Iranian Oil Sanctions

Source:

"While Tehran expressed displeasure at the EU's latest move through diplomatic channels, the Iranian oil ministry issued its own statement January 24 saying through its official spokesman the sanctions were a 'dangerous game' that the EU would not win."

On January 24, Iran summoned Denmark's ambassador to Tehran to protest the European Union’s (EU) "irrational" ban on the import of Iranian oil even as the oil ministry dismissed the latest sanctions as "much ado about nothing" and insisted Iran would continue to sell its oil elsewhere.

Denmark holds the rotating presidency of the EU, which Jan. 23 banned Iranian oil imports as part of moves to increase pressure on Tehran over its nuclear program.

"There are forces in the EU that seek to create tension in relations with the Islamic Republic of Iran by following the U.S. policies and adopting a hostile approach," the deputy foreign minister, Ali Asqar Khaji, was quoted as saying by the semiofficial Fars news agency.

Fars said EU foreign policy chief Catherine Ashton had told reporters that the sanctions are aimed at putting pressure on Iran to return to talks over its nuclear program.

"Iran has always underlined its preparedness to resume talks with the West but has meantime stressed that it will never accept any precondition for such talks," Fars said.

While Tehran expressed displeasure at the EU's latest move through diplomatic channels, the Iranian oil ministry issued its own statement Jan. 24 saying through its official spokesman the sanctions were a "dangerous game" that the EU would not win.

The European people should remind their leaders "that they will get involved in a dangerous game with the Iranian oil sanctions," spokesman Alireza Nikzad Rahbar was quoted as saying by official news agency IRNA.

"Iran will sell its oil under any conditions," he said, adding that Iran had several other customers for its oil.

The ban on Iranian exports to Europe will only raise oil prices, which he said would be in Iran's interest.

"These attempts will in no way cause a problem for Iran's oil exports. Eighty-two percent of Iran's exports go to regular customers," Nikzad Rahbar said. "It's much ado about nothing because only 18% of Iran's oil is exported to Europe."

Nikzad Rahbar said he hoped the EU, which is due to review the sanctions in May before they come into effect on July 1, would "come to their senses within the six-month period and elect to interact in a proper way with the Islamic Republic."

Further formal reaction to the sanctions is expected when the Iranian Parliament's energy commission meets later in the week to discuss the impact of the sanctions, Fars reported separately.

The National Iranian Oil Company (NIOC), which is responsible for marketing Iranian crude oil, also played down the sanctions, saying the state-owned company already had lined up alternative customers.

"NIOC can easily change its customers and export the sanctioned oil to other countries that demand [it]," Mehr quoted Mohsen Qamsari, NIOC's director for international affairs, as saying.

"NIOC has thought [through] the necessary preparations for replacement of [current markets] for its exports of crude oil in 2012," he said, pointing to Asia as "one of Iran's main markets under current conditions."

Qamsari said Iran had no difficulty in selling oil and maintaining exports at current levels of around 2 million barrels per day (MMb/d), and that export levels would not change this year. "At the moment, Iran's oil exports stand at around 2 MMb/d and we don't have any problem for oil sales," he said.

"The volume of annual or periodical contracts has remained unchanged. Customers' demand for Iran's oil is high. Therefore, the exports volume remains unchanged in 2012," he said.

As part of the EU's embargo on the import of Iranian oil, it immediately banned new purchase contracts but gave companies with existing contracts until July 1 to withdraw from them and find alternative supplies.

Around a quarter of Iran's crude exports move to EU countries, in particular Italy, Spain and Greece.

Finding a ready export market in Asia, Iran's biggest market, is not a foregone conclusion, judging from recent signals from the capitals of Iran's major crude oil buyers.

Iran's biggest single customer is China, whose 2011 imports the International Energy Agency estimates at 550,000 barrels (Mbbl) per day.

While Beijing has said it has no intention of complying with unilateral sanctions and would abide only with UN Security Council resolutions on Iran, it has been scouting around the Middle East for alternative supplies in recent weeks.

Officials in Japan, which relies on Iran for roughly 10% of its total imports, said Jan. 24 they would monitor the situation in wake of the EU sanctions, though suggested a cut in Iranian oil imports was possible.

"The latest EU decision could pose various implications, but Japan intends to remain calm and carefully weigh its response," Japan's economy minister Yukio Edano said.

State-owned Indian refiner Mangalore Refinery & Petrochemicals Limited (MRPL), meanwhile, said Jan. 24 it is continuing to buy crude from Iran but is investigating possible alternative supply sources and taking steps to cover any situation that may arise.

MRPL, whose majority shareholder is state-owned upstream major ONGC, imports most of its crude requirements from Iran. The refiner also is carrying out an expansion program that will require additional crude supply.

"We had a six-month window available with President Obama's document. But after that we have EU sanctions. Proactive action has to be taken," MRPL Chairman Sudhir Vasudeva said.

The oil market has not reacted strongly to the decision by EU foreign ministers of the ban on Iranian exports of around 500 Mbbl per day to Europe.

However, markets have been rattled by persistent threats from senior Iranian politicians and military leaders against the Strait of Hormuz, the strategic oil transit route through the Persian Gulf, home to 60% of global oil reserves. (See related map: Strait of Hormuz—the world's greatest oil chokepoint).

The threat was repeated again by a senior officer of the powerful Islamic Revolutionary Guard Corps and an influential member of parliament on Jan. 24.

"Iran has a hold on the energy neck of the world and the European Union's sanctions will escalate the economic crisis in these countries," Major General Mohammad Ali Asoudi, the guards' director for cultural and propaganda affairs, was quoted as saying by Fars.

"If we take the world's energy and economic artery [that is] in Iran in our hand, the crisis will become worse for these countries," he added.

Platts

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