IEA Says More Sanctions on Iran May Push Crude Prices Higher

Tougher international sanctions on Iran may lead to higher global crude prices and a decrease in output capacity for OPEC’s second-largest oil producer, the International Energy Agency said.

A proposed European Union ban on purchases of almost 600,000 barrels a day of Iranian crude would “likely” force refiners in the Mediterranean region to pay more for oil from other suppliers, the agency said in a report released today. Iran’s production capacity will decline by 890,000 barrels a day to less than 3 million barrels a day by 2016 if the EU also blocks sales, as it is considering, of oil-related equipment and services to the Persian state, the IEA said.

The EU added 180 Iranian officials and companies to a blacklist earlier this month to intensify pressure on Iran over its nuclear program, after the U.S. imposed stiffer penalties in November. The bloc is still discussing a possible halt to purchases of crude from Iran, the world’s third-largest oil exporter. The Gulf nation denies it is seeking technology to build nuclear weapons.

“Given already very low European crude inventories, a spate of precautionary buying and escalating tensions surrounding the Iranian issue could sustain prompt prices at levels higher than otherwise, amid the growing concerns about the euro zone and weaker global economic activity for 2012,” the IEA said.

Replacement Crude

Additional sanctions on Iran would probably result in higher prices for buyers in the Mediterranean region, as they seek replacement crude from other producers such as Saudi Arabia, Iraq, Russia, the Paris-based agency said.

“Saudi spare capacity may not be a precise match for the significant volumes of Iranian Heavy crude involved,” it said of the oil grade. Mediterranean refiners have started “to enquire about extra cargoes of Arab Light, the closest quality match for Iranian Heavy, although much of current Saudi spare capacity may instead be held in the form of less suitable Arab Medium or Arab Heavy,” it said.

Oil is Iran’s main source of income, supplying more than 50 percent of the national budget, according to International Monetary Fund figures. Iran pumped an average of 3.6 million barrels a day last month, a Bloomberg survey showed.

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