The Iranian government has shrugged off the latest round of oil sanctions, saying they will cause greater problems outside the country than within.
Iranian oil minister Rostam Qasemi told Iran’s Tehran Times that sanctioning Iranian crude will cause problem in oil markets. His remarks were echoed by NOC head Ahmad Qalebai, who told the Mehr news agency ““Iran possesses massive oil and gas reserves… Thus ignoring Iran in oil and gas exchange will not be acceptable (by the international community).”
“Such measures are condemned by our people and will have no impact and be in vain,” Iranian Foreign Ministry spokesman Ramin Mehmanparast told a news conference, according to Reuters. “They will have no impact on Iran’s trade and economic ties with other countries.”
Qasemi also told state media that the role of foreign companies in the country’s oil sector will be further restricted for at least five years.
News of the sanctions has kept Brent prices around $110 a barrel.
The US, UK and Canadian governments agreed a tough sanctions regime against Tehran on 22 November, including an oil import ban and severe restrictions of the Iranian central bank’s activities. The UK’s sanctions included a ban in any financial dealings between British and Iranian banks.
The sanctions were prompted by a report by the United Nations nuclear watchdog that gave increased credence to claims Ira’s nuclear program includes the manufacture of atomic weapons.
Major Asian buyers, including China, India and Japan – Iran’s three largest customers before the sanctions were announced, according to the US Energy Information Administration (EIA) – are not participating the sanctions, prompting criticism from analysts that the sanctions regimes are simply inflating the cost of oil at a time when developed economies are little able to absorb the increase.
However, officials in the US are confident that the current roster of sanctions is hitting the Ahmadinejad regime hard.
“Iran has been increasingly unable to attract foreign investment, especially in its oil fields, leading to a projected loss of $14 billion a year in oil revenues through 2016,” David Cohen, the US Treasury’s undersecretary for terrorism and financial intelligence, told the U.S. Senate Banking Committee in early October, before the latest round of financial sanctions were initiated.
Italy, Spain and Greece – three countries currently mired in a debt crisis that threatens to trigger a global recession – import 180,000 barrels per day (bpd), 140,000 bpd and 30,000 bpd respectively, according to the EIA. European supplies have already been severely disrupted this year by the Libyan war, and could suffer an oil price shock on Urals crude if the EU decides to ban imports of Iranian oil, without much effect on Iran.
“Iran does not have any concerns about European countries not buying its oil,” Qalebai said.
Russian crude prices have been buoyant since the sanctions were announced, with Urals crude trading at a rare premium to the benchmark Brent. According to a Financial Times report, Urals typically trades at a discount to Brent of $1.5 to $3 a barrel.
Chinese refineries will have access to more of Iran’s crude at discounted prices. While selling oil to China at distressed rates would be a headache for Tehran, the government can afford a discount for the time being, as its current budget has a breakeven oil price of $82 a barrel, against Brent benchmark prices at the time of writing of $110.
Tehran has previously responded to restriction inventively, lengthening its typical payment terms for Asian refiners and arranging for oil payments from India to be routed via Turkey. While disruptive, the current sanctions are very unlikely to shake Iran’s resolve on its nuclear program, which the Ahmadinejad regime has made a central pillar of domestic and foreign policy.
There are also concerns that as the situation degenerates, Iran could disrupt tanker traffic through the Strait of Hormuz, a bottleneck for about one-fifth of the world’s traded oil. supplies.
The sanctions have prompted a diplomatic crisis between the UK and Iran. An Iranian mob – of ostensibly students but reported to contain member’s of the military’s elite republican guard – invaded the British embassy in Tehran yesterday in reaction to the sanctions, prompting all staff to leave the country. When news of the storming of the Embassy hit oil markets, spot prices rose $2 a barrel.
