Fitch Ratings says a potential European Union ban on buying Iranian oil would be likely to have a much smaller negative impact on European oil companies than the recent Libyan crisis, because exposure toIran is almost exclusively through refining operations, rather than production.
While an EU ban is not part of Fitch’s forecast for the oil sector, calls for further sanctions against Iran have increased due to worries over its nuclear programme. French President Nicolas Sarkozy has recommended that the EU suspend the purchase of Iranian oil and Tuesday’s protests at the British embassy in Tehran highlight the growing tensions.
Oil production in Iran is dominated by the National Iranian Oil Company and the involvement of European oil companies in upstream activities is negligible. Any ban on Iranian oil imports therefore wouldn’t result in the same loss of cashflow from production that occurred when facilities were shut down in Libya.
In the case of Eni SpA, for example, production attributed to Iran in 2010 was 21,000 barrels of oil a day, about 1% of the company’s worldwide production, while Libyan oil and gas production was the equivalent of 267,000 barrels a day. The war in Libya helped drive Eni’s total production down 15% in the second quarter of 2011 and, along with fluctuations in the euro, reduced operating profit in its exploration and production arm by around EUR300 million.
While production would be largely unaffected, oil companies would feel the impact of a ban through their refining operations as they would have to replace Iranian crude oil with crude from other sources.
