Iran’s decision to stop selling oil to Britain and France was a retaliatory gesture.
Both countries already started finding alternative sources ahead of EU sanctions in July banning imports of Iranian oil.
But the news sent Brent crude prices soaring, hitting a seven-month high of over $120 a barrel.
Simon Wardell, an oil analyst from IHS Global, had this to say:
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“You’ll have a period of disruption and that does mean with that Iranian crude export oil out of the market you’ll have a reduction in overall global capacity and we’re still seeing growth in oil demand so it does tighten the market in a very real sense at least for a period of time.”
Europe uses about 500,000 barrels a day of Iranian oil – a relatively small amount compared to other nations.
Saudi Arabia and Libya are expected to pick up the slack while Iran – the world’s fifth-largest producer – seeks new customers. Wardell says:
“I think Iran is going to be looking for buyers who are already buying Iranian crude – the Chinese, India, maybe South Koreans and Japanese. Although they’ve suggested that they’re going to try to reduce voluminous Iranian crude purchases, they’ll have to encourage these buyers. They’ll have to discount, so it’s going to have to a financial impact on Iran.”
Iran already warned that sanctions over its nuclear program would raise oil prices globally. And that’s bad news for the EU.
It’s adding to the misery that many firms and households are already suffering as a result of the debt crisis and faltering growth.
Analysts don’t expect prices to return to the record high of $140 a barrel seen four years ago. But for many in Europe, any increase is unwelcome at the moment.