TPT November 2012

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Global Marketplace
November 2012 81
Oil and gas
An early judgment on the effect
of the EU embargo on Iran’s oil
shipments: a not unqualified
success
“The six-month run-up to the implementation of a full
European Union embargo on Iranian crude left many market
watchers complacent about the impact sanctions would have
on consumers in Europe.”
Writing in the Wall Street Journal about six weeks into the EU
embargo, Sarah Kent observed that, by 1 July, most European
refiners had already replaced Iranian oil with crude from
countries like Saudi Arabia, Russia and Iraq. Oil prices were
close to their lowest level since May. And yet, she noted, a
significant dent to one Italian refiner’s profits in the second
quarter suggested that – although European refiners had
kept the oil flowing – the cost of sanctions “could still prove
problematic.” (“Iran Oil Embargo Has Ripple Effect for Europe,”
10 August)
Saras, one of Italy’s biggest private oil refiners, announced a
net loss of $162mn despite a sharp drop in oil prices over the
period. While other factors played a part in the disappointing
results, it was fairly evident that the loss of Iranian crude was
exacerbating an already difficult situation.
According to the Paris-based International Energy Agency
(IEA), Mediterranean refineries arguably have been hit hardest
by the sanctions. They have access to few immediately
available substitutes to Iranian crude; and the price of the
default alternative – Russian Urals crude – shot up after the
full EU embargo was implemented.
DavidWech, head of research at JBCEnergy in Vienna, pointed
out that soaring prices for crude grades of a similar quality to
Iranian oil had diminished the benefit that refineries could reap
from the fall in the benchmark price in the first quarter. He told
the Journal, “Let’s say the Iran story has deepened the crude
imbalance that is there anyway in a market where there is too
much light, sweet stuff and not enough sour barrels.”
› Indeed, Ms Kent noted, speculation on the effects of the
sanctions against Iran – with Iranian oil simply redirected
en masse to willing Asian buyers, freeing up other oil grades
to flow back to Europe – might have been overly optimistic.
But the data are open to interpretation. According to the IEA,
exports of Iranian crude plummeted by nearly 750,000 barrels
per day (bpd) in July to 1 million bpd. To David Fyfe, head of
the IEA oil markets division, if anything the sanctions looked
to be being even more successful than the EU and US were
planning. Still, wrote Ms Kent, “Many believe that July and
August would be the toughest months for Iranian exports, and
that they could bounce back slightly in the autumn as Asian
buyers find ways to navigate the sanctions.”
JBC’s Mr Wech inclined to that view. “Without question Iran
had big problems to sell its crude in July,” he told Ms Kent in
mid-August. “But we think that that will improve from now on.”
› With Iran’s oil inventory growing because of the Western
embargoes, the Tehran Times on 15 September carried a
report from the Mehr News Agency of a large sale of Iranian
oil through private companies. Hassan Khosrojerdi, head of
the oil products exporters’ union, was quoted as saying that a
private consortium had signed two agreements to sell about
four million barrels of Iranian crude “to be delivered in the
[Persian] Gulf to foreign buyers”.
Up to that point, the National Iranian Oil Co (NIOC) was
solely responsible for exporting the Islamic Republic’s crude.
The news agency took note of the official’s complaint that
the Central Bank of Iran, the country’s main conduit for oil
revenues, had been slow to devise and approve a financial
mechanism for the sale of oil by private companies. Without
that, Mr Khosrojerdi said, the private sector “cannot take any
serious action to export oil”.
The Central Bank of Iran is under sanction by the US. Entities
that do business with it may be frozen out of US financial
markets.
Elsewhere in oil and gas . . .
› Saudi Steel Pipe Co (SSP) has received contracts worth
$57mn to supply Saudi Arabian Oil Co with steel pipes for
lining oil wells and gas pipelines. As reported by Zawya Dow
Jones Newswires (26 August), the pipe maker told the Saudi
bourse website that the Aramco order would be fulfilled by the
first quarter of 2013. SSP, which manufactures black and hot-
dip galvanised welded steel pipe at its headquarters factory in
Dammam, will utilise raw materials supplied by Saudi Basic
Industries Corp, or Sabic. In July, SSP reported that higher
raw material prices were weighing on its profit margins.
› On 2 August, a 2" plastic gas pipe ruptured in the same
San Francisco suburb of San Bruno where a pipeline
explosion killed eight people in 2010. A spokesman for Pacific
Gas & Electric Co told the Associated Press that the line
burst when someone dug into the pipe near the site of the
previous blast; a fire dispatcher said there were no injuries.
The explosion on 9 September, 2010, of a high-pressure
transmission line sparked a gas-fueled fire that destroyed 38
homes and laid waste to parts of the same neighbourhood.
Dorothy Fabian, Features Editor (USA)
Iran has been under
embargo from the US