Iran Sanctions Felt as Far as Namibia

The United Nations sanctions, designed to force Tehran to halt its nuclear program, are having an effect on far-off Namibia.

The southwest African state imports all its refined fuel from South Africa ever since the government terminated the National Petroleum Corporation of Namibia's contract to supply 50 percent of the country's total fuel needs.

Namibian Ministry of Mines and Energy Deputy Director for Petroleum and Gas Immanuel Nghishoongele said that the Iranian sanctions will not affect the country’s fuel supply but will impact retail fuel prices, commenting in an interview "Iran is under UN sanctions and they are a major supplier of oil to the international market. This means that the price of crude oil on the international markets will be affected and Namibia too will feel the pinch."

The price rises for Namibian consumers began on 14 March, with wholesale prices for  93 Octane Lead Replacement Petrol going up by 26 cents per liter, 95 Octane Unleaded Petrol increasing by 19 cents per liter and Diesel by 6 cents per liter. The Ministry of Mines and Energy said when it announced the price increases, “At the moment, there is no complete alternative to Iranian oil, hence demand-pull inflation will continue to prevail as long as no country comes on board to offset the exports halted by Iran.”

The sanctions, which prohibit - in principle - all UN member states from buying Iranian oil, an order that has so far been ignored by countries such as China and India, among others, have already pushed up crude prices to $128 per barrel.

In turn, Iran has threatened to cut its fuel supplies to some Western countries whose firms operate in South Africa and supply Namibia with fuel.

The tighter sanctions aim at restricting the flow of vital foreign exchange from oil sales to pressure Tehran to abandon its nuclear program and are a follow-up to 2010 sanctions. Ironically, Namibia is hardly a disinterested observer, as the 2010 sanctions saw Namibia's Rossing Uranium, together with Bank of Namibia, freezing dividends for Iran's 15 percent share in Rossing Uranium.

Nevertheless, Iran has embarked on a charm offensive to keep Namibia in its corner. At the 18th African Union Summit held in Addis Ababa on 29-30 January, Iran's Foreign Minister Ali Akbar Salehi met on the sidelines with Namibian President Hifikepunye Pohamba and expressed his country’s willingness to collaborate with Namibia in the fields of industry, science, technology and medicine.

Salehi also informed Pohamba of Iran's intention to open an embassy in Windhoek in the near future. Pohamba in turn informed Salehi of Namibia's need for the construction of oil refineries and said that Windhoek would welcome Iran's cooperation on such projects as well as stressing the necessity of expanding bilateral ties with Iran particularly in the industrial and oil sectors while discussing Iran’s shares in the Rossing Uranium Mine, which produces 7 percent of the world’s uranium.

But in the meantime, the increased fuel prices are causing inflation.

Namibia’s Central Bureau of Statistics recently announced that the country’s annual inflation rate had jumped to 7.4 percent in February from 6.6 percent the previous month.

At 7.4 percent, the February annual inflation rate was at its highest peak since August 2009 mainly driven by food and transport inflation. Transport inflation increased from 6.9 percent in January to 8.1 percent in February as the global oil price surges higher due to international concerns over Iran's nuclear program.

Viewing Namibia’s inflationary woes Capricorn Group economist John Steytle observed, "As the price of Brent Crude oil edges closer to $130 per barrel in March, we expect further increases in transport inflation, certainly for next month and most probably beyond. This has already been confirmed by a second increase in the petrol and diesel pump prices in 2012."

Ironically, the surge in oil prices may press Namibia to reconsider a dormant energy project, a form of energy which has led to the Western standoff with Iran. In 2003 the Namibian Cabinet made a decision to investigate the option of nuclear energy in Namibia after which, the Ministry of Health and Social Services, the Office of the Attorney-General, the Finnish Geological Survey and Radiation and Nuclear Safety Authority (STUK) and the Ministry of Mines and Energy drafted a national Nuclear Fuel Cycle Policy. While the project has been on hold, pain at the pump may cause the project to be revived.

By. John C.K. Daly of Oilprice.com