Tighter sanctions on Iran could cost Eni 'billions'

Eni SPA Chief Executive Officer Paolo Scaroni said tighter sanction on Iran could cost the Italian firm as much as $2 billion in crude oil owed to it by National Iranian Oil Co.

“We are a little bit more worried about the payments of crude that NIOC are making to us for our previous activities,” said Scaroni, referring to billions of dollars worth of contract work undertaken by Eni during 2001-09.

However, Scaroni also expressed the belief that the payment in kind would be exempt from any sanctions regimes at the moment, saying, “We feel that this will be exempt from any ban. We feel there is a difference between importing crude and receiving crude.”

Scaroni also said he doesn't see major problems for Eni's refineries in Italy if the European Union does strengthen the sanctions regime on Iran.

“Yes, there is a problem in the quality of crude so we should make some shifts, but our refineries should be able to cope with this issue,” Scaroni said, adding that Iran’s crude makes up about 15% of Italy’s oil imports.

Scaroni’s view differs from other analysts who said EU sanctions on Iran's oil exports will hurt European refiners that rely on the country’s crude, particularly Greece, Italy, and Spain.

Analyst Manouchehr Takin of the Centre for Global Energy Studies (CGES) research group said the absence of Iranian oil exports would hurt Europe more than it would Tehran.

Takin said the Europeans are importing nearly 500 million b/d, with refineries in Greece, Italy, and Spain being the main customers. Takin said these refineries would suffer financially because they cannot easily replace Iranian crude with other crude.

Takin noted in particular that refineries in Europe—especially those in Italy, Spain, and Greece, which are having financial problems—would suffer more than Iran would in its search for other customers.

In the event of EU sanctions, Takin said Tehran could find customers elsewhere for its oil but would probably have to accept lower prices.

He noted in particular that Iran has about 2.3 million b/d in exports, mostly in Asia, the Far East, and China, and that the Middle Eastern country would try to sell more oil into those markets.

However, Takin said Iran's bargaining position for its customers would be a bit weaker, especially if the Chinese and Indians know that the European refiners are not competing with them.

That makes something of a loss for Iran, Takin said, but he insisted that the financial loss would be more immediate and larger for the refiners in Europe.

Analyst Eugen Weinberg of Commerzbank said sanctions would most affect Italy, Spain, and Greece, the three Euro-zone nations that are in the grip of severe debt problems.

“There is allegedly consensus in the EU about the need to impose an oil embargo on Iran,” Weinberg wrote in a research note, adding that it remains to be seen whether this step is actually taken.

“After all, crisis-ridden Italy, Spain, and Greece rely on oil from Iran; an embargo would force them to source their oil requirements elsewhere at considerably higher prices,” Weinberg said.

“Maybe the aim of sanctions is to help Italy, Spain, and Greece to collapse and make the EU a smaller club,” said one trader, as efforts toward an EU-wide ban on Iran oil supply come under continued debate.

EU foreign ministers imposed sanctions on an additional 143 firms and 37 individuals in Iran, after last month’s report by the International Atomic Energy Agency charging Tehran with efforts to produce a nuclear weapon.

However, the ministers have also threatened to extend the scope of punitive measures against Iran, including new measures by late January next year that would target the financial system as well as transport and energy.

Last month, Iran’s Oil Minister Rostam Qasemi said sanctions recently imposed against his country by the US, the UK, and Canada will present global oil markets with problems in securing oil of equal quality and quantity.

“Taking into account the quality of Iranian oil and Iran's second top ranking in terms of oil production, the consumers cannot be provided oil with such a quality. So, there is no alternative for Iranian oil supply,” Qasemi said (OGJ Online, Nov. 29, 2011).

Contact Eric Watkins at hippalus@yahoo.com.

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