Iran General NewsIn standoff with Iran, U.S. allies offer oil for...

In standoff with Iran, U.S. allies offer oil for Asia

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New York Times: Asian countries that are Iran’s biggest oil customers have been assured that if they yield to pressure from Washington to curtail the purchases, Saudi Arabia and its Arab neighbors will fill any gap in energy supplies, adding heft to the American efforts to choke off Iran’s petroleum exports, its primary source of revenue.

The New York Times

By CLIFFORD KRAUSS

HOUSTON — Asian countries that are Iran’s biggest oil customers have been assured that if they yield to pressure from Washington to curtail the purchases, Saudi Arabia and its Arab neighbors will fill any gap in energy supplies, adding heft to the American efforts to choke off Iran’s petroleum exports, its primary source of revenue.

The assurances, from the oil producers in the Persian Gulf,  were offered to China, Japan and South Korea — which together buy about half of Iran’s oil — after each expressed concern that loss of energy resources could undermine their own economies. The United States, and Europe, have moved aggressively to block Iran’s ability to sell oil, hoping to create enough economic pain and social instability that Iran’s leaders abandon a nuclear program the west says is aimed at building nuclear weapons, which Iran says is for peaceful purposes.

China, which is  Iran’s largest buyer, has said that it would not abide by any new sanctions against Iran. However, it has already begun to reduce its purchases of Iranian crude, and this weekend Chinese Premier Wen Jiabao will begin a five-day visit to Saudi Arabia, Qatar and the United Arab Emirates, perhaps to explore the prospect of increased energy sales.

“China and Japan and South Korea are looking for assurances that there will be additional supplies from the Arabian Gulf producers,” said Sadad Ibrahim Al-Husseini, former head of exploration and development at Saudi Aramco, the national oil company. Kuwait, Saudi Arabia and the United Arab Emirates, he added, “are all saying `We will do whatever it takes. Yes, we will support you.’

Oil analysts say Saudi Arabia, Kuwait and the United Arab Emirates, all allies of the United States in confronting Iran, would be able to replace up to two-thirds of Iran’s 2.2 million barrels a day of oil exports that anchor the Iranian economy with annual revenues of roughly $75 billion a year. But the analysts caution that they could only sustain the additional output for a limited amount of time through increased production and tapping stored reserves e estimated at 30 million barrels. They also warn that eventually, oil prices would rise threatening the shaky global economy.

The Gulf states “could replace the Iranian oil for about a month and then you would have to look to the strategic reserves from the west, which could represent another month,” said Chakib Khelil, the former Algerian Energy Minister who also served as president of OPEC. “Then you could have undersupply and oil prices could get jacked up.”

Officials in Asia have been wary of a new U.S. law that would deny access to the American financial system for foreign financial institutions that do business with Iran’s Central Bank, the country’s main clearing house for payments for oil. But Middle Eastern oil executives say the Asians appear to be moving in the direction of Washington and Europe to press Iran on its nuclear program, albeit reluctantly and perhaps fitfully.

Arab oil executives say the discussions between the Asian buyers and major regional OPEC producers have taken place over the last few days as the United States and Europe stand poised to strengthen sanctions. The talks, they said, have gained added urgency amid rising tensions between the West and Iran, culminating with the assassination Wednesday in Tehran of an Iranian nuclear scientist and earlier threats by Tehran to close the Strait of Hormuz, through which about one-fifth of the world’s oil must travel to get to market.

Negotiations to reach new long-term contracts to replace Iranian oil have just begun and could take a month or more to take shape, but regional oil experts said they are expected to accelerate over the weekend as the Chinese premier arrives in the region.

But already there are signs that the United States efforts are succeeding. Japan pledged on Thursday to cut oil imports from Iran in response to a plea from visiting Treasury Secretary Timothy Geithner, only a day after he was publicly rebuffed by China. Since Japan purchases 14 percent of Iran’s oil exports, its joining with the European Union in pledging to cut Iranian oil imports was potentially a major blow to Tehran.

A loss of Chinese markets would be an even bigger blow since it is by far Iran’s biggest customer, buying 22 percent of its oil exports, or more than the entire European Union. Even as it has publicly rejected western sanctions, Beijing has substantially cut back on commitments to buy Iranian oil on long-term contracts in recent weeks — either to distance itself from Tehran or to buy Iranian oil at a cheaper price on the spot market.

In India, refiners who process 13 percent of Iranian crude exports, are also gradually turning away from Tehran. The media in South Korea has reported its government is also considering cutting back imports.

But there is little likelihood that there will be a sudden Chinese break with Iranian oil imports since Beijing relies on Iran for at least 5 percent of its supplies while its offshore drilling has slowed following a series of oil spills last year.

Gulf oil officials say the Chinese are looking for alternative, reliable sources to replace Iranian supplies but they are in no rush to risk their economy and its voracious thirst for energy.

“It will have to be a slow and methodical process to switch from one supplier to another,” said Mr. Husseini, the Saudi oil executive. “It will take time and negotiations to reach long-term arrangements. The issue for China is not just price, its volume.”

But even incremental movement from China, and positive intention in Japan, represent progress for Washington’s efforts to curb Iranian oil exports. Japanese Finance Minister Jun Azumi said on Thursday that Japan would “take concrete action to further reduce” oil imports from Iran, though he noted that cutting Iranian oil imports to zero “would cause immense damage” and he said he asked Mr. Geithner to “take Japan’s situation into consideration.”

The mixed signals from Tokyo continued throughout the day. Osamu Fujiwara, Japan’s chief cabinet secretary, appeared to backtrack on Mr. Azumi’s pledge to slash oil imports from Iran saying such a reduction was “just one of several options.”

Prime Minister Yoshihiko Noda told Mr. Geithner that U.S. sanctions “could cause serious effects on the Japanese and world economies,” according to a press release from the prime minister’s office.

India has been trying to reduce its reliance on Iranian crude oil for several years with mixed success.

In late 2010, in what appeared to be a response to U.S. pressure, the Reserve Bank of India said Indian banks could no longer use a regional clearinghouse to settle payments for Iranian oil imports. The decision made it very difficult for Indian oil importers, many of them state-owned, to pay Iran for several months.

Currently, Indian companies pay Iran through a Turkish bank, Ankara-based Halk Bank, but analysts say that option may not be viable for much longer given President Obama’s decision to sanction banks that do business with Iran’s central bank.

“Who do you pay and how do you pay?” said Kate Dourian, the Middle East Editor for Platts, an energy industry research service. “It is becoming more and more difficult.”

On Thursday, a senior Indian energy official, Sudhir Bhargava, told reporters in New Delhi that the country was still using the Turkish option. He said that the government was not encouraging refining companies to look for other supplies of crude oil. India imports about $12 billion of oil a year from Iran, its second biggest supplier after Saudi Arabia.

Mr. Bhargava, a joint secretary in the Ministry of Petroleum and Natural Gas, spoke a day after Reuters quoted unnamed sources saying that Indian officials were pushing companies to find other suppliers.

Several Indian refiners have already turned to other sources of oil and more appear to be doing so. Reliance Industries, a large private company that operates India’s largest refining complex, no longer buys oil from Iran. Essar, another large private refiner, is expanding and upgrading its refinery, a process that will allow the company to replace lighter grades of Iranian crude with heavier grades of Latin American crude.

Reporting was contributed by Hiroko Tabuchi in Tokyo, Vikas Bajaj in Mumbai, and Jim Yardley in New Delhi.

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