Any sanction against Russia will raise oil prices sharply

Oil&Gas Materials 18 March 2014 13:55 (UTC +04:00)

Baku, Azerbaijan, March 18

By Fatih Karimov - Trend: Any sanction against Russia will raise oil prices sharply warned an Iranian official the Mehr News Agency said on March 18.

If this happens, the market will not be able to sustain the lack of Russian oil, Iranian Oil Minister Bijan Namdar Zanganeh noted.

However, imposing sanctions on the Russian oil industry is impossible, he added.

As U.S. and European officials began imposing sanctions in their face-off with Russia over Ukraine, Vladimir Putin's $160 billion in oil and natural gas exports may be his most potent weapon to limit punitive measures, according to Bloomberg.

Russia, the world's largest oil producer, exported $160 billion worth of crude, fuels and gas-based industrial feedstocks to Europe and the U.S. in 2012.

While shutting the spigot on Russian energy exports would starve the Moscow government of essential flows of foreign cash, the price may be too high for European consumers and it may not alter Putin's plans, said Jeff Sahadeo, director of Carleton University's Institute of European, Russian and Eurasian Studies.

Iran and Russia are negotiating an oil-for-goods swap contract, Russia's Ambassador to Iran, Levan Jagarian said,Iranian ISNA news agency reported on March 17.

The ambassador went on to say that Iranian President Hassan Rouhani and Russian President Vladimir Putin have agreed to sign a contract.

The issue is important for Russia, Jagarian said, adding that the content of the contract is very complex so the two sides are continuing to discuss it.

Considering that U.S. and European sanctions have significantly decreased Iran's oil, Russia's purchases of 500,000 bpd of Iranian crude would lift Iran's oil exports by approximately 50 percent and provide a major fillip to its struggling economy.

Early in February, the US under Secretary of State for Political Affairs Wendy Sherman said that an oil-for-goods swap between Russia and Iran would not go ahead for now after the United States raised concerns with both Tehran and Moscow, warning it could be subject to U.S. sanctions.

"We are crystal clear that anything like such an agreement between Russia and Iran might have potential sanction able action and would likely create a tremendous risk within the P5+1 which would make coming to a comprehensive agreement all the more difficult if not impossible," she added.