Russia's Oil Rivalry With Saudis Masks the Bigger Iranian Threat

(Bloomberg) -- Competition is growing in Russia’s biggest oil market. While Saudi Arabia’s encroachment in Europe is getting all the attention, the biggest threat comes from another part of the Middle East -- Iran.

The world’s largest oil exporter has started shipping crude to traditional Russian markets like Poland and Sweden, but Saudi supplies to Europe won’t increase by enough to reduce prices, said Texas-based consultant Stratfor. In contrast, a surge in Iranian exports after the lifting of sanctions could erode the value of Russian shipments to the region as soon as next year, according to KBC Advanced Technologies.

Tougher competition in Europe, the destination for almost 70 percent of Russia’s oil exports, comes as the country is already battling recession. Oil and gas sales account for about half of government revenues and the commodity-price slump has amplified the economic blow from international sanctions over Ukraine. An increase in Iranian exports following a nuclear deal with world powers could make matters worse.

“Eastern European refineries are geared to process Russian crude, the Urals blend, and the closest sort to it would be Iranian oil,” Michael Nayebi-Oskoui, senior energy analyst for Middle East and South Asia at Stratfor, said by phone. For Saudi shipments to push prices down “they would have to be significantly rerouted from Asia towards Europe, and we don’t see that happening,” he said.

Before Sanctions

Iranian shipments to Europe came to around 600,000 barrels a day, or 17 percent of its production, before sanctions blocked imports in 2012. Once restrictions are lifted, Oil Minister Bijan Namdar Zanganeh has said the National Iranian Oil Co.’s priority will be to regain its “lost share” of the market, regardless of the impact on crude prices.

“Iran is going to be looking at marketing fairly aggressively”, David Fyfe, head of market research and analysis at oil trader Gunvor Group Ltd., said by phone from Geneva. “They want to reclaim the foothold they previously had.”

Former customers in southern Europe already have shown an interest in resuming purchases of Iranian oil. Hellenic Petroleum SA is “in the process of initiating a dialogue” with Iran’s national oil company, as are “most western companies,” Vasilis Tsaitas, a company spokesman, said by e-mail. Hellenic operates three of the five refineries in Greece with total capacity of 341,000 barrels a day, according to its website.


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Copyright 2016 Bloomberg News.


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