South Africa is walking a fine line, balancing conflicting East-West attitudes to Iran while protecting oil imports and warding off fuel price hikes.
The government has formed a task team to study any impact that reduced oil imports from Iran could have on the country.
“We have formed a task team to look at a variety of scenarios and the best way to respond should we be called to do so,” the energy department’s deputy director general for hydrocarbons and energy planning, Tseliso Maqubela, told the Mail & Guardian on Sunday.
The task team’s establishment follows continued threats by the US that countries buying oil from Iran may be barred from accessing US financial services through the Federal Reserve Bank.
The European Union (EU) and the US have imposed sanctions against Iran—restricting foreign trade, financial services, energy sectors and technologies.
Specifically, the sanctions forbid new contracts to import petroleum products from Iran and aim to end existing contracts by July 1 2012.
The sanctions are aimed at pushing Iran into revealing more details of its nuclear capability, as the US and EU accuse the Middle Eastern nation of attempting to build nuclear weapons.
“We hope to conclude our work by the end of May and hopefully have a comprehensive response strategy should we ever need one. But we still feel there is a window for negotiations and a possible resolution to the matter instead of sanctions,” Maqubela said.
Presently 25% of the country’s overall crude oil is imported from Iran, equating to roughly 100 000 barrels of oil per day based on data released in June last year.
While the task team is being “driven” by the energy department, Maqubela would not stipulate which other government departments were involved.
Maqubela said it would not be up to the government alone to ensure any cut in Iranian oil supply would not adversely affect the economy.
“Sasol and Engen are the two main companies reliant on Iranian crude. They are preparing their own responses to any situation where that supply is curtailed,” Maqubela said.
Trouble on the way?
While the projected impact is unknown, analysts say curtailed supply could weigh on the fuel price and local oil industry.
“It has lifted it [the fuel price] but the exact quantum is anyone’s guess. Decreased imports from Iran would affect us quite badly in the very short term but importers would quickly source oil from elsewhere, solving any volume problem in a few weeks—although probably at higher prices,” David Lerche, oil analyst at Avior Research told the M&G.
In the short term South Africa could increase imports of refined oil to make up the shortfall but would not be able to sustain this as a result of increased costs.
But Maqubela believes it won’t come to this because the government is already looking at making up any deficits.
“We have already undertaken engagements with a number of countries but it would be premature for me to comment on them at this stage. The plan we are working on suggests the South African motorists won’t necessarily see the impact at the pumps,” Maqubela said.
However, even if South Africa was to source crude oil from elsewhere, it would have to be of similar quality to that received from Iran to be compatible with refineries.
“Given that South Africa’s oil demand is small, securing new contracts would not be too problematic. But it would still require some modification to local refineries,” Adenaan Hardien, economist at Cadiz Asset Management told the M&G.
Diplomatic tight rope
It is also a difficult diplomatic line for South Africa to follow as the EU constitutes a large amount of South Africa’s trade.
The US and EU may be leading the charge for sanctions to be imposed, but China—South Africa’s largest trading partner—has done its utmost to curtail the embargoes.
China reportedly said last week that it would move to ensure all oil exports from Iran were not affected by sanctions.
Additionally, Russia—one of Iran’s biggest trading partners—has slammed the sanctions, describing them as “deeply erroneous”.
Further complicating matters is Iran’s response to bilateral sanctions—a threat to close the Strait of Hormuz, through which a fifth of global oil supplies pass.
International relations spokesperson Clayson Monyela told the M&G that sanctions were still “under consideration”.
While the US said it would not “detail discussions with South Africa”, it did say there was “an ongoing dialogue on this issue”.
“It is important to note that the international community has widely agreed on pursuing a dual-track approach of engagement and pressure to resolve the outstanding concerns over Iran’s nuclear programme. Until Iran chooses to address international concerns about its nuclear programme, these sanctions will continue,” Elizabeth Kennedy Trudeau, spokesperson for the US Diplomatic Mission to South Africa told the M&G.
Attempts to obtain comment from Chinese representatives were unsuccessful but Russia told the M&G the sanctions were “unconstructive”.
“Threatening Iran is futile. Attempts to use force are irresponsible and extremely dangerous for the region and global stability at large. Sanctions are unlikely to facilitate Iran’s willingness to sit down at the negotiating table,” said Georgy Chepik, the Russian chargé d’affaires in South Africa.
While opposing international powers rattle sabres, Investment Solutions’s chief economist Chris Hart told the M&G the best idea for South Africa would be to remain neutral.
“To align with either side holds more risk for South Africa than remaining neutral. The US is still the most powerful and influential but clearly Russia and China are gaining ground,” Hart said.
Hart’s comments were echoed by Dawie Roodt, chief economist at the Efficient Group. “It would be probably best to remain neutral as the US and EU holds a lot of trade for South Africa but we should not try and anger China or Russia too much,” Roodt said.