EU May Rely On Strategic Oil Reserves After Iran's Oil Embargo

Some European Union countries may tap their strategic oil reserves after an EU embargo cuts Iranian exports from July, the bloc’s Energy Commissioner Guenther Oettinger said.

"We have enough storage capacities," Oettinger said in an interview on 26 January at the World Economic Forum in Davos, Switzerland. "It is feasible," he said, referring to the release of stockpiles.

The 27-nation EU decided three days ago to ban imports of Iranian oil as of 1 July because of concerns that Iran is developing nuclear weapons.

The five-month phase-in, during which existing contracts are allowed to continue, is meant to give member states such as Greece that are relatively dependent on Iranian crude time to find alternative sources of supply.

EU rules require countries to hold emergency fuel stocks of at least 90 days of the average daily domestic consumption in the previous calendar year.

"It’s certainly going to be a factor going forward but only if countries can’t source alternatives," Michael Hewson, an analyst at CMC Markets in London, said by e-mail.

"That will obviously depend on future demand and how many days reserves Europe has, but you have to think that Saudi Arabia might be able to help in that regard, in the short term probably," he added.  

OIL RESERVES 

BP Plc. Chairman Carl-Henric Svanberg said he sees no need for European countries to tap strategic oil reserves this year.

"Generally the industry, including all the oil-producing nations, has shown the capability of adjusting for moments of up and down and I think that’s what you’re going to see this time as well," Svanberg said in an interview in Davos.

The bloc’s 25 nations, excluding Romania and Bulgaria, had total oil reserves at 134.5 million metric tons, or 120 days of demand, according to data compiled on 12 January by the European Commission, which coordinates the maintenance of emergency stocks of crude and petroleum products.

Imports of oil from Iran account for about five percent of EU consumption and from 10% to 30% in the most-exposed countries, which are Italy, Greece and Spain, Oettinger said in the interview.

"We need a clear strategy of solidarity between oil companies" and member states, the EU energy chief said.

WILLING TO COOPERATE 

The oil-producing countries that the EU is in talks with have declared their readiness to cooperate and the bloc is confident it will secure new sources of supply, an EU official said earlier this week.

Greece, hit by a debt crisis, is seeking EU assistance to ensure that any new oil contracts would include terms similar to those in its existing agreements with Iran, which don’t require financial guarantees, another EU diplomat said last week on the condition of anonymity.

Greece has conformed to its oil-stockholding obligations under the EU law and these emergency stocks can be released in the event of supply shortages, Oettinger said in a written response dated 16 January to questions by a member of the European Parliament and published on the assembly’s website.

"The oil market is a global market and Greece can receive supplies from elsewhere," he said. "In particular Greece has large refinery facilities and therefore seems well positioned to switch to alternative suppliers," he added. – Bloomberg