Saudi Arabia Unable to Fulfill Oil Pledge

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Jouhina news, Analysts believe that Saudi Arabia cannot live up to its promise to fill the oil-supply gap in case the US-led European Union imposes a ban on Iranian oil supplies. Analysts said failure could put further price pressure on markets already roiled by tensions linked to efforts to curb Tehran's peaceful nuclear program. There are encouraging signs that the West is re-examining the prospects for a diplomatic solution. But that does not mean the European Union is likely to drop proposed measures to ban Iranian oil imports from mid-year that are due to be discussed by its foreign ministers on Monday. Iran fired back this week after Ali al-Naimi, the Saudi energy minister, said in interviews that his country could step up crude output to fill the gap if sanctions cut into Iran's 2.2 million barrels of daily oil exports. Strategically, the Saudi pledge came between President Barack Obama signing a bill that included financial sanctions geared to deter foreign companies from doing business with the Iranian crude export sector and the EU deliberations over banning Iranian crude. Tehran has warned that if Saudi Arabia, Iran's partners in the 12-member Organization of the Petroleum Exporting Countries, embarks on such an act, it will then prove to be part of the alliance ranged against it. "Our Arab neighbors should not cooperate with these adventurers and should adopt prudent measures," Mohammad Ali Khatibi, Iran's OPEC representative, said. It was the latest warning to the Saudis to stay out of the dispute. Writing in The New Republic, Kenneth Pollack notes: "The Saudis have said that they would offset any drop in Iranian oil by increasing their own, but many analysts question Riyadh's capacity to do so completely or for a sustained period of time." Tensions over tightened sanctions against Iran, and the Islamic Republic's potential response, have kept oil above $100 a barrel for most of this month. Analysts estimate new sanctions could cost Iran up to a fifth of its oil sales, which it can sell to Asian customers easily, but filling the gap is not just a simple matter of the Saudis turning up the tap. "The very fact of Saudi Arabia pushing production close to its capacity would itself alarm the markets and send prices up," said Nassir Shirkhani of the energy newspaper Upstream. "The Saudis would also be using heavier oil that might not be suitable for refineries that use Iranian crude." Shirkhani told Rendezvous he believed China would step in as a buyer to prop up Iranian exports and noted the reluctance despite US pressure on India and South Korea to get drawn into sanctions. "Iran could turn to more barter deals," Shirkhani said, "and if the oil price went up further, Iran would benefit." Iran, the second-biggest OPEC player after kingpin Saudi Arabia, produces about 2.3 million barrels of oil per day - 450,000 barrels of which is exported to the European Union, according to the US Department of Energy. Manouchehr Takin, an analyst at the Center for Global Energy Studies ( CGES) research group, said a removal of Iranian oil exports would hurt Europe more than Tehran. "The Europeans are importing nearly half a million barrels per day ... Refineries in Greece, Italy and Spain are the main customers. They would suffer very much immediately financial loss (in event of sanctions) because they cannot easily replace that Iranian crude with other crude," he told AFP in December. "Financially, I think these refineries in Europe - specially those three countries that are having financial problems - would lose and suffer more than Iran would lose in finding other customers," Takin added. Commerzbank analyst Eugen Weinberg agreed that sanctions would most affect the three eurozone nations which are in the grip of severe debt problems. Weinberg wrote in a research note "it remains to be seen whether this step (EU sanctions on Iranian oil supplies) is actually taken" as it would strike a heavy blow to the EU members. "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." (Fna)