment in the energy sector.

Trading began today in petroleum products such as light polyethylene, a plastic used for packaging. The Tehran-based Iran Mercantile Exchange is using ``spot'' rather than futures trading, requiring immediate payment and delivery of the physical product.

Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, wants to encourage local investors to participate in the oil market as it tries to reduce the state's role in the country's energy industry. Political pressures and the exchange's use of spot contracts may reduce interest in the exchange, an analyst said.

``I don't expect there will be much liquidity on this market,'' said Dalton Garis, economics professor at the Abu Dhabi Petroleum Institute. ``Traders use such exchanges to hedge against price risk, rather than buy a commodity. Also, traders will be under pressure not to trade with Iran.''

Oil derivatives and petrochemical products will be traded initially on the exchange, Ali Akbar Hashemian, director general of Iran's Mercantile Exchange Co., said.

Behind Dubai

Crude oil contracts will be added after a review, Iran's Oil Minister Gholamhossein Nozari said, without giving a specific date. Iran had been expected to start its own oil-trading market in 2005. Since then, Dubai has launched the Persian Gulf's first bourse to trade sour crude oil futures, which best reflects the type of oil produced in most of the region.

``On the world's major exchanges, only a very small amount is settled through physical delivery,'' Garis said in a phone interview from Abu Dhabi. ``Most petrochemicals supply is locked into long-term contracts that were probably lined up before the plants were built.''

A review of religious rules led to the spot trading rule, Hashemian said.

``We are ready from a technical point of view for futures trading,'' he said. The religious issue was recently resolved, although the authorities haven't yet decided whether to trade petrochemicals futures, he added.

Iran's government expects to raise about $90 billion from selling shares in the country's state-owned energy companies after a 2006 directive from Supreme Leader Ayatollah Ali Khamenei that four-fifths of the country's biggest companies should be sold to develop the economy.

From Seller to Trader

``We have been a good seller of oil,'' the oil minister, Nozari, told reporters at the exchange. ``The aim we have today is higher, to have a share in oil trading.''

The Iranian rial will be used for all transactions in the first phase and ``can be converted in real time into any currency,'' Nozari said. Traders are based in the Kish Island free-zone, offering investors easy transfer of money and tax exemptions.

The exchange may also use the Russian ruble ``to free the world of dollar slavery,'' Iran's ambassador to Moscow, Gholamreza Ansari, said Feb. 15.

To contact the reporters on this story: Ladane Nasseri in Tehran at lnasseri@bloomberg.net , and Ayesha Daya in Dubai

Domestic Access to Spy Imagery Expands

By EILEEN SULLIVAN – 5 days ago

WASHINGTON (AP) — A plan to use U.S. spy satellites for domestic security and law-enforcement missions is moving forward after being delayed for months because of privacy and civil liberties concerns.

The charter and legal framework for an office within the Homeland Security Department that would use overhead and mapping imagery from existing satellites is in the final stage of completion, according to a department official who requested anonymity because the official was not authorized to speak publicly about it.

The future of this program is likely to come up Wednesday when Homeland Security Secretary Michael Chertoff goes to Capitol Hill to talk about his department's spending plan.

Last fall, senior Democrats on the House Homeland Security Committee asked the department to put the program on hold until there was a clear legal framework of how the program would operate. This request came during an ongoing debate over the rules governing eavesdropping on phone calls and e-mails of suspected terrorists inside the United States.

The new plan explicitly states that existing laws which prevent the government from spying on citizens would remain in effect, the official said. Under no circumstances, for instance, would the program be used to intercept verbal and written conversations.

The department currently is waiting for federal executive agencies to sign off on the program — called the National Applications Office — and will share the details with lawmakers soon.

Domestic agencies such as the Federal Emergency Management Agency and Interior Department have had access to this satellite imagery for years for scientific research, to assist in response to natural disasters like hurricanes and fires, and to map out vulnerabilities during a major public event like the Super Bowl. Since 1974 the requests have been made through the federal interagency group, the Civil Applications Committee.

These types of uses will continue when the Homeland Security Department oversees the program and becomes the clearinghouse for these requests. But the availability of satellite images will be expanded to other agencies to support the homeland security mission. The details of how law enforcement agencies could use the images during investigations would be determined in the future after legal and policy questions have been resolved, the official said.

It is possible that in the future an agency might request infrared imaging of what is inside a house, for instance a methamphetamine laboratory, and this could raise constitutional issues. In these instances, law enforcement agencies would still have to go through the normal process of obtaining a warrant and satisfying all the legal requirements. The National Applications Office also would require that all the laws are observed when using new imaging technology.

Requests for satellite images will be vetted even more than they were when the requests went through the Civil Applications Committee. All requests will be reviewed by an interagency group that includes Justice Department officials to ensure civil rights and civil liberties are not violated.

This new effort largely follows the recommendations outlined by a 2005 independent study group headed by Keith Hall, a former chief of the National Reconnaissance Office and now vice president of the consulting firm Booz Allen Hamilton.