Iranian Oil Ban to Affect Irish Prices

Drivers in Ireland are faced with further fuel price hikes after the European Union imposed an oil ban on Iran. The sanctions are over the country’s nuclear programme and involve an immediate embargo on all new oil contracts with the Gulf state. Existing contracts will only be honoured until July 1. This will impact EU economies, as the states buy over 600,000 barrels of oil a day – or about 20% of Iran’s oil exports.

It’s not certain how this Iranian oil ban will affect the cost of fuel for drivers in the long-term, especially since Ireland itself doesn’t import much oil from the foreign nation. Energy Minister Pat Rabbitte says there would be an effect, but they believe it will be minimal.

However, Iran has threatened to shut down the Strait of Hormuz in response to the oil embargo. This is the passageway in the Persian Gulf that is used to transport 35% of the world’s oil exports from Iran, Saudi Arabia, Kuwait, Qatar, Iraq and the United Arab Emirates. Immediately following the threat, the markets reacted and a barrel of oil rose by over 1% to just under $111.

Military experts, however, question if Iran has the naval abilities to try to blockade the strait. The US and allies have said already that they will take swift action against any moves by Iran to close the 30-mile wide passageway.

Petrel Resources managing director David Horgan said there is scepticism about how serious countries in the EU are about the Iranian oil ban, considering the six month window that will allow them to pursue alternative contracts for oil. The market’s view is that the emergency will blow over, while the industry believes the strait will remain open.

However, Horgan warns that there’s a bigger problem over demand and general oil supply worldwide. Looking at the balance of supply demand, this is possibly the worst time in three decades to impose sanctions on Iran. The world practically has no surplus capacity, at less than 1%, and Iran’s exports are needed.

The Automobile Association (AA) director of policy Conor Faughnan tells reporters that the immediate impact on Irish motorists will be relatively small, because Europe will have time to find alternative exporters. The alternatives include: Saudi Arabian crude, which requires more refining; and Russian crude (the best option), but the country is already pumping at full capacity, which means their prices are likely to rise and cause a knock-on effect for consumers.

However, Horgan says there will be a wider impact in the long-term for removing an exporter like Iran. He said losing two million barrels of oil from the market during the Arab Spring had an big impact and there was a lack of surplus, inevitably raising prices. Ireland simply can’t do without exports from Iran for any period of time, he added.