Obama confirms oil supply, reserves can cushion impact of Iranian sanctions

President Obama recently stepped up measures to compel Tehran to abandon its nuclear program. He further pushed the imposition of sanctions on investment and banking institutions in countries that depend on Iran for crude oil supply.

He confirmed that global supply of crude oil is enough to sustain demand notwithstanding sanctions already authorized by Congress to deprive Iran of profits arising from oil exports. This confirmation is contained in a recent White House memorandum.

Based on the same memo, the President declared that “There is a sufficient supply of petroleum and petroleum products from countries other than Iran to permit a significant reduction in the volume of petroleum and petroleum products purchased from Iran by or through foreign financial institutions”

His resolve to push through with the sanctions on banks is premised on the surge in oil production by countries other than Iran, the current level of unused capacity as well as existing reserves, and the state of world economies. All these indicate oil sufficiency that may cushion the impact of Iranian sanctions on oil supply. Other indicators like crude oil prices were not highlighted.

Last December, the President signed a new law that compels countries to substantially reduce their oil import dependency on Iran towards the end of June. Banks that continue to process oil-related transactions with Iranian central bank and which operate in countries violating said law will be banned from conducting transactions with the U.S. banking system.

The U.S. and the EU started to implement measures including imposition of penalties in November, following major disagreements with Iran regarding its nuclear weapons program and its investment strategy focused heavily on missiles and nuclear facilities. The EU suspended oil-related transactions with Iran starting January 23, and prohibited the purchase of oil from the country starting July.

Iran continues to deny U.S., Israel, and Europe’s allegation that it has been building up its nuclear weapons facilities, and claims that these efforts are purely for research and energy development.

Exemptions from sanctions are allowed. Last March 20, Hillary Clinton, U.S. Secretary of State, gave a half-year renewables exemption in favor of countries like Japan and nations within the EU as they were able to draw up comprehensive plans for suspending oil imports from Iran.

Meanwhile, countries like Turkey, India, China, South Korea and other importers of Iranian crude oil appear to have no concrete plans yet of curtailing oil imports, but the U.S. has been involving these nations in the sanctions and expects to forge an agreement with them within the set time-frame.

President Obama recently attended a summit on nuclear security held in South Korea. Talks focused on the new sanctions and their potential implications.

By Chris Termeer