Local oil companies brace for US-sanctions fallout

New United States sanctions on oil exports from Iran could impact local refiners as multinationals seek to ensure that American markets and financial institutions are not closed to them. This may mean that they are compelled to stop importing crude from Iran, which supplies nearly 30% of South Africa’s needs.

Last week the European Union joined the US in banning oil imports from Iran. The US government placed sanctions on Iran in a bid to force it to abandon its nuclear programme. The sanctions are designed to target Iran’s crude-oil revenue while avoiding disruptions to international oil markets.

A new US law provides for sanctions on foreign financial institutions for certain kinds of transactions, including those related to petroleum and petroleum products, with the Central Bank of Iran and designated Iranian financial institutions.

China, the largest importer of Iranian oil, has refused to impose sanctions and the US is now seeking to ensure that they are tightly implemented elsewhere. US embassy spokesperson Elizabeth Trudeau confirmed that a representative of the US treasury was in South Africa.

“The treasury official met representatives of private business in South Africa, including members of the banking industry, as well as officials from the South African government,” she said. These meetings were “part of our ongoing dialogue with countries around the world on the implications and implementation of the sanctions legislation”.

She said the new law required the administration to impose sanctions on foreign financial institutions that were found to knowingly engage in certain significant transactions with the Central Bank of Iran. “Although the law includes some discretionary elements as to the application of sanctions, it has a broad scope.”

But South African refineries are geared to process lighter grades of oil, such as those from Iran, and the cost to refurbish these refineries to use other grades would be about R300-million, according to Nelisiwe Magubane, the director general of the department of energy.

US to implement new sanctions
Trudeau said the US would implement the new sanctions responsibly and was working with oil-consuming countries to help them respond to the new legislation and find alternatives to energy supplies from Iran. “We recognise that it takes time for the oil market to adjust to changes in supply patterns. We welcome the opportunity to discuss our sanctions further with our partners.”

Tom Wheeler, a research associate at the South African Institute of International Affairs, said “the US can offer us [South Africa] nothing except threats”.

If the matter made it to the United Nations Security Council, Wheeler said, it would be a long drawn-out process. It all depended on whether a forthcoming report from the International Atomic Energy Agency on Iran’s nuclear programme was critical of Iran. If so, it was likely that the US and the EU would raise it with the security council and start a process that could lead to some sort of resolution.

Although South Africa is yet to show its hand, oil companies are already preparing for the worst.

Sasol said that until recently it procured a relatively small volume of Iranian crude oil — about 12 000 barrels a day. Spokesperson Jacqui O’Sullivan said this volume represented roughly 20% of Sasol’s crude requirement for processing at its Natref refinery.

“In view of recent developments regarding trade restrictions and possible oil sanctions against Iran, Sasol Oil is diversifying its crude-oil sourcing to mitigate the risks associated with oil supply disruption from the Middle East.”

The South African Petroleum Industry Association said the majority of its members did not buy crude from Iran and it was “not an industry-wide issue”.

Engen, said to be the largest user of Iranian oil, would not comment on its plans. Spokesperson Tania Landsberg said it was “an industry issue”.

Magubane told reporters at a briefing that local oil refineries were all run by private oil companies. The state-owned PetroSA did not import crude oil, but produced petrol from gas. The energy department told the Mail & Guardian that oil companies were responsible for the import of crude oil for their refineries, although the state maintained “strategic stocks in case of emergencies”. Should the need arise, it said, the government did have the capacity to import crude oil and petroleum products through the strategic fuel fund and PetroSA.

Magubane said the department was investigating sourcing alternatives from countries such as Saudi Arabia, Nigeria, Ghana and Angola.

The department of international relations and cooperation did not respond to questions.

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