An Iranian official said that his country would debate a law in its parliament on Sunday that could cut off oil shipments to Europe as early as next week. Whether that happens or not, according to oil industry executives and policymakers, the West could come out the loser and China and Russia the winners as China can negotiate lower prices for the Iranian oil it buys and Russia might increase its market share for oil sales to Europe.
Reuters reported Friday that Hossein Ibrahimi, vice chairman of the Iranian parliament’s national security and foreign policy committee, said via the country’s news agency Fars that his country would vote to cut off oil supplies to Europe. He was quoted saying, “On Sunday, parliament will have to approve a ‘double emergency’ bill calling for a halt in the export of Iranian oil to Europe starting next week.” Europe voted to embargo Iranian oil in phases over the next six months to give existing contracts time to be replaced.
Moayed Hosseini-Sadr, a member of parliament’s energy committee, was quoted saying via Fars, “If the deputies arrive at the conclusion that the Iranian oil exports to Europe must be halted, the parliament will not delay a moment [in passing the bill]. If Iran’s oil exports to Europe, which is about 18% [of Iran's oil exports] is halted the Europeans will surely be taken by surprise, and will understand the power of Iran and will realize that the Islamic establishment will not succumb to the Europeans’ policies.”
Iran’s OPEC governor, Mohammad Ali Khatibi, told the ILNA news agency the country might choose to raise the issue at the next OPEC meeting, since Tehran was taking the idea so seriously. The country already expelled the British ambassador in November after London announced it would impose sanctions before other European Union countries voiced the same intention.
Many countries have joined in the sanctions against Iran, imposed over its nuclear program, which leaves an increasingly large number of them seeking out a smaller number of oil suppliers. While Iran only supplies about 3% of the world’s oil, it will likely funnel all, or nearly all, of it to China, which can then negotiate a lower price.
According to the International Monetary Fund, crude oil prices could increase by 20–30% should Iran halt oil exports. Executives from the oil industry gathered at Davos said that energy markets can manage if half of Iran’s 2.6 million barrels per day are cut off–an amount that approximates the supplies lost during the Libyan civil war in 2011–and that Saudi Arabia can come up with enough oil to keep markets from panicking.
According to a Saudi source in the report, “What we say is that oil is fungible. Iranian oil will still find its way into the market, to Asian markets, China and possibly at a lower price. But if let’s say 50% of Iranian oil is lost, we have spare capacity, we have the capacity to replace it as Libya has shown.”
And although Russia has already had issues with fuel supplies over payment disputes, it stands to expand its market even if some European countries are uneasy about placing their reliance on such a supplier. José Sergio Gabrielli, CEO of Brazil’s Petrobras, was quoted saying, “I’m sure Moscow is watching the situation with big interest.”