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Iran looks to become 'first mover' in EU oil ban
January 30, 2012
Worldwide Refining Business Digest Weekly.e

The EU has agreed to ban Iranian oil imports beginning July 1, and Iran has reacted by drafting a bill to stop exports before the start of the ban, Mehr news agency reported. "All European countries that made Iran the target of their sanctions will not be able to buy even one drop of oil from Iran and oil taps will be turned off so that they will not play with fire again," commented lawmaker Nasser Soudani to Mehr. The bill could be discussed in parliament as soon as Jan. 29 as Iran looks to become "the first mover," Lawrence Eagles with JPMorgan said. Iran is also continuing to threaten to block the Strait of Hormuz, which has almost 20% of the world's oil pass through it, if an embargo is put in place. The deputy head of Iran's committee on national security, Mohammad Ismail Kowsari, said the strait "would definitely be closed if the sale of Iranian oil is violated in any way."

The International Monetary Fund (IMF) has warned that global crude prices could rise by 30% if Iranian oil exports are stopped. The IMF predicts a 20-30% (or $20-30/bbl) price jump for oil initially after a supply disruption. Around 2.6MM b/d of oil are exported from Iran. Some European Union countries may be forced to turn to oil reserves after the ban is in place. "It's certainly going to be a factor going forward but only if countries can't source alternatives. That will obviously depend on future demand and how many days' reserves Europe has, but you have to think that Saudi Arabia might be able to help in that regard, in the short term probably," analyst Michael Hewson with CMC Markets said. EU nations' total oil reserves are around the equivalent of 120 days of demand, or 134.5MM mt (986MM bbl).

Meanwhile, Unione Petrolifera's general manager Piero De Simone said the embargo set by the EU on Iranian oil may result in more refinery closures in Europe. "Asian countries not applying the embargo could buy the Iranian oil at a discount and sell cheap refined products back to us. Italy already risks the closure of five refineries and at a European level we're talking about 70 possible shutdowns," he said. "The Iranians will have to unload their production somewhere and I'm sure they'll find buyers. The last thing we need is more unfair competition." To reassert this view, a Barclays analyst said, "We would expect further closure of simple, non-profitable refineries in both the US and Europe. What we'll likely see over time is that only the large refineries, particularly the ones able to make diesel which is increasingly in demand will survive, and it still won't be easy."