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SA oil imports 'safe' from Iran sanctions impact
International sanctions against Iran would only have a marginal effect on the price SA pays for its oil imports irrespective of whether it decides to comply with them or not, say oil analysts.
Earlier this week the US and the European Union agreed to tighten their sanctions against Iran that included a preliminary agreement on the latter embargoing oil.
These sanctions were being imposed due to fears that Iran was continuing to pursue its nuclear policy that may result in the country developing nuclear weapons.
Iran has claimed that its nuclear programme was for peaceful purposes only and earlier this month said it had produced domestic nuclear fuel rods.
SA's foreign policy, announced in 2008, was that Iran should be allowed to pursue nuclear technology for peaceful purposes (energy).
Tensions escalated in the strategic Persian Gulf as Iran carried out war-games that included a simulated closure of the Strait of Hormuz that included the firing of live anti-ship missiles.
Iraj Abedian, chief executive of Pan-African Investment Holdings, said that SA had two choices: either it could comply with the sanctions and then source the Iranian-supplied oil from elsewhere; or it could be opportunistic and demand a lower price for Iranian oil.
"If it goes the first route then we may see a short term spike in the oil price that would be related to the global price. However, any shortfall would be made up by countries such as Libya, Saudi Arabia and Iraq increasing their production," he said.
Abedian, who is Iranian born, said the second option would be similar to the card that China and India have played with Iran where they demand lower prices for Iranian crude oil.
SA, China and India, with Russia and Brazil are part of the Brics informal trading block and have developed similar stances in dealing with certain trade issues. China opposes unilateral sanctions against Iran, and India appeared to be complying with US demands by leaving the clearing system that has been used to settle Iranian oil payments. However, Indian companies were still doing business in Iran.
A large part of Brazil's fuel needs were being met through local production of ethanol and Russia is a major oil producer in its own right.
Investec Securities oil analyst Campbell Parry said the second option seemed the most likely route for SA.
"We are already seeing a shortage of fuel products in SA, because of the two-week disablement of the oil mooring at Durban harbour and so local oil refineries will want to get product as quickly and as cheaply as possible. They will not let international politics or sabre rattling affect their business," Parry said.
However, the biggest constraint for the oil companies importing oil would be to get financing from the banks for the deals as the financial institutions were very nervous about the effect of the proposed sanctions, he said.
"I just can't see these sanctions having any real effect," Parry said.
He said SA had been importing Iranian oil for more than 40 years and that local refineries appeared to have a preference for the blend that comes from that country.
According to Parry's calculations SA needed about 23 billion litres of fuel product per year to keep the economy going. This included 9.5 billion litres supplied by coal-to-fuel producer Sasol.
He said historically the mix of SA's oil imports were 40% from Iran and Saudi Arabia each with the remainder from various other countries.
Abedian estimated that SA's imports from Iran may already have fallen to around 20%.
"Part of the problem with Iran's oil production is that it is similar to Nigeria's in that it is very inefficient and uses outdated technology. They are able to produce crude oil, but struggle to refine it for their own needs. For instance, Tehran (the Iranian capital) is now one of the most polluted cities in the world because of this," he said.
Iran sits on top of the world's second largest reserves of both oil and gas and it still has vast areas of reserves that are either unexplored or untapped. The country comes fourth after Russia, Saudi Arabia and the US in crude oil production and fourth after the US, Russia and Canada in gas production.
Gas and oil make up 60% of Iran's export earnings.
Abedian blamed the country's rigid socio and economic policies for its sagging economy that have caused food prices to rise by more than 40% and its currency, the rial, has devalued by 60% against the dollar this year.
"Essentially Iran has a military/bureaucratic dictatorship with a thin layer of theocracy," he said.
Iran has a population of almost 80 million, with 65% under the age of 30 years.
Popular anti-government demonstrations in 2009 were suppressed with unconfirmed reports of more than 50,000 people dying during the protests.
SA has had other commercial ties with Iran.
During the 1980s SA was a major supplier of artillery and ammunition to Iran during its war with Iraq.
Cellular communications company MTN has had an extensive operation there for almost 10 years and Sasol owns a 50% share with Pars Petro Chemical Company in Aryasasol Polymers that produces polyethylene.
Parry said that Sasol had been making noises that it would divest from this joint venture in order to pursue its US$12 billion investment to develop an ethane cracker plant in the US state of Louisiana.
Late on Friday the oil price was at US$113.06 per barrel.
Source - BusinessLive
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