Over the past few weeks, Iran has repeatedly sought (even demanded) EU support to offset renewed U.S. sanctions that will be imposed on the oil producing country. In fact, not only did Iran ask for EU help, it said it wanted some solutions by the end of this month – which is now here.
Tehran wants the EU to help safeguard its oil export revenues, its most important source of income, by enlisting the help of European central banks. Consequently, the EU has been considering bypassing the U.S. financial system by handling oil purchases from Iran in euros instead of U.S. dollars, albeit without the aid of commercial banks. For this to happen, however, it wants central banks in Europe to transfer large sums of euros to the Iranian central bank.
Yet, the idea sounds easier than it is to implement, while the European Commission has already indicated its refusal of the idea, leaving the idea up to each European country’s individual central bank, which would likely be a piece-meal development at best.
All of this geopolitical maneuvering comes as EU states, mostly led by French President Emmanuel Macron, seeks answers to what Europe sees as American hegemony over the Iranian situation.
However, now that the end of the month has arrived, Iran’s self-imposed deadline for an EU decision to help, the country seems to be shifting its strategy. Yesterday, Iran’s Oil Minister Bijan Zanganeh, an increasingly familiar face in international media, is seeking help from OPEC.
Iran is OPEC’s third largest oil producer after Saudi Arabia and Iraq, producing around 3.8 million barrels of oil per month, according to some estimates. Re-imposed sanctions could remove as much as 500,000 barrels per day (bpd) of Iranian oil from global markets, even up to 1 million bpd, depending on whose forecast you use. Worst yet for Iran, President Trump has upped the ante even more, calling for the “highest level” of sanctions against the OPEC member.
Ticking clock
The clock for renewed sanctions against Iran started ticking on May 8 when Trump signed an executive order over the Iranian situation. The presidential memo started a 180-day countdown timer for the White House to re-impose all of the sanctions on Iran that were relaxed under the Obama-era deal reached in 2015.
Zanganeh has asked OPEC to support his country against what he called “illegal, unilateral and extraterritorial sanctions,” a reference to U.S. interference. Related: Oil Prices Rebound As Crude Inventories Shrink
“I would like to... seek OPEC’s support in accordance with Article 2 of the OPEC Statute, which emphasises safeguarding the interests of member countries individually and collectively,” Iranian Oil Minister Bijan Zanganeh wrote in a letter, according to a Reuters report.
Zanganeh also suggested in the letter that Iran was not in agreement with some OPEC ministers’ recent comments on the oil market. He said some OPEC ministers “have implicitly or unwittingly spoken for the organisation, expressing views that might be perceived as the official position of the OPEC.” This is obviously a reference to Saudi Arabia’s recent comments over the situation.
Zanganeh’s letter was addressed to the United Arab Emirates Energy Minister Suhail al-Mazrouei, who currently holds the OPEC presidency.
Saudi Arabia unlikely to budge
However, the quandary for Iran in this overture is arch-rival and OPEC defacto leader Saudi Arabia. With ongoing geopolitical tensions in the Middle East between Saudi Arabia and Iran as well as being on opposing sides in both the Syrian and Yemen conflicts, there’s little hope that OPEC kingpin and the world’s top oil exporter Saudi Arabia will concede to Zanganeh’s call for assistance.
Moreover, Saudi Arabia has already indicated that it would pump more barrels to make up for lost Iranian oil production due to new sanctions. Even worst for Iran, the Saudi decision is likely based on recent pressure from Trump to rein in higher oil prices that recently breached $80 per barrel, reaching three year highs.
Related: Why U.S. Oil Exports Are Only Heading Higher
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Just talk of Saudi Arabia and Russia agreeing to increase oil production has seen both global benchmarks Brent crude and NYMEX-traded West Texas Intermediate crude prices fall in the past week by several dollars per barrel for each benchmark.
OPEC and several non-OPEC oil producers agreed in early 2017 to trim oil production by 1.8 million bpd until the end of this year. OPEC and non-OPEC producers will meet again in Vienna on June 22 to consider if the output cut deal should be renewed or abounded.
With EU help waffling and with the unlikely prospect of OPEC stepping up to the plate, Tehran may have to suffer the full brunt of new U.S. sanctions, while other oil producers are more than willing to offset lost Iranian production.
By Tim Daiss for Oilprice.com
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