Monday, Jul 02, 2012


   (From THE WALL STREET JOURNAL) 
   By Benoit Faucon

LONDON -- As a European Union oil embargo took effect Sunday, Iran was stepping up its efforts to offset the sanctions by bartering products with China and selling more refined-oil products such as gasoline to its neighbors.

Tehran's strategy is being closely watched because if it doesn't succeed the country may have to shut down some of its oil wells -- a move that over time could damage reservoirs and push up global oil prices.

The EU embargo bans the purchase of Iranian oil and prohibits insurance for tankers carrying Iranian oil, which inhibits the transportation of Iranian oil to non-European nations as well. U.S. sanctions that prohibit companies that conduct oil transactions with Iran's central bank from doing business in the U.S. took effect last week, on top of existing penalties.

The West is ratcheting up pressure on Iran as talks to curb its nuclear program -- which the EU and U.S. suspect is for military purposes, but that Tehran says is for civilian purposes -- have failed to advance. A low-level technical meeting between both sides is set to take place this week in Istanbul, but expectations are low following three rounds of high-level talks.

"With this decision, our partners in the EU have underscored the seriousness with which the international community views the challenge of Iran's nuclear ambitions," the White House said Sunday. "Iran has an opportunity to pursue substantive negotiations, beginning with expert level talks this week in Istanbul."

Iran says it is fully prepared to deal with the sanctions.

"All possible options have been planned in government to counter" the sanctions, Iran's Oil Minister Rostam Ghasemi said Sunday in comments on the ministry's website.

Still, the head of the National Iranian Oil Co., Ahmad Ghalebani, Sunday said that crude-oil exports are set to fall about 20% to 30% in the second half of this year owing to the EU embargo.

Oil professionals and experts say the industry has already been hit hard.

JBC Energy, a respected Vienna-based oil consultancy, said on Friday that Iran's crude-oil production has fallen to its lowest level since 1989, just after its 10-year war with Iraq ended. Iran produced three million barrels a day in June, JBC said, compared to the 3.7 million barrels a day Iran was producing in 2010 before a ban on European investment in Iran oil and gas, still in effect, was implemented. Yet, Iran said it has a strategy in place to withstand the pressure and won't halt its nuclear program.

Mr. Ghasemi, the oil minister, said Friday that Iran was now exporting gasoline rather than importing it, as it used to do, allowing the Islamic Republic to help cushion some of blow of sanctions. In the year ended March 19, Iran exported 382,000 metric tons of gasoline, says Iranian customs statistics.

Iran has been strengthening its relationship with China, its biggest customer, which buys 500,000 barrels a day, according to the shipping tracker. Beijing bypasses banking sanctions by paying Iran in yuan, which is then used by Iran to pay for oil services or equipment, Iran trade professionals said.

A U.S. decision last month to exempt China, India and several other nations from penalties targeting financial institutions for 180 days lets Beijing continue to buy Iranian crude. Still, paying for it amounts to another challenge, amid U.S. Treasury warnings to banks to avoid dealing with Iranian lenders.

India approved a mechanism for Indian oil companies to deposit payments for Iranian oil into rupee accounts, which then will be used by Iran to pay for agricultural products and medicines from India.

Iran is developing other alternatives to maintain its production and offset lost crude sales, such as investing heavily in refining and electric sectors, which are fueled by oil and natural gas.

Under its five-year development plan ending in 2015, the country plans to spend $47.5 billion in new refining and distribution and to boost its power-generating capacity by 40% or 25,000 megawatts.

(END) Dow Jones Newswires

02-07-12 0343GMT