Watching Government Oil diplomacy

Hazel O'Leary's trip to South Africa last week was another example of the odd things that happen when oil and diplomacy mix.

The U.S. energy secretary's mission mainly was directed at helping South Africa increase its electrification and develop renewable energy sources.

She explained that less than 40% of the 43 million people in South Africa have access to electricity. Although the power grid is expanding, some areas are too remote to be hooked up and must look to photovoltaics.

She said, "We will be working on urban and rural electrification with the goal of looking for opportunities to support the sale of power outside of South Africa, thereby helping the entire sub-Saharan region."

The Iranian issue

Early in her trip, O'Leary announced that a joint venture of U.S. and South African firms plans to build a plant in Johannesburg to produce modules used in photovoltaic energy systems.

O'Leary said her discussions with South African energy officials would cover other topics, including energy efficiency, environmental issues (South Africa depends largely on coal), and exploration (it soon will open bids on offshore leases).

But she didn't plan to have much to say about an energy issue of critical importance to U.S.-South African relations.

This month, despite U.S. protests, South Africa planned to sign a deal that would help Iran thwart a U.S. trade embargo.

Iran wants to store as much as 15 million bbl of its crude oil in South Africa's Saldanha Bay depot on the Atlantic coast, then export it to African and South American countries where it does not have customers at present.

O'Leary said, "I think our position is well known" in the South African government on the issue, so she planned to have little to say about it.

She added it is common for nations to cooperate on many issues, although they still may disagree strongly on a few.

Under the deal, Iran would use Saldanha Bay as an import-export terminal. South Africa likely would share in oil trading profits rather than receive storage fees.

South Africa will have the spare storage capacity Iran needs. Isolated over the decades for apartheid policies, it has built a 55 million bbl strategic oil stockpile.

Now that the black majority has elected a popular government, international isolation has ended and South Africa wants to cut its stockpiled volume to about 35 million bbl within 2 years.

Embargo effects

The pending arrangement with South Africa is another sign Iran is feeling the U.S. trade embargo.

In May, the Clinton administration issued an order banning all U.S. trade with Iran because it was undermining the Middle East peace process and trying to develop nuclear weapons (OGJ, May 15, p. 23).

At the time, Iran was selling about one fourth -- 600,000 b/d -- of its crude oil exports to subsidiaries of U.S. firms.

Since then, struggling in a soft market, it has had to discount its crude prices and reportedly has been unable to sell as much as 200,000 b/d (see story, p. 105).