Brussels: European Union (EU) sanctions on Iran entered into full force on Sunday after exemptions on some contracts and insurance ended, boosting crude prices and pressure on the Persian Gulf nation to halt its nuclear-enrichment programme.
The reduction in Iranian exports may become the biggest supply disruption from a member of the Organization of Petroleum Exporting Countries (Opec) since an armed rebellion all but halted pumping in Libya last year, according to the International Energy Agency (IEA). It also comes as a strike by Norwegian workers is curbing flows from North Sea fields.
“We expect Brent oil prices to be supported by Iranian oil sanctions and potential loss of supplies from the North Sea,” Gordon Kwan, the head of regional energy research at Mirae Asset Securities based in Hong Kong, said in a 28 June report. The imminent EU insurance ban on tankers carrying Iranian crude could drive up demand for Brent and Dubai crude.
Brent futures fell below $90 a barrel on 21 June for the first time in 18 months as concern that Europe’s debt crisis would spread sapped the outlook for fuel use worldwide. Now, the Iran embargo and Norwegian strike are stoking speculation about a rebound in prices, according to analysts such as Kwan and Ole Hansen at Saxo Bank A/S. Brent for August settlement surged 7% on 29 June to close at $97.80 a barrel on the ICE Futures Europe exchange.
Iran, the second-biggest producer in Opec after Saudi Arabia, was producing about 3.3 million barrels a day in May. Full implementation of sanctions will remove about one million barrels a day during the second half of the year as buyers disappear and Iranian storage tanks become full, the Paris-based IEA forecast in a 13 June report.
Mohammad Ali Khatibi, Iran’s governor to Opec, warned on Sunday that the EU would bear the consequences of politicizing the market, without specifying what he meant, the state-run Iranian Students’ News Agency reported.
Mahmoud Bahmani, Iran’s central bank governor, said his nation isn’t sitting by idly and has a very suitable $150 billion in foreign currency reserves to help weather the latest trade and financial curbs. “We have programmes to fight the sanctions, and we will confront hostile policies,” Bahmani said on Sunday, according to the state-run Mehr news agency.
Iran urged Opec to call an emergency meeting to address the group’s production in excess of its targeted 30 million barrels a day, Mehr reported on Saturday, citing oil minister Rostam Qasemi. Disregard of the limit by some Opec members will negatively impact oil prices in the international market, Qasemi said. The 12-member organization, which decided on 14 June to retain its daily ceiling of 30 million barrels, pumped about 1.6 million barrels more than that in May, according to data compiled by Bloomberg.
The EU agreed in January to ban oil imports from Iran, offering a five-month phase-in period for existing contracts to let member states such as Greece find alternative supplies. An exemption on tanker insurance restrictions for the worldwide shipping industry also ran out on Sunday.
Foreign ministers from the 27-nation bloc decided on 25 June the exemptions shouldn’t be extended after talks between Iran and the world’s powers about the nuclear programme failed to reach a breakthrough since they started in April. Iran denies that it is developing nuclear weapons.
“These are the toughest measures the EU has adopted against Iran to date,” UK foreign secretary William Hague said on Sunday in a statement. “It is in the power of the Iranian leadership to end Iran’s current isolation, but unless they change course, the pressure will only increase.”
Sangim Han in Seoul, Lananh Nguyen in London, Dahlia Kholaif in Kuwait and Ladane Nasseri in Dubai contributed to the story.