Fitch mulls higher oil prices as Iran crude ban problematic for EU member countries

Fitch Ratings is mulling over the possibility of higher oil prices in 2012 as the recent EU wide crude oil ban against Iran will increase geopolitical risk in the Middle East region, supporting oil prices in a new report released by the ratings agency.

The most likely scenario is that the EU embargo will result in higher oil prices.

“Fitch believes that the EU ban on Iranian oil is largely credit neutral for EU integrated oil and gas companies. The cash flow impact of the ban may be negative for refining operations, but should be positive or neutral for upstream operations.” said Arkadiusz Wicik, Director in Fitch’s European Energy, Utilities and Regulation team.

The most likely scenario is that the EU embargo will result in higher oil prices. However, prices may not necessarily increase markedly from current levels as some of the risks related to the EU ban on Iranian oil appear factored in already.

Southern European countries including Italy, Spain and Greece are the largest importers of Iranian crude oil in the EU. A rise in oil prices could be further bad news for these countries, which already face a weak economic outlook in 2012.

Iran to Halt European Oil Exports?

Iran’s parliament have today drafted legislation calling for the government to halt oil exports to Europe until the EU cancels its planned ban on the country’s crude, Fars news agency reported, citing a lawmaker.

The bill would also require Iran to embargo imports from countries participating in the EU ban, Nasser Sodani, the deputy head of the parliament’s energy commission, said yesterday, according to the state run news agency. Iranian lawmakers planned to debate the bill in parliament today, Fars reported on January 27.

If agreed Sunday, Iran’s move would halt an estimated 600,000 barrels a day crude exports into the EU, leaving European refiners in countries such as Greece, Italy and Spain scrambling at short notice for alternative oil supplies, pushing up prices. The EU had envisaged a more phased approach that would give buyers time to source other oil flows.

With no sign that the West is likely to ease the sanctions pressure over the Islamic Republic’s nuclear program, the rhetoric from both sides is likely to keep oil market investors on their toes, analysts said.

Earlier Friday, Israel’s Defense Minister Ehud Barak, speaking in Davos, praised recent moves to tighten the sanctions on Iran but said that still more steps are needed.

Barak said sanctions should be accelerated and more steps should be taken against Iran’s central bank and its oil trade.

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Fitch mulls higher oil prices as Iran crude ban problematic for EU member countries