Iran warns over output rise after sanctions

Iran has warned Saudi Arabia and other members of the Opec cartel not to boost their oil production to make up for any shortfall created by western sanctions against Tehran.

The warning comes after senior policymakers from the UK to Japan flocked to Riyadh to ask Saudi Arabia, the world’s largest oil exporter, for guarantees it would boost its oil production to offset the impact of the US and the European Union sanctions against Iran.

Mohammad Ali Khatibi, Iran’s Opec representative, said Tehran would consider any output increase as “unfriendly”, further inflaming the tensions in the oil-rich Middle East that have pushed the cost of Brent, the global oil benchmark, above $110 a barrel.

“Should Iran’s southern neighbours collaborate with the adventurous countries [the US and European Union] to replace their oil [production] for that of Iran… such countries will be held as main culprits,” Mr Khatibi, told the reformist Persian daily Shargh on Sunday.

“Such moves are not considered friendly [by Iran],” he said, adding the “consequences” of Saudi Arabia and other Opec members raising production could not be predicted.

The warning comes a day after Ali Naimi, the powerful Saudi oil minister, said that the kingdom would meet any demand from its customers for more oil. Without mentioning Iran directly, Mr Naimi said: “Whatever customers want we will give it to them.”

Saudi Arabia has a long-standing policy of meeting customers’ crude oil demands, but the remarks come after senior officials from oil importing nations visited the kingdom for further reassurance. Over the last 10 days, David Cameron, UK prime minister, Wen Jiabao, Chinese premier, Koichiro Gemba, Japan foreign affairs minister, and Eric Cantor, a prominent US lawmaker, have all visited Saudi Arabia for oil talks.

The kingdom is already pumping around 10m barrels a day, the highest level in roughly 30 years, but Mr Naimi said it could boost production to 12.5m b/d. Iran is the world’s third largest oil exporter, after Saudi Arabia and Russia, exporting about 2.4m b/d.

A large chunk of Iran’s oil exports is at risk due to the anticipated impact of western sanctions. Washington has introduced sanctions to penalise foreign financial institutions dealing with Iran’s central bank, which clear most oil exports, forcing importing nations such as Japan, South Korea and India to say they will reduce their reliance on Iranian oil, and Brussels will discuss an embargo on Iranian crude to Europe on January 23.

For some Israelis, the sanctions announced by President Barack Obama do not go far enough. Moshe Yaalon, Israel’s vice-prime minister said on Sunday that the sanctions fell short of a much tougher package demanded by the US Senate.

Iran has repeatedly threatened since December that it would block the Strait of Hormuz, the world’s most important oil waterway, through which one-third of the world’s seaborne oil trade passes, if western powers target its oil exports. The Iranians, however, have toned down this warning in recent days, Ahmad Vahidi, defence minister, saying that Iran did not say it “will close the strait”. The US has positioned two aircraft carriers in the vicinity of the Strait of Hormuz, with a third en route, and has warned it would keep the waterway open.

Source: The Financial Times Limited