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Iran shrugs off new oil-sanctions threat

New doubts have surfaced in Europe and US over plans to further target Iran’s oil industry. Saudi Arabia holds the key to any ban proposal

An EU ban on imports of Iranian oil would have little effect on Iran, which would find buyers for available cargoes in Asia, the country’s deputy oil minister said today.

“Iran is already under sanctions,” Alireza Zeighami said. “The new ones aren’t going to be any problem.” He added: “Many countries need energy and we are a big supplier. It would be in our favour.”

Oil prices, which on 6 December were trading just shy of $109/b, continue to find support on the back of the dispute between Iran and the West over the Islamic state’s nuclear aspirations. Iran’s foreign ministry has said new sanctions could send oil prices spiralling higher, hurting the consumer economies, while boosting exporter revenues.

Iran says it is developing nuclear capacity for use in civilian power generation. But Western governments allege the country is closing in on an atomic bomb and want Iran to end its nuclear programme.

New doubts

Zeighami’s comments, made in an interview with Petroleum Economist today in Doha, came as new doubts surfaced in Europe about the proposals, which have some political backing in France, Germany and the UK.

There is particular concern, said one advisor to an EU foreign minister, about the likely effect on a jittery oil market if new measures are applied to Iran’s oil-export business. "It's ideological," he said of the plan, adding that advisors had warned the minister against the idea.

And Petroleum Economist has learnt that worries about an oil-price spike may see US President Barack Obama veto a bill going through Congress to impose financial penalties on companies dealing with the Central Bank of Iran (CBI). Sanctions on the CBI, which have already been put in place by the UK and are under discussion in the EU, would be more damaging to Iranian oil exports than a ban on oil sales to Europe, because Asian companies with exposure to the US market would risk penalties in the US if they paid Iran for oil.

That would include Indian refineries, which are the most likely buyers of any spare cargoes Iran sent to Asia instead of Europe. China, Japan and South Korea also take crude from Iran, but their supplies are tied up under long-term contracts, said Bill Farren-Price, head of Petroleum Policy Intelligence, a consultancy. So the sanctions on the CBI would bite.

Economic minefield

That’s also why these sanctions remain unlikely to pass in Europe and the US, believe analysts and some diplomats. With the US economy beginning to recover, the White House does not want a surge in oil and fuel prices to derail Obama’s re-election bid, said a source briefed on the matter. For now, a tightening of sanctions on the CBI is still going through Congress, where the bill has support from the Senate.

The White House has given tepid approval to the plan, but it is likely to secure Obama’s final approval only if alternative sources of oil can be found in time to plug any supply gaps. Iran exports about 2.4 million barrels a day (b/d), with some 750,000 b/d going to countries in southern Europe.

But so far, alternative suppliers have yet to emerge. With the world’s – and Opec’s – spare production capacity already tight, some oil analysts doubt that even Saudi Arabia would have sufficient extra cargoes to cover the loss of Iranian oil exports.

Nonetheless, the French government, which is leading the European sanctions proposal, is said to have begun negotiating with the kingdom to secure its support for the plan.

Opec speaks out

A senior Opec official has suggested that the move to stop Iranian exports would cause problems for the group, which meets on 14 December in Vienna. “After Libya, we don’t need another crisis,” he told Petroleum Economist.

Other Opec members have also spoken against the proposals. "Energy shouldn't be used for political purposes," Ibrahim Al Ibrahim, economic adviser to the Emir of Qatar, told Dow Jones news agency on 6 December. “This isn't good for the energy industry, it isn't good for the exporting countries, it isn't good for the consuming countries,” he added.

On 6 December, Gunther Oettinger, the EU’s energy commissioner, told the World Petroleum Congress in Doha that a consensus had emerged in Europe behind the plan to sanction Iranian oil. But an EU diplomatic source denied this was the case and suggested southern European countries remained unlikely to agree to the oil ban, despite broad agreement on a tightening of other sanctions against Iran.

Greece, which imports about 40% of its oil from Iran and would be the European country most affected by the sanctions, remains reluctant to agree the plan. The country has lost much political clout in Europe since its economy nosedived. Iran is one of the few countries that will still trade its oil with Greece, whose poor creditworthiness has frightened other potential exporters, including Russia.

Going it alone

Meanwhile, Iranian officials said poor relations with Western nations would not prevent it from developing its oil and gas industry with or without foreign investment. The country wants to increase its refining capacity, with plans to reduce crude exports in favour of value-added products sales. Officials say Iran is also still pursuing a long-debated plan to export natural gas to India and Pakistan.

“These are chances that [companies in] Europe and the US are losing,” said Eshagh Royvar, an Iranian oil ministry spokesman. “China has just replaced the US in Iran.” He added: “There are many wise men in Europe. We should separate politics from economics.”

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