Possible US Sanctions Persuade Oil Trading Firms to Stop Gasoline Sales to Iran
Despite being a world leader in oil production, Iran lacks the refining capacity to supply its domestic demand for gasoline. (image: s.wsj.net)
The US is still working on legislation to impose new sanctions on gasoline sales to Iran, but the threat of sanctions is already having an impact. On Monday, Reuters reported that oil trading firms Vitol, the world’s largest oil trader, and Trafigura are going to stop selling gasoline to Iran. The firms join BP, Glencore, and Reliance Industries, who have already stopped selling fuel to Iran as the fear of US sanctions convinced them to halt their supplies.
The US is trying to use sanctions to pressure Iran to abandon its nuclear program. Firms who have operations in the US would be penalized for trading with Iran if sanctions pass. Gasoline sanctions are considered one of the most severe and effective sanctions that could be levied against Iran. Though it’s the world’s fifth-largest exporter of oil, Iran lacks the refineries necessarily to produce adequate supplies of its own fuel products and imports 40 percent of its gasoline.
In December Iran cut its rations of gasoline, but so far its domestic consumption has remained steady, reported Israel’s Haaretz on Sunday. The current rations allow consumers to buy 80 liters (down from 100 liters) at a subsidized price of roughly 10 cents per liter; any gasoline purchased beyond the allotted amount costs four times as much. The failure to reduce demand, coupled with Iran’s generous gasoline subsidies, could make sanctions especially painful. As major suppliers stop doing business with the country, Iran will have to seek out smaller suppliers that demand higher prices.
Vitol will complete any fuel deliveries that stem from previous agreements, but told Reuters that the company had not made any new deals with Iran since the beginning of 2010. Chinese oil traders supply Iran with 30 percent of its oil; France’s Total, Malaysia’s Petronas, and Kuwait’s Independent Petroleum Group also continue to sell to Iran.
The proposed US sanctions have already been successful in curbing gasoline supplies to Iran, even if they do not become law. How Iran will respond is unclear—especially because no new sanctions have actually been imposed. The Iranian government already plans to phase out subsidies, and is working to expand its refining capacity to make the country more energy independent. Iran’s envoy to OPEC, Mohammad Ali Khatibi, reminded observers of the most powerful card Iran has to play when he said on Monday that current oil prices were too low and that crude oil should be closer to $100 a barrel—a price point that some think would bring global economic recovery to a grinding halt.
Whether sanctions on gasoline (or the threat of them) will successfully disrupt Iran’s nuclear program—or whether Iran will use its oil exports as an economic weapon to combat sanctions and create a shock in global oil markets—remains to be seen.
UPDATE: On Wednesday the Wall Street Journal reported that Royal Dutch Shell is the latest company to announce that it has stopped selling gasoline to Iran. A company spokesperson would not comment on how possible sanctions may have influenced Shell’s decision, saying only, “Shell is not currently selling gasoline to Iran.” According to the Journal, Western companies are being replaced by companies from Asia, regardless of the threat of sanctions. Petronas, Malaysia’s state-owned oil company, confirmed that it was continuing its gasoline sales to Iran.
