“With Iran sidelined, if Russia doesn’t sell oil to EU, prices can increase by 10-15 percent”

Posted on April 6, 2012

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With Iran bounded by sanctions, if Russia does not sell its oil to Europe, the world oil prices can jump up by 10-15 percent, EU economic advisor Mehrdad Emadi said, commenting on the reasons of gasoline price increase in Europe.

Emadi added that situation in Iran promises to be even worse.

“The gasoline prices will go higher, factories will be closed, import will reduce, and so on. The problem is that Iran does not assess this as a serious problem, claiming that sanctions have no effect on country’s economy,” he noted.

Gas prices have been increasing throughout the beginning of the new year. Factories in the U.S. have cranked into a higher gear and increased factory activity usually means increased demand for diesel because manufacturers are big users of diesel fuel. Similar situation has been observed in Europe.

“If we look closely, it is obvious that the gasoline prices in Europe started to grow, after the oil-refining facilities that were purchasing oil from Iran started looking for alternatives. As it has been mentioned before, Iranian oil differs a lot from oil of Saudi Arabia and Libya, as far as sulfur is concerned. Therefore, in 1999 specifict filters were installed on the oil-refining facilities, so that they could process Iran’s oil as well,” Emadi explained.

Advisor noted that European oil-refining facilities were purchasing oil from Iran to make unleaded gasoline before, however when alternative supplying countries were found, it turned out their oil had large amount of sulfur in them. So, the gasoline production declined from 8 to 10 percent.

“Following that, gasoline prices in UK, Germany, Austria, France, Italy and other European countries jumped up to record levels. In the U.S. gasoline prices have risen as well,” Emadi added.

According to Emadi, gasoline is one of the major commodities in the industrialized countries, so when the price on it rises, everyone feels it.

“The gasoline price increase may lead to mass dissatisfaction with the sanctions imposed on Iran. If the Europe fails to find an alternative for Iran’s supplies, the gasoline prices will not only stay high, they might as well go higher,” he said.

Speaking about the alternative oil suppliers, Emadi mentioned Russian Ural oil, adding that it is already being sold to Europe.

“A few months ago the Ural crude oil cost $3-5 less tha Brent crude, however now it has risen above by $2-4 over it, and it is being sold to European oil-refineries. This kind of slight increase in prices can bring Russia over 3 bln euros of profit.” Emadi said.

He added that the dissatisfaction level in Europe is high, as both Iran and Europe suffer from the sanctions, while those who stay on the sidelines benefit from them.

The UN Security Council imposed four rounds of sanctions against Iran between 2006 and 2010, calling Iran to halt uranium enrichment. Following the nuclear concerns, European Union members’ put a formal embargo on Iranian oil on Jan. 23.

Some Western countries and International Atomic Energy Agency (IAEA) are worried that Iran’s nuclear program has hidden military aspects. Iran rejects their claims, saying its nuclear program is aimed at power production and other peaceful purposes.

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