UPI Energy Watch

Iran sanctions may mean unstable markets

Iran's refusal Thursday to give up its nuclear program is likely to create unstable oil markets for some time.

The "Iranian nation has never violated another nation's rights in all its history," President Mahmoud Ahmedinejad said in Orumiyeh, the capital of West Azerbaijan province. "But everyone must know that the Iranian nation would not give up an iota of its rights under pressure and intimidation."

The comments were reported by Islamic Republic of Iran News Network TV channel.

Thursday was the U.N. deadline for Iran to give up its uranium enrichment program, which the United States says Tehran is using to secretly -- and illegally -- make nuclear weapons. Iran denies that charge and says it is allowed to enrich uranium under its international treaty obligation.

Tehran's rejection is likely to prompt some U.N. sanctions, but strong action, which the United States wants, may be unlikely because of Chinese and Russian reluctance. Both countries have close relations with Iran.

"Even if the sanctions imposed are quite mild, Iran is likely to use its influence on global oil prices to pressure the international community, either by holding military exercises in the Strait of Hormuz or by cutting production," Greg Priddy, an analyst at Eurasia Group wrote Tuesday. "If Iran were to cut production, it would likely start with a small volume and threaten to withhold larger volumes if stronger measures are taken against Iran.

"This could serve to create a larger price impact than such modest volumes would otherwise imply, and therefore be relatively minor in terms of Iranian revenue losses. Further cuts could eventually result in significant revenue losses, but given that the current level of oil prices is significantly higher than what is needed to maintain the current level of spending by Iran's government, they could conceivably cause a significant market impact without exceeding their own financial pain threshold."

Iran is the world's fourth-largest oil exporter and is believed to have the second-largest oil and gas reserves. With 125.8 billion barrels of proven oil reserves as of January 2005, it holds 10 percent of the world's total reserves, the Oil and Gas Journal reported.

Last year, it produced 4.2 million barrels a day of oil, including 3.9 million bbl/d of crude.

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Belarus rules out buying Russian gas at European rates

Belarussian President Alexander Lukashenko said Friday his country would not buy Russian gas at European prices.

"Russia offers oil to us at a price higher than to Ukraine, and the gas price is higher than that for Germany," he told Itar-Tass in an interview. "We will never buy gas at such price."

Former Soviet republics received gas at subsidized rates from Gazprom, the Russian gas monopoly. But earlier this year, Russia began increasing prices to bring them in line with what European nations pay -- close to $230 per 1,000 cubic meters.

In January, Gazprom cut off supplies -- temporarily -- to Ukraine over a pricing dispute. Under a compromise, Ukraine agreed to pay $95 per 1,000 cu. m for a mixture of Russian and cheaper Turkmen gas. Those rates are expected to last until the end of the year.

"We are not against growing prices," Lukashenko told the agency. "But the gas price should be equal to that in Russia to comply with the union state treaty."

He said the former Soviet republic plans for oil development with countries such as Venezuela.

"If we translate this project into reality, we will sell oil there, earn money to make our people feel safe," he said.

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Report: China cuts oil supply to N. Korea

China has reportedly cut the amount of oil exported to North Korea, which largely depends on Beijing for its economic survival.

"These days there has been a decrease in the crude oil sent to North Korea from here in comparison with what it used to be, although I am unaware of the reason," an employee of the Basan oil storage center, approximately 12 miles from Dandong, in Liaoning Province, told South Korea's Choson Ilbo newspaper. "(The decrease) is not small in quantity."

The news report, which was published last Saturday, did not specify the amount of oil cut.

North Korea largely depends on China for its survival. The world's only Stalinist state is at a diplomatic impasse with the international community over its nuclear weapons program and has refused to return to multilateral talks involving China, Japan, the two Koreas, Russia and the United States.

Basan stores crude oil shipped from the Daqing oil field in Heilongjiang Province. Oil is sent from here to North Korea via an oil shipping facility nearby.

The newspaper quoted one source as saying the reduction in supplies began in July when Pyongyang carried out a missile test. Other Chinese officials quoted by the newspaper denied the move, however.

North Korea imports all of the oil it consumes and oil accounts for about 6 percent of total primary energy consumption, according to the Energy Information Administration, the U.S. Department of Energy's data arm.

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Closing oil prices, Aug. 31, 3 p.m. London

Brent crude oil: $69.83

West Texas Intermediate crude oil: $70.34

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(Please send comments to energy@upi.com)

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(UPI Energy Watch's regular writer, Andrea R. Mihailescu, is on vacation.)