Iran likely to face sluggish oil market

Iran Materials 19 January 2012 18:28 (UTC +04:00)
Iran likely to face sluggish oil market

Dalga Khatinoglu, Head of the Trend Persian service

Iran's oil siege is becoming more tightened. Dozens of reports have appeared about Asian oil importers' decreasing Iran's crude imports.

Saudi Arabia Oil Minister Ali Al-Naimi has announced that his country is ready to boost oil production to 11.8 million barrels per day just by turning valves to make effective its vacant 2 million barrels of surplus oil production capacity. All Persian Gulf's Arab States are keen for Iran's nuclear program to be impeded.

Wen Jiabao, Premier of China - Iran's biggest oil importer, visited Saudi Arabia, the United Arab Emirates (UAE) and Qatar just a few days after a tour of U.S. Treasury Secretary Timothy F. Geithner to Beijing, Tokyo and Seoul in an effort to convince them to join "Iran's oil embargo campaign", launched by the U.S. allies, including the EU.

Jiabao signed economic and trade agreements worth over $21 billion with Saudi Arabia, UAE and Qatar during his six-day visit to the Middle East. This figure equals to half amount of China's overall agreements with Iran.

The U.S. sanctions seem significantly deteriorate the Chinese-Iranian oil cooperation. The Iranian officials' statements urge China has delayed its all oil projects active in Iran, including developing of the huge Phase 12 of Iran's giant gas filed South Pars.

Persian Gulf's Arab States' agreements with Jiabao can exhort Iran's biggest oil buyer to accompany the West countries by putting embargo on Iranian oil. China already decreased Iranian crude import by half to 285,000 for this January and February.

About 2.2 mbpd of Iran's 3.6 mbpd oil output is exported, equals about 80 percent of Iran's government revenues.

This country's major oil importers was China, Europe, India, Japan, South Korea, South Africa, Sri Lanka, Taiwan with prospectively buying 22 percent, 18 percent, 14 percent, 13 percent, 10 percent, 7 percent, 4 percent, 2 percent and 1 percent of Iranian exported crude. Other countries had bought around 9 percent of Iran's crude.

According to Nat Kern, the publisher of Foreign Reports, Europe has agreed to cut about 450,000 barrels per day by late June; Japan is talking about cutting 100,000 barrels; South Korean officials have discussed a reduction of 40,000 barrels.

According to Reuters's earlier report, the volume of Iranian crude oil stored at sea had risen to as much as 8 million barrels and was likely to increase even more as Iran struggles with sanctions and a seasonal refinery slowdown.

This is not the end of story. Akihiko Tembo, President of the Petroleum Association of Japan and chairman of Idemitsu Kosan Co. said on Thursday that Japan's oil industry is likely to reduce its purchases of Iranian crude in about three months, because of Japan is under pressure to cut its oil imports from Iran as Japanese banks need to gain a waiver from U.S. sanctions designed to hamper Iran's ability to sell oil overseas.

According to reports Indian refineries have increased oil import from Saudi Arabia. Iraq and Libia, as OPEC's other members, have increased oil output, and potentially can provide opportunities for Iranian oil customers to replace Iranian oil with other source more easily.

Then Iran's only chance is retaliation like them, namely seeking new oil importers or supply the oil customers via mediator companies with high costs. However, with regarding the fact that China with $5.88 trillion USD gross domestic product has been forced to give up against the U.S. pressure, how can weak oil importers resist against the pressure to replace Iran's old customers?