European governments agree to ban imports of oil from Iran, Brent price rises

European governments have agreed in principle to ban imports of Iranian oil, EU diplomats said this afternoon, dealing a potentially heavy blow to Iran imposing real pain just months before an Iranian election, whilst Brent oil prices rose to $114 before easing back.

The prospective embargo from the EU, along with tough US financial measures signed into law by President Barack Obama on New Year’s Eve, form a concerted Western campaign to impose sanctions over Iran’s nuclear programme.

Greece Agrees to Sanctions

Diplomats said EU envoys had held talks on Iran in the last days of December, and that any objections to an oil embargo had been dropped, notably from crisis hit Greece which gets a third of its oil from Iran, relying on Tehran’s lenient financing. Spain and Italy are also big buyers.

“A lot of progress has been made,” one EU diplomat said, speaking on condition of anonymity. “The principle of an oil embargo is agreed. It is not being debated any more.”

The embargo will force Tehran to find other buyers for oil. EU countries buy about 450,000 barrels per day (bpd) of Iran’s 2.6 billion bpd in exports, making the bloc collectively the second largest market for Iranian crude after China.

The news caused a spike rise in oil prices, with Brent crude peaking at nearly $114 a barrel in intraday trading, up nearly $2 from Tuesday’s close.

Tehran insisted it would have no trouble: “We could very easily replace these customers,” said S. M. Qamsari, International Director of the National Iranian Oil Co.

But the new US sanctions have already made it difficult for Iran to keep the customers it has, and could force it to offer steep discounts to countries willing to risk doing business with it, hurting its revenues. Biggest trading partner China, driving a hard bargain, has cut its order of Iranian oil by more than half this month.

Unilateral Sanctions

“The principle of an oil embargo is agreed. It is not being debated anymore,” one EU diplomat said on condition of anonymity on Wednesday. Although the sanction has been agreed on in principle, the EU governments have not yet decided on a date to put the embargo in place.

The anti Iran move by the EU came after the United States, Britain, and Canada imposed unilateral sanctions on the Islamic Republic’s energy and financial sectors over Tehran’s nuclear program.

Alternative Supply Route

Iran has alternatives in place to let it cope with a threatened European Union embargo on its oil and increased US pressure, and plans to keep up exports of some 2.3 million barrels per day this year, a senior Iranian oil official said.

Tehran had already considered different routes if that were to happen, S.M Qamsari, International Director of the National Iranian Oil Co said from Tehran shortly before the report on the EU stance emerged.

“We could very easily replace those customers,” said Qamsari. Some, but not all, of any displaced volume could move into China as well as other Asian countries and Africa, he said. Iran was unlikely just to store crude on tankers as that was only a short term solution.

He said he expected shipments would remain unchanged this year and the volume of term, or annual, contracts was unchanged.

“We’ve got very high demand from our lifters, so we have the same quantity in our term contracts,” Qamsari said.

Roughly 30 percent, or just under 700,000 bpd, of Iran’s oil steams west of Suez, he said. More than half that volume is shipped to Europe, roughly 200,000 bpd goes to Turkey and the remainder is routed into Africa.

The International Energy Agency estimates Iran exports about 450,000 bpd to the EU.

The NIOC official said Europe’s longstanding buyers of Iranian crude, among them France’s Total and Italy’s Eni have voiced concern about potential EU sanctions, but had yet to cut back on contractual supplies.

Any punitive moves by Brussels could cause European consumers to suffer through higher prices at the pump, he said.

Read the original:
European governments agree to ban imports of oil from Iran, Brent price rises