Additional sanctions against Iran to shock oil market

Oil&Gas Materials 2 December 2011 14:12 (UTC +04:00)

Azerbaijan, Baku, Dec. 2 /Trend A.Badalova/

The additional sanctions against Iran, which were adopted by the EU, can have a significant impact on the global oil prices, the analysts at the U.S. bank JP Morgan believe.

The main argument against such sanctions is that if they have a significant impact on Iranian finances, they could also have a significant impact on global oil prices, which would be unwelcome in the current fragile state of the global economy," analysts said in their weekly oil market report.

This week the EU accepted additional sanctions against 179 individuals and institutions associated with the Iranian authorities. The decision was taken at the meeting of the EU countries FMs in Brussels.

The intentions to impose additional sanctions came to notice after a report by the IAEA on Iran's nuclear program. It stated that Iran used to carry out work on nuclear weapons development until 2003, and these very activities could still go on today.

However JP Morgan's analysts believe that the recent diplomatic tensions may only serve to underscore prevailing concerns over Iran's nuclear program, and coincidently come at a time when spare capacity is rising alongside the ramp-up of Libyan and Iraqi supplies.

According to the analysts, the world oil demand growth is expected to remain pretty weak at least for the first half of 2012.

"To put this in perspective, by the second quarter, we estimate that there would be roughly enough spare capacity to offset Iranian supplies to Europe, Japan and Korea together," analysts said.

According to JP Morgan's report, year-to-date reported data indicates that 60 percent of Iranian exports of roughly 2.3 mbd go to four countries-China, Korea, Japan, India and a further 33 percent to OECD Europe.

JP Morgan's analysts believe that the further sanctions against Iran would undoubtedly shock the oil market. "While we are confident that it would trigger the rapid use of strategic reserves, the initial market shock could be in the $20 to $30/bbl range," they said.

According to the U.S. Energy Information Administration (EIA) as of January 2011, Iran has an estimated 137 billion barrels of proven oil reserves, 9.3 percent of the world's total reserves and over 12 percent of OPEC reserves.

In 2010, Iran exported approximately 2.2 million bbl/d of crude oil. Last year Iran's net oil export revenues amounted to approximately $73 billion.